IST 415

CASE ONE

How Dell Reengineered Its Business Processes through Strategic Use of Information Technology & How Dell Faces Its Current Challenge

By Dr. Stephen Shih

Background Information

There was a young genius named Dell Who broke from an academia cell. Both the bits and the bytes he assembled just right. Now this drop-out is doing just swell.

A poem by Liz Carpender

Dell was founded in 1984 by Michael Dell. Uniquely enabled by its direct business model, Dell used to sell more systems globally than any computer company.

Dell Computer Corporation– Somewhere in time … the “Dorm” age

Products & Services

2000 Company sales via Internet reach $50 million per day

2001 For the first time, Dell ranks No. 1 in global market share

2003 Dell enters consumer electronics, a natural extension of the company's existing product portfolio that provides customers with a single resource for consumer technology needs

2005 Dell tops list of "America's Most Admired Companies" in Fortune Magazine

Opens third major U.S. manufacturing location in Winston-Salem, North Carolina

2006 Dell ships more than 10 million systems in a single quarter (Q4, FY06) for the first time in its history

STOCK PRICE PERFORMANCE COMPARISON(Dell, Apple, HP, and IBM)

1988 – 2004

How didDELL do it?

• The Direct Model• Advanced Supply Chain

Management Software (for Back-End Fulfillment Capability and Global Enterprise Operations Integration)

• BTO or ATO - JIT Manufacturing• Integrated Network• Standard-Based Technologies and

Platforms…

Dell’s Direct Model

The Direct Model

CustomerRelationships

CustomerRelationships

CooperativeR & D

CooperativeR & D

MassCustomization

MassCustomization

ExpertServicesExpert

Services

CustomerCustomerSuppliersSuppliers

BE DIRECT - Eliminates intermediaries between Dell and its customers

The company is based on a simple concept: by selling standards-based computer systems directly to customers, Dell could best understand their needs and efficiently provide the most effective computing solutions to meet those needs.

This direct business model eliminates retailers that add unnecessary time and cost, or can possibly diminish Dell's understanding of customer expectations.

The direct model allows the company to build every system to order and offer customers powerful, richly-configured systems at competitive prices - BTO

Driving toward standards-based technologies and platforms has been the key to success within Dell IT

The Value of Standards

• As proprietary systems and platforms have been eliminated from the environment over time, the ability of Dell’s IT organization to focus on delivering new projects and benefits has risen more than five fold.

The Value of Standards

… And Dell’s operating costs as a percent of revenue have declined year over year. Leveraging standards-based technology enables Dell to respond at the speed of business …

• Increasing ability to leverage our IT workforce in much more efficient ways than ever before -- rather than spending time maintaining complex legacy systems, IT professionals can focus on delivering new and better solutions for Dell’s business partners and system users.

The Value of Standards

Dell is an Integrated Web-BasedNetwork

• Dell uses the Internet to achieve high degree of supply chain coordination. – Suppliers are told exactly what the

daily requirements are: suppliers have real time sales data and inventory data.

Dell is an Integrated Enterprise

• Customer/Supplier Relationship Management: Dell works with customers and suppliers to determine the right levels of component inventory.

• Data on margins, selling price, and overhead can be tracked closely by customer segment, by product, and by geography (throughout the entire enterprise system).

Dell’s Supply Chain Management

Intelligent e-Business is front end e-Commerce plus back end Fulfillment

“A front-end Web site is often the easiest and least differentiating section of an effective Web strategy … A little-discussed, not-so-pleasant fact is that many Web commerce transactions are unprofitable because of back-end fulfillment problems.”

- Gartner Group

Source: Goldman Sachs

eCommercesolutions

Complexfulfillmentsolutions

EASY

HARD

Hello there.. we need to a back-end fulfillment

information system

• Synchronization and optimization of all supply chain activities

Supply Chain Optimization

Synchronized, Concurrent Planning

DemandPlanning

Distribution

Planning

Manufacturing Planning

Procurement

Planning

Synchronized, Sequential Planning

Forecasting

Distribution

Planning

Manufacturing Planning

Procurement

Planning

Dell’s Supply Chain Synchronization

To BalanceCapacity Constraints and

Material Constraints

The Dell Fulfillment Proposition

The Target: Build and ship within 3 days

Buy to Order … Assemble to Order

Eliminate inventory Replace inventory with INFORMATION

What Information Systems to Build?

Do we have the right inventory profile and info on the right replenishment levels in every stocking location throughout the supply chain?

What is our real-time, total pipeline inventory (raw materials, work-in-process, and finished goods inventory) at every stocking location throughout the supply chain?

What is the product demand?

What is the level of customer service performance (e.g., order fill-rate, backorders, stockout occurrences)?

What is ATO or BTO?

Design Purchase Manufacture Assemble Ship

Manufacture Assemble ShipInventory

Assemble ShipInventoryManufacture

ETO

MTO

ATO/BTO

MTS

                   

Manufacturing Strategies & Delivery Lead Time

Manufacture Assemble ShipInventory D

ETO: Engineer-To-Order; MTP: Manufacture-To-Order; ATO/BTO: Assembly/Build-To-Order; MTS: Make-To-Stock

Manufacturing Strategies

ETO

MTO

ATO/BTO

MTS

Design & Delivery Lead Time

CustomerInvolvementIn Design & Production

What to Stock For Inventory?(raw materials,standard components, work-in-process, Or end products)

Long? High??

?

?

?

Fundamental Advantages BTO/ATO: Fundamental Advantages

Better price, excellent quality, and … faster speed!!!

Reduce delivery lead time

Mass customization

BTOBuild Your Own System

DELL’s SERVICES

Words of Wisdom …

Well studying your customers, not your competition, will give you a greater competitive advantage

How Did Dell Do? 1QFY06 Results

Dell's Midlife Crisis

The powerhouse PC maker has hit A SUDDEN SPEED BUMP. Can the company get back on track?

http://money.cnn.com/magazines/fortune/fortune_archive/2005/11/28/8361935/index.htm

STOCK PRICE PERFORMANCE COMPARISON1988 – January 2, 2009

Note: Monthly Closing Price 07/94 through 07/99, indexed to 100

DELL’S STOCK PRICE PERFORMANCE 2004 - 2009

Note: Monthly Closing Price 07/94 through 07/99, indexed to 100

Dell’s Challenge

• The witching hour came, fittingly enough, on Halloween: Dell chief executive Kevin Rollins issued an early warning about the company's third-quarter financial performance. He probably wished he could hide behind a mask. Earnings and sales would both be below expectations. The company would have to write off $450 million, the bulk of it because of an embarrassingly basic misstep for a firm that prides itself on operational efficiency: the installation of faulty capacitors in a large number of computers. Finally, the company hinted at layoffs--what it called a "workforce realignment"--a harbinger of retreat that the company had resorted to only once or twice before in its history.

By ANDY SERWERNovember 28, 2005(FORTUNE Magazine) –

Case Assignments

To help resolve the recent challenges and crisis that Dell has faced, you are hired to assist its Information Systems Management team in:

(1) Reengineering and restructuring the IS organization at one of the Dell manufacturing plants in the U.S. for the purpose of improving the performance of people in Dell through the effective use of information technology

(2) Developing a framework for effective management of Dells’ information systems

(3) Developing a competitive force model(4) Developing a value chain model

Addressing the recent challenges and crisis that Dell has faced, Dell’s executive team has shifted its strategic business and IS focuses for the new IS organization and computing environment for the entire company:

1. IS focuses will be shifted to reengineering business processes and

working better with suppliers and customers. The IT group at Dell had undergone a dramatic change from a controlled, technology-centric environment to a much more participative, customer-focused environment.

2. Another focus is to manage information as a resource and to coordinate all computing resources by putting them together in an enterprise-wide technology infrastructure.

3. ERP is implemented as part of the infrastructure – focusing on seamless data and system integration.

4. One other focus is on achieving the balance between the need for standardization and meeting local needs. IS’s organizational structured shifted to focusing on processes, and putting in a business-led governance structure.

Buy-to-order with virtual integration Suppliers must understand that Dell is demanding

flexibility, not inventory Web-based technology integration – e-Commerce &

e-Business

Dell’s strategic business and IS focuses for the new IS organization and computing environment for the entire company:

Information

Intellectual Assets

Collaboration

Value Shift

Inventory

Physical Assets

Closed

Vertical Integration Virtual Integration

Dell’s strategic business and IS focuses for the new IS organization and computing environment for the entire company:

The Power of Virtual Integration

Enhanced velocity throughout supply chain

Advantaged relationships Trading inventory for information Cost reduction for all parties

Dell CustomersSuppliers

Integrated Electronic Commerce

Prospective Enterprise System Model (1)- e-Business

Configuration& Shopping

Online quotes &

order entry

Knowledge-enabled self

support

Productivity tools for helpdesks

Access Dell’s internalinformation

Explore Dell’s products &

services

InformationSharing

InternetCommerce

Service& Support

Customer Relationships

Prospective Enterprise System Model (2) – Customer Relationship Management

Case Assignment Questions

1. What possible changes are taking place in the external business environment of the company like Dell? (15 points)

2. What possible changes are occurring in the internal business environment of the company like Dell? (15 points)

3. Addressing the internal and external environmental changes, define a set of business goals of the new work environment in Dell. (10 points)

Study Chapters 1, 3, and 4 as well as conduct research on the Web to address the following questions:

To be in line with Dell’s new strategic business and IS focuses (see the four new focuses listed in Slide #41 and related information in Slides #42 - 46):

Case Assignment Questions

4. Based on (1) your defined goals of the new work environment, (2) strategic business/IS focuses, and (3) prospective enterprise system models mentioned before, state your view of the mission for Dell’s current information systems.

(10 points)

5. The following diagram shows the current IS organization structure. Discuss how and why this structure cannot fully address (1) the defined goals of the new work environment, (2) strategic business/IS focuses, and (3) prospective enterprise system models. Revise the current organizational structure and draw a new diagram accordingly. (15 points)

6. Explore the risks and competitive forces of Dell and discuss how you can use Porter’s competitive forces model to determine the company’s position within the computer industry and to discuss what specific actions that Dell has taken and needs to increase it competitive advantages. (15 points)

7. Describe the value chain model and value system of Dell Computer. From the IT/IS point of view, identify and recommend what information systems/software to be used for different tasks in Dell’s value chain. (20 points)