Supply Chain Frontiers issue #6. Read all articles in this issue.
In December 2004 the MIT Supply Chain 2020 Industry Advisory Council visited the Austin, Texas, headquarters of Dell Computers. The Council discussed the future of supply chains and talked with company chairman and founder Michael Dell about his company's supply chain-driven success.
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How has the Dell business model contributed to the company's success?
Dr Larry Lapide, Project Manager of the Supply Chain 2020 Project, meets Michael Dell during the Industry Advisory Council meeting hosted at Dell.
MICHAEL DELL
The model by itself isn't how we got here. There was competition in the industry, and we had to find ways to create an advantage. That forced us to look for new innovations for cost and cycle time and to drive Dell to be a success. And a lot of money is not necessarily the answer. There were two computer companies that started in Texas. One had $100 million in funding and one had $1000. You're looking at the one that had $1000.
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How do you make your supply chain robust enough to withstand unexpected disruptions?
MICHAEL DELL
Lots of work goes on behind the scenes to shape demand and supply, and adjust to the optimal outcome. There have been disruptions. We had the West Coast dock strike, which was a big one. But it caused less of a disruption for us than for our competitors. That's the opposite of what you'd think, but it's because of our flexibility, reaction time, and a bit of planning and anticipation. The ability to fundamentally alter a lot of outcomes in a dynamic fashion based on what is going on around us.
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Do you map out catastrophic events and how they propagate through the network?
MICHAEL DELL
You can correlate the stock market to computer demand. But for us, it's on a daily basis. The propagation is 10 minutes. For example, Oprah has a "favorite thing" part of her show. We had a Dell DJ on it and in four minutes demand for LCDs quadrupled what it was before.
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How do you manage product complexity?
MICHAEL DELL
In theory, we have infinite complexity, but that's bad. Mass customization is marketing, but a better term is complexity optimization. Say we sell five kinds of hard drives for a notebook. If I can fill 100% of the orders with all five hard drives but 98% of the orders with just three kinds, then three is the way to go. Doing the other two is incredibly expensive in terms of vendor relationships, testing, forecasting variables, all of that. We are never in perfect balance on this. We get good at it for a while, then it goes up and we have to bring it back down. It takes constant pruning and discipline.
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The Dell corporate culture is an important part of that discipline. Do you overtly develop a culture?
MICHAEL DELL
Yes, we do. It's one of our four key initiatives. We have themes throughout the company like Product Leadership, Globalization, Customer Relationships, and one of them is Culture. We measure employee happiness through our Tell Dell program, and our leaders are all incentivized on that. Early on in the company there was the enthusiasm of working for a new company, the stock options, that was easy. But at some point that runs out, the market goes down, things collapse. You need to go more into the substance, go into leadership development and training opportunities, making sure that people can succeed not just financially but be involved in their communities. We need caring leaders who are caring about employees.
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Supply chain management is deeply embedded in the Dell culture. How do you train people to help them understand how supply chain management can create competitive advantage?
MICHAEL DELL
That's a good question. It's not hidden. It's very much the way we do business. You can't be a part of this company and not understand supply chain. It's like driving to work without getting on the highway -- it's so central to what we do. You have to figure it out quickly. We do a lot of executive on boarding, taking new team members through so that they understand what we're doing.
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How easy is it for other industries--the auto industry, for example--to adopt the Dell model with all its complexities?
MICHAEL DELL
I am not an expert on the auto industry. But I do know that there are laws in a number of states that protect the auto dealers and that there is more profit in the service than in the product itself. There are some unique attributes of the auto industry: parts don't depreciate as fast as in the computer industry, and that's why the direct model works better in this sector than in others. It's also hard to transition from one model to another. I've seen some companies in Japan that have tried to eliminate layers of distribution, and they claimed to have succeeded. If you have a situation where several competitors are all equal and no one goes direct, then there's no problem. If one competitor breaks out and does it and does it well, then that might force others to do it. Toyota is doing some things that approximate this, but it's not quite there. They are buying subsystems.
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How are you transitioning Dell to the market in China?
MICHAEL DELL
We're the fast-growing computer company in China, the fastest of five. We're number one in servers in China. It's a large, fast-growing market. Each market you enter there are differences. The things that people value here in the US - value, brand, and quality - those are important in China, too. China is our fourth largest market, and it's a young market for us. It has grown well, and it's profitable. We have lot of a scale there, more than our competitors, because we buy more materials than any other computer company, and our factory is there and it also serves northern Asia and Japan. So we're the largest non-China computer company in China. I think we will do well in China.
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Looking ahead, how will Dell sustain its phenomenal success?
MICHAEL DELL
We focus on everything that we need to do to make the company successful. We're in a very competitive, fast-moving market. If you're not involved and you don't understand the details, you'll become obsolete very quickly because it changes so fast. Kevin Rollins and I run the company together. We're focused on the strategy, on what new business we're going into. You have to stay involved in things, know what the next milestones are and what we need to achieve. What are the breakthroughs and new opportunities ahead of us, how are we going to grow the infrastructure and the capability.
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And continue reinventing the wheel?
MICHAEL DELL
I've heard every reason in the world why what we're doing won't work. For example, we have heard that you can't sell notebooks direct, that people have to see them. Well, we're number one in selling notebooks in the US, and we're twice as big as the number two seller. So the conventional notions of what will and will not work aren't always true. But we hope our competitors believe them!
The IAC has 26 members and its sister organization, The European Advisory Council, has 14 members. For the full list of members and details of Council meetings, as well as information on joining the project and future meetings, go here. Larry Lapide can be contacted at: Llapide@MIT.EDU.