Sub: Management Topic: Operations Management
Question:
Identify how each of the 10 decisions of operations management is applied at the company.
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In particular, discuss in detail the "Process" decision as to whether the companies are process
focused, repetitive focus, product focused, or mass customization.
Solution:
The organization that I have chosen for study of their operations management is Dell Inc.,
which is the second largest PC company in the world headquartered in Round Rock, Texas. Dell
Inc. offers a broad range of product categories, including desktop PCs, servers and networking
products, storage, mobility products, software and peripherals, and services. Dell sells its
products and services directly to customers through dedicated sales representatives,
telephone-based sales, and online at www.dell.com, and through a variety of indirect sales
channels. Dell’s customers include large corporate, government, healthcare, and education
accounts, as well as small-to-medium businesses and individual consumers.
IT Hardware Industry Overview – The IT hardware industry that Dell operates in is made up of a
few global corporations like Dell, HP, IBM, Acer, Lenovo, Apple etc and all these players
compete among themselves at a global scale and almost offer a similar et of product portfolio’s.
All these companies source various components that go into the manufacture of a PC from
suppliers spread all over the world (but mostly concentrated in Asian countries like China,
Malaysia and Taiwan) and assemble them into computer products and services. The defining
characteristics of this industry from an operation standpoint are the ultra short product life
cycles which means the players have to keep introducing new products at a fast pace, prices of
components constantly coming down as technology becomes standardized and better
technology is introduced, and the constantly changing preferences of computers. This means
that companies must have very lean and efficient and at the same time responsive operations
and supply chain strategies in order to be competitive at a global level. Industry can be said to
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Sub: Management Topic: Operations Management
be at a mature stage with price competition being common with the basic products becoming
completely undifferentiated and commoditized among all the players. This presents many
operational challenges that the companies must overcome with their operations planning and
strategies.
Answers
1. Application of the 10 decisions of operations management – Below we see how the ten
decisions of operations management is applied at Dell computers
i. Design of goods and services – As discussed above, Dell is in the business of
manufacturing and selling desktop computers, notebooks, servers and storage
products, printers and peripherals, and various other products that are related to the
hi-tech computer industry. In the computer industry, there are two sides to the design
of good and services, one that is ‘inside the box’ and the other that is ‘outside the
box’. The design and the specifications of the components that go inside the box is
dictated by the current technology that is prevailing at that time and this design
constantly changes with newer technology that keeps getting introduced. For the
desktops and notebooks, most of the components that go inside the box are
undifferentiated and is determined by the technology and customer demand.
The companies are able to differentiate what otherwise are undifferentiated
products by how they design the outside the box component and the various services
and warranties that they provide for their products. Dell has differentiated its
customers into various segments such as home and home office, small and medium
business, large business, global accounts, government, healthcare and education etc.
It specifically tailors various ‘bundles’ for each and every customer segment with
differentiated models and price points. Moreover with the Dell direct model, over the
base model, a customer can design the product as per his own specification. This is
one of the core competencies of Dell that give it a competitive edge over its
competitors, as none of the other competitors give as much a scope for the customer
to design their own products.
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Sub: Management Topic: Operations Management
ii. Quality – Manufacture of very high quality products is a necessity for players in
industry to be considered as one of the competition. The quality of a computer can be
broken down into the quality of the various components that go into the manufacture
of a computer, i.e. product specifications and the quality of the finished product itself
which is dependant on the manufacturing processes, integration testing and the
quality assurance practices followed by the company.
The component quality is dependant on the quality processes that vendors like
Sony, Intel, Seagate etc follow. However Dell has to ensure at its end that these
components are quality checked before it accepts them for production. Dell had to
face huge financial loss of over $300 million besides huge loss in reputation, when last
year it had to recall thousands of notebook computers because of faulty batteries that
were supplied by Sony. Dell would need better processes in quality checks when it
receives materials from suppliers in order to prevent such incidents in the future. For
the quality of its product, Dell follows various quality practices and process like six
sigma and TQM to ensure that it has very high quality levels for its products. Also each
and every system that is manufactured is put through a checking process and only
goes out after the quality has been certified by the quality assurance team.
iii. Process and Capacity Design – At the heart of the Dell operations strategy is the Dell
direct model which enable Dell to direct sell to customers thereby eliminating
middlemen like wholesalers and retailers. Dell also makes each and every system built
to order which is built to the exact specifications that the customer wanted. This
greatly helps Dell in their inventory planning, demand estimation and this is a pull
strategy that greatly increases the predictability of what the company has to produce.
Both these factors give Dell a huge competitive advantage over its competitors
as the other competitors do not sell directly to the customers and have huge
overheads that they have in setting up the distribution chain. Also since other
competitors do not have firm orders before they build their systems, they would have
to use approximate estimations for their manufacturing which leads to excess
inventory and also the problem of obsolete products at the retailers shelves as the
technology has changed and the customers do not want the product any more.
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Sub: Management Topic: Operations Management
However to ensure that Dell is bale to meet all other customers requirements
of product specifications, quality and time lines, it has to have well defined processes
in place to ensure efficient operations. This calls for a very effective and responsive
mass customization processes for the Dell direct model to wok and compete with
competitors. Below the entire Dell production process is explained in detail.
Dell salespeople sell computers to its customers all over the world on the
telephone. Customers also place orders for thousands of computers on the Dell online
site. There orders are made up of various product specifications, thousands of sku’s
and essentially every order is different from every other order. These orders are sent
to the Dell factories which serve designated geographical locations and product
categories. At the factory, all these orders are aggregated at two hour intervals and
the parts for the different systems are ordered. Dell does not have any inventory at all
and only orders inventory after the system has been ordered and paid for by the
customer. Dell suppliers are located close by to where the Dell factory is, and they ship
the inventory that Dell wanted immediately as soon as they get the order. The
inventory once it is received is laid out in the priority of how the orders were received.
There on at the Dell factory, system is assembled by putting together the various
parts, software loaded sent for testing and quality check. The system is tested using
various automation testing processes and then given one final manual check before it
is sent for packing and dispatch. Then the system is packed and then sent out of the
Dell factory where a third party courier company collects the package and delivers
them to the customer’s doorstep.
As we can see, Dell’s process is deigned to optimize mass customization
strategy and at the same time, ensure faster turn around times, zero inventory, just in
time manufacturing and at the same time maintain very high quality levels and zero
defect processes.
iv. Location – Dell has manufacturing facilities located in most of the major markets that
it sells to. For example it serves the US market out of its factories located in Texas and
the Europe, Middle East and African markets out of its factory located in Limerick in
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Sub: Management Topic: Operations Management
Ireland. It also has huge capacity in manufacturing in China that it helps it to leverage
the low cost of product in China. In all Dell has more than 17 manufacturing facilities
spread out all over the world that help it to cater to the market that it serves in. In
addition to this, Dell has agreements with all its vendors where even the vendors are
located in close proximity to where the Dell factory is in order to meet the ultra
demanding needs of a company like Dell.
v. Layout – As described in the process section, Dell follows a process where the
inventory is order only after Dell has received a firm order from the customer. The
factory is also arranged in such a way that it is aligned to the manufacturing
philosophy of just in time production. The layout that is implemented allows the in
process system to easily move from one sequential stage to another before it is tested
and then sent outside the factory to be picked up by the courier company.
vi. Human Resources and Job Design – Dell is a very process oriented company with it
having well defined set processes for each and every function in the company. To
ensure that the employees understand these processes and have a clear idea of what
is expected out of them, the human resources department has to ensure well defined
job description with roles and responsibilities assigned to every job. At the factory
operations, Dell has defined jobs and people specifically for the jobs, so that they get
better at them leading to higher efficiencies. However Dell also encourages people to
explore newer jobs if they are interested in trying out other functions that what they
are trained on.
vii. Supply Chain Management – Dell is credited with having one of the most advanced
and responsive supply chains in the world and this is one of the reasons why Dell had
met with such huge success. Dell’s supply chain consists of the tier 1 and 2 vendors
who have manufacturing facilities mostly located in China and Taiwan. Dell also has
other business partners such as the courier companies that deliver the finished goods
to the customer. To make this global supply chain work, dell heavily leverages top of
the end IT systems that ensure that supply chain runs smoothly without much
disruptions.
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Sub: Management Topic: Operations Management
viii. Inventory, Materials Requirements Planning and JIT – Dell follows the ‘pull’ system of
manufacturing where it exactly know what and how much inventory it needs.
Therefore Dell follows the Just-In-Time philosophy where it does not have any
inventory at all, and orders inventory only after it receives orders, converts them into
finished goods and sends them out of the factory. The information system that Dell
has developed in-house, in collaboration with i2 technologies, is used by Dell for its
inventory and materials requirement planning.
ix. Intermediate and Short term scheduling – Since Dell leverages mass customization to
the maximum, it has very short term scheduling at it factory. Based on the aggregation
of the orders, which it does every two hours, the schedule for the next two hours of
production is decided and implemented. This is also a very critical decision that Dell
has to ensure especially in times of very high demand such as Christmas or the
financial year end closing.
x. Maintenance – Maintenance and timely services of the machines are one of the most
important things to ensure that they perform what they have to do and also churn out
quality and defect free product. Dell uses lean periods in demand and off hours to
perform its maintenance works. It also has the choice to switch production to other
nearby facilities when there is maintenance going on at one of the facilities.
These were the ten decision of operations management applied at Dell Inc and
how it optimizes each of its decisions to be one of the best manufacturing
organizations in the world in terms of supply chain and responsiveness.
** End of the Solution **
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