Fight Dell, Fight Dell’s Supply Chain
Anita Devasahayam , 1-Mar-2000

Over the last decade, Dell Computer has proven that its direct sales model is highly profitable and cost effective, keeping inventory at more than affordable levels. The potential provided by the Internet has spurred Dell’s direct sales model further ahead in the numbers game but the company is not content to rest on its laurels. Instead it is looking at ways to keep the momentum up. Top on that priority list is finetuning its supply chain.

Citing a study done by, Jack Cantillon, director of Dell Online Asia-Pacific, highlighted the importance of the customer’s experience in e-commerce. “It is not traditional factors like product or price that we perceive to be driving the customers’ choice,” he added.

Cantillon said that the top two things customers look for is quality of customer service and online delivery. “The greatest challenge, therefore, is
delivering these two components to the customer efficiently.”

When Dell moved into Asia, it set up an Asia-Pacific Customer Centre (APCC) located in Penang, Malaysia. The manufacturing facility, responsible for producing Dell’s complete range of OptiPlex, Precision, Inspiron, Lattitude and PowerEdge line of computer systems, began shipment directly to customers throughout Asia-Pacific in November 1995.

The 238,000 sq ft facility, officially opened in January 1996, has steadily expanded its capabilities and resources to include over 1000 employees. The APCC received ISO 9002 certification seven months into initial operations. In November 1999, the Penang plant received another accolade when it was ratified with an ISO 14001 certification.

Dell’s rapid growth in the region culminated with the shipment of its one-millionth unit from the Penang facility two years ago.

According to a survey by International Data Corp., as a relatively newcomer to this region, Dell has maintained its position as among the top five computer vendors here.

The absence of an intricate channel network to provide face-to-face sales and service, a revered factor that underscores the Asian style of doing business, has not fazed Dell’s style. Dell began its direct sales and marketing business in a university dormitory in 1983.
Up till today no other computer vendor in Malaysia is able to match or emulate Dell’s direct business model. These companies often cite local consumers as being unprepared to shop online as reasons for not venturing on the ‘Net.

Supply Chain Alacrity

Ironically, the arrival of the Internet has only served to propel Dell’s model like fish to fresh water. And the alacrity of the Web is fast becoming the pulse of Dell’s operations in the region
Cantillon told Intelligent Enterprise that the online business in Asia, or any other part of the world, is really about business velocity.

“We understand business velocity to mean reducing time and distance where we can control the back-end flow into the supply chain and forward movement to the customer.

“Wherever our customers are, the focus we put on collaborating with our suppliers to virtually manage the supply chain in terms of quality, continuity of supply and product development, will easily allow our clients to decide fast. This is something that all consumers want, regardless of territory,” Cantillon pointed out.

To Dell, harnessing the ’Net to bring about dramatic efficiency, time and cost savings is imperative as that is what they believe is the ultimate satisfaction a vendor can provide to its customers.

“It does not matter whether it is a large or small business or even a home consumer. Today, 75% of our orders and one-third of our technical support is done over the Web,” said Cantillon.

By automating credit checks and directly
downloading orders into its customised order
management systems that is linked directly to its manufacturing lines serves only to enhance the processes involved.

“This way, we assure consumers get almost instantaneous response—quick turnaround, less downtime and speedy delivery,” he declared.

He reiterated Dell’s total belief in the direct model of doing business. “We are at the tip of the iceberg as far as its potential is concerned,” he said.
By the end of the previous quarter, sales from its Web site had risen to US$35 million daily, contributing 43% to total revenue. Shipments in Asia-Pacific and Japan grew three times the industry rate, bringing revenue up by 69%. Quarterly net revenue rose 41% to US$6.78 billion and reported net earnings stood at US$298 million.

The company attributed its high return in invested capital (ROIC) to diligent asset management and rapid growth. “This is the 12th consecutive quarter that we have achieved an ROI above 150%,” said Cantillon.
But the golden feather in Dell’s cap is its ability to reduce inventory time from seven to six days. The company achieved the feat in the last quarter.
Cantillon said that the direct model is not a novelty although it can be easily applied and fitted on the Internet. However, easy duplication does not guarantee sales. “It is a dynamic model and, therefore, very challenging.”

The company does not view its built-to-order (BTO) concept as a frontline buying and selling process. For Dell, BTO is the heart in the supply and value chain integration that links to customers and partners directly.

As much of the processes at the manufacturing facility are automated and run on customised enterprise resource planning software linking various business functions, the company is constantly tuned into customer needs.

“The differentiator in this link is that we
are swift in offering the latest technology at
the most competitive prices. We have also been
able to extend the model with online services and support that is important to our customers,” Cantillon added.

Building Loyalty

Cantillon readily admitted that, the western consumer is more prepared to place orders online compared to their Asian counterparts. However, the company continually champions this cause and is beginning to see some measure of success in Asia.

“Adjustments are made to meet market dynamics locally. For example, Dell offers specific local products and configurations suitable to the individual markets, as well as local language pages and payment methods in different Asian territories,” he added.

The online customer profile has also evolved over the years as the mix of high-end and small business consumer enters a space that was traditionally aimed, and dominated by corporate customers.

“We also saw first time PC buyers making one-off purchases previously, now we see more return consumers and purchases getting more sophisticated. There is also a greater demand for quality customer service and experience,” said Cantillon.

Cantillon’s rule-of-thumb for Internet revolutionaries is that the Web experience must be better than any experience in the physical world in order to create substantial relationships and loyalty over the Web.
“Consumers are most irritated when the navigation on sites does not work and transactions take too long to process. The fact that there is no human interaction and nowhere to call when dealing online, downtime can drive any person up the wall,” he said.

Happy Customers

When Dell studied its customer management
strategy for the online environment, they realised that they had to move away from the physical
world experience to create the Dell electronic
customer experience.

Part of this experience is creating a brand differentiation and new business models that create an online experience that is better and more convenient than a physical experience.

“As we are 100% reliant on technology with a highly virtual sales force to drive the online business, we have gone through a global redesign of our e-commerce site. The redesign makes it easier for customers to use the site. The applications in use are based on technology which makes for efficient internal processing. This provides improved, streamlined navigability and a shorter process to buy Dell products, get support, or find company information,” he said.

This is all part of a planning process for an
infrastructure expansion in order to continue to support needs of Dell’s growing online business. Sales and support activities online will be continually improved. In the US, the company has introduced micro-broadcasting and is looking at phone-Web integration.

On the drawing board are plans to introduce Webcast for new products. In addition, diagnostics will be enhanced allowing users to hit a button on the PC to reach tech support. “If you really need to speak to someone, be assured that it will be the right person as the problem is already electronically noted from your PC and sent to our servers,” Cantillon said.

“Our online sales are currently US$35 million a day—we expect it to increase and we intend to be ahead of the pack as we continue to grow,” he added.