Global Operations Management

Assignment 2
Submitted by Name ID. No Subject Course : Pramod Manthina : 0815956 : operations management for logistics : Logistics & Business Management

Coordinator : Mr. David Owen

Contents
1. Introduction

2. History and Background

3. Dells business model

4. Build to order production 5. Procurement, Logistics & Inventory 6. Dell closed loop supply chain 7. Dell supply chain process 8. Principles of globalization 9. Marketing strategy of dell

Executive Summary
The globalization of business is having profound influence on the development of business strategies. The concept of globalization necessitates that managers begin to envision the economic environment is being composed of world system. Casual observation can reveal that firms have extended their activities internationally and globally. This report tells us how the dell corporation became successful internationally by using principles of globalization and supply chain techniques internally. Dells marketing strategy which is the part of their operation and relationship with suppliers, customers and also employees gave good output to the company.

Introduction
Globalization:
There are numerous definitions of globalization and considerable controversy regarding its real significance and to tell it is really a new concept. The definition can be defined as the increasing independence across national and geographical boundaries of people, the driving of trade and commerce is wider by information technology and also general technology.1 The globalization of business is having profound influence on the development of business strategies. The concept of globalization necessitates that managers begin to envision the economic environment is being composed of world wide system2. Casual observation can reveal that firms have extended their activities internationally and globally. The emergence of three major economic areas Europe, North America and pacific rum countries already noted the conditions. The dimensions involving both changes in competitive scope and advantage needs to be identified as strategic issues, in the globalization it may just involve the export of products from a home country base to other countries or it may involve the sourcing of supply. In other hand globalization also involves the development of value chains through out the world. It involves the operations to make and supply products and its services which are going to be disturbed globally. Product launch is often viewed as the most decisive stage of new product development process in determining the success of product. An intermediate choice may be related to the choice one or more of the key. Regional areas that focus on main activities, number of issues may be considered by the firm for the globalization.3 1) The factors or conditions with regard to the supply of material and labour. 2) The scope of economic development.
1

Kenneth lysons and Brian Farrington, Purchasing and supply chain management. Prentice hall, 7th edition, pg.no.14. 2 Michael G. Harvey and David A. Griffith, The journal of product innovation management, 2007, no.24, pg(468-501). 3 Malcolm Saunders, Strategic purchasing & supply chain management, Pitman publishing, 2nd edition, pg.no 104.

3) The investments in resources and competencies. 4) Defendence or competitive advantage. 5) The customer needs and tastes in different countries are to be identified. 6) The legal, political and economic conditions are to be considered in the particular country are geographical bloc.

History and Background

Dell is founded by Michael dell in 1984 while he was in college. In the beginning dell use to sell PCS according to the user specifications and directly to the customer. This business model is not changed for the years and still implementing the same. Dell started the sales by upgrading the IBM compatible PCs by telephone and then shifted to assembling and marketing its own brand PCs in 1985.it also created a guaranteed shipment or delivery process of its product and parts. As customers growing dell implemented a direct sales, toll free number, and revenue growing continuously. But the problems arouse in managing the firm and seen its first quarterly loss in 1993(dell, 1999). Even though it is strong and successful setting through retail channels, but not making any money, So in 1994 it concluded to with draw from the retail market and return to its roots as a direct seller which moved company not only into profitability but also enabled it to put more effect in executing its business of direct model. In this way to success path it also put its efforts to refine its internal operations and tighten its integration with suppliers and business partners. Dell also focused on improving service and support to customers by installing custom software and keeping track of customers of PC inventory. It allowed customers to purchase directly rather than central purchasing office. After this stage company focused revamping the design manufacturing procurement, and logistics process to reduce costs and speed up the entire supply chain. Finally, it expanded its market internationally and developed successful notebook and server product line. The result gave an extraordinary growth in revenues, profits and market value for the company. Dells stock price grew by over 40 times from 1994 to 1999 and topped the company in market capitalization with $100 billion.4 Dells business model
4

Kenneth L. Kraemer, Jason Dedrick and Sandra Yamashiro, Refining and extending the business model with IT. The Journal of Information Systems, no. 16, 2000, pg 5-21.

Except its unsuccessful strategy in retail chain it stood on its own business model that combines direct sales and build to order production. Its business model is simple but complex in implementing. The other pc makers rely on their retailers and agents and non high volume assembly lines to achieve sales but dell reaches its customers through its own effort and finishes each order according to customer satisfaction through its suppliers employees, logistical systems and information system. This type of model is called dells direct model. It took dell 15 years to achieve in making the direct model work.4

Build to order production Production system of dell uses principles of lean manufacturing and just in time production. These principles are used to minimize parts inventories from the suppliers and restock whenever and only when they are needed. Dells build to order strategy goes further to achieve mass customization of products. Dells working strategy improves speed and flexibility and its production system. For dells business operation its build to order production system is the contact point of its sale, procurement, manufacturing, logistics and delivery. Once the customer places an order dells system checks for availability of stock and sends requests for suppliers to supply product and components. When it receives everything it starts assembling of parts in process and step wise. All the hardware is been installed and it installs the operating system. Once all the process is completed it starts packing the product with all other essential needs and sends to the customer through its logistics distribution.4

Procurement logistics and inventory

The build to order strategy drives the dell supply chain. The suppliers and agents have to plan and take their manufacturing, procurement and logistics according to the order and production of dell which determines the components requirements and needs. With close coordination and information sharing with suppliers and with its build to order strategy the dell supply chain reached the world. Dell stream lined its procurement and inventory by redesigning its computers so that different models can be made with some components as many as they can. This process can reduce the inventory and difficulty in managing their stock. The standards for its suppliers made dell successful. If the quality is not world class supplier is dropped. The suppliers must ensure 2 hours of inventory in the plant at all times and the bulk components must be loaded in warehouse within 15 minutes. These requirements reduce the cost of inventory and highly supported its just in time production process. From inbound logistics to production to outbound logistics and transportation dell has achieved virtual integration of its operation.4

Dell closed loop supply chain

Techniques used in dell supply chain: Several techniques are used to succeed and allowed dell to implement its forward and revenue supply chain modular design and postponement allows the mass customization and to be successful. Vendor managed inventory system in the dell allowed to maintain lean inventory levels and focusing its efforts on product assembling rather than inventory management, close relation ship with their suppliers and logistics providers allowed dell to integrate information and ensure that whole supply chain runs smooth. Demand management allows dell to meet the customer requirement still the demand in peak. Dell succeeded in implementing all the above techniques and created its own competitive advantage through its supply chain5.

Postponement:

Sameer Kumar & Sarah Craig, Dells closed loop supply chain for computer assembly. The Journal of information knowledge systems management, no.6, 2007, pg 197-214.

Dell works in a built-to-order strategy, it doesnt start the assembling of the product until the customer order is received and cleared the credit6.to keep away economies of scale from own customization. Company works in postponement strategy. Postponement is the process of delaying final configuration of product as long as possible. Dell gained popularity in manufacturing the product in same platform and postponement allowed dell for last minute changes in the assembling of the product and also shorter lead time of the products for the company. By keeping computer components uncommitted as long as possible and customization of products are enabled by maintaining the economies of scale. Although inventory is technically vendor managed and if a sudden shift in the market occurs, the unneeded components can be easily replaced as par the previous schedule shipment7.this is how dell closely work with suppliers to maintain their postponement strategies.

Modularity:
Modularity involves the organization of complex product by decomposing it into smaller portions that can be managed independently8, modularity of the computer design means that the hard drive can be managed separately from the memory which is separate from video for example, the qualities of modularity were recognized by many other computer manufacturers but dell is the first manufacturer to put them into practice. The standardization of parts with modulisation allows for the components to build separately by different suppliers. This helped dell to have its supplier to focus on R&D while dell can focus quickly on utilizing the technology. Modularity allowed dell to successfully implement its revenue supply chain.

Vendor Managed Inventory:

6 7

C. Davies, Inside Dells manufacturing facility, Supply Chain Europe 14(1) (2005), 3435. D. Hannon, Dell flies in the right direction, Purchasing 134(19) (2005), 50. 8 J.H. Mikkola and T. Skjtt-Larsen, Supply-chain integration: implications for mass customization, modularization and postponement strategies, Production Planning & Control 15(4) (2004), 352361.

Dell does not manage its component inventory. From the beginning company focused supplier relationship in inventing the new parts, so that dell focus on customers and the supply chain9.Dell has its own individual suppliers to manage their inventory and deliver to the dell plants. They determine how much and whom the order should be delivered. Dell shares the information with the suppliers regarding forecasts and make sure that when assembling plants needs the supply, to overcome the fluctuations and lead-time dell prepares the supplier to hold the inventory close to assembling plant in their warehouse which are called revolves

Supply chain partners:

As dell views its supply chain model is competitive with its competitors, the supply chain in the company does everything to help or improve the value and reduce the costs of entire supply chain. Dell works closely with its suppliers to maintain the inventory that the assembly plants needs when needed. Dell shares the information regarding the demand and expects the same from the supplier. To get out the lead time, the sharing of information is done through extent system that gives access to both for ordering and manufacturing system. This idea creates a shared environment and allows dell and its suppliers to track quality issues10. Dell also works closely with third party logistics providers (ups) who handle the most of the shipping of dell computers. In partnership with the third party logistics providers also enables the dell to implement its reverse supply chain with less cost than money of its competitors.

Demand management:

10

R. Kapuscinski et al., Inventory Decisions in Dells Supply Chain, Interfaces 34(3) (2004), 191205. D. Joachim, Dell Links Virtual Supply Chain. InternetWeek. November 2, 1998.

Demand management of dell is a common technique used in supply chain. Dell has refined its demand management system through the years to help and manage the customer expectations and avoid sales due to fluctuations. Demand management is an integral part of build-to-order supply chain which helps to control uncertainty. Dell also works to manage the order timings. The order time management in dell deals with a first-in-first out scheduling system and has to satisfy each individual customer, if plants capacity level is low demand could spike out, so dell closely monitors its orders in schedule queue. When these orders in queue go above two days company encourages its force to pull of customer11. This type of synchronization of demand allows dell to make sure that its enough capability and inventory to manufacture according to demand configurations.

Supply chain process:

Forward supply chain:
The forward supply chain of dell starts with three channels for ordering computers. The mail and line orders are two channels which are used by individual customers and small to medium business. The company sales report deals with large corporate and institutions. All combined and put together in ordering system. The payments are rendered according to the term of those agreements. The orders are generated to system and chucks for inventory. If inventory is not available the request of inventory goes to the revolver. The appropriate vendor sends the inventory and system assigns the code for related inventory. The order generation process is done for every 15 minutes by an automated computer system. Once the order is hold the components arrive to the plant. Once all the components arrive at the plant, the order goes out according to the first-in-first out scheduling and order fulfillment system5.

Reverse supply chain:

Dells reverse supply chain has a very little research about it, but with some new regulations in European Union regarding recycling and hazardous material in computer and
11

C. Davis, The Dell model, Supply Chain Europe 13(4) (2004), 42.

awareness of around the globe. Dell always plans to rapidly expand the program. When the computers are returned to dell via third party logistics and if it also as a regular return the computer must be shipped back to dell with in 21 days and there are re-entered in inventory. This stuff will be rearranged and listed in the dell outlet or the dell website and shipped to logistics hub. Once the customers orders it will be shipped in standard number of days5.

Dells principles of globalization

To drive its operation globally dell has committed to follow its own global citizenship principles. These principles guide dell to go global, aim dells growth and also benefits for current employees, new communities and also neighbors. Dell is committed to its direct model and making technology more affordable to everyone in the world12. Dells direct working provides industry leading values to the customers. It also follows the company values by soul of dell which means 1) Treating employees with dignity. 2) It drives to be responsible for the community and also environment. 3) Dell also acts ethically with its suppliers around the globe.

Marketing strategy of dell

Dell has segmented its market in two segments and working with different marketing strategies to meet their needs. The two segments are13 1) Transactional market- consumers and small business 2) Relationship market- Corporation, government and educational institution. Dell puts attention on transactional market to its first time buyers and ignores the low margin. Estimation second time private buyers buy direct is 30 to 40% in dell. Through specialist and mass media advertising dell markets this segment very largely. In marketing and advertising dell is one of the biggest. It advertises in journals, books, newspapers, computer ads and in print media.

Conclusion

12 13

Principles of Globalization and global citizenship, www.dell.com Anna Greco, case study dell computers, The Marketing review, 2000, 1, 103-127, www.themarketingreview.com

References

Kenneth lysons and Brian Farrington, Purchasing and supply chain management. Prentice hall, 7th edition, pg.no.14. 2. Michael G. Harvey and David A. Griffith, The journal of product innovation management, 2007, no.24, pg (468-501). 3. Malcolm Saunders, Strategic purchasing & supply chain management, Pitman publishing, 2nd edition, pg.no 104. 4. Kenneth L. Kraemer, Jason Dedrick and Sandra Yamashiro, Refining and extending the business model with IT. The Journal of Information Systems, no. 16, 2000, pg 5-21. 5. Sameer Kumar & Sarah Craig, Dells closed loop supply chain for computer assembly. The Journal of information knowledge systems management, no.6, 2007, pg 197-214. 6. C. Davies, Inside Dells manufacturing facility, Supply Chain Europe 14(1) (2005), 3435. 7. D. Hannon, Dell flies in the right direction, Purchasing 134(19) (2005), 50. 8. J.H. Mikkola and T. Skjtt-Larsen, Supply-chain integration: implications for mass customization, modularization and postponement strategies, Production Planning & Control 15(4) (2004), 352361. 9. R. Kapuscinski et al., Inventory Decisions in Dells Supply Chain, Interfaces 34(3) (2004), 191205. 10. D. Joachim, Dell Links Virtual Supply Chain. InternetWeek. November 2, 1998. 11. C. Davis, The Dell model, Supply Chain Europe 13(4) (2004), 42. 12. Principles of Globalization and global citizenship, www.dell.com 13. Anna Greco, case study dell computers, The Marketing review, 2000, 1, 103-127, www.themarketingreview.com
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