Production and supply chain of Dell Computers

---

According to McGrath and Bequillard (1989), typically there four kind of international manufacturing strategies:

• Home Country Manufacturing
• Regional Manufacturing
• Co-ordinated Global Manufacturing
• Combined regional and co-ordinated global manufacturing

In case of Dell computer, Dell works closely with external partner to produce its pc products. Dell offshore the manufacturing of product to different third part and hardware and software companies .component like printed circuit board assemblies (PCBAs), Subassemblies (Box Builds) and some final products are handled by contract manufacturer. Dell relies on outside partner for services such as installation, integration, on-site repairs and consulting. However, insiders from dell argue that Build-to-Order model is strategic to company, there for it can not be outsourced. As per the latest Company report 2008, Dell has their manufacturing units in Austin, Texas; Nashville, Tennessee; Miami, Florida; and Winston-Salem, North Carolina in the U.S. Chennai, India.

---

There are mainly six main component of Dell Production chain (Kraemer,et al. 2000),

1. Sourcing
2. Logistic
3. Call Centre
4. Marketing, Sales and Support
5. IT/Data Centre
6. Service Partner

All of them are connected to each other and plays a very important role in Global Production chain. Here we will analyse three of them.

Sourcing:-

• Each production facility has its own network of suppliers and contract manufactures.

• The decision related to sourcing is responsibility of worldwide procurement and product development in Austin.

• Because of centralised decision making process Dell can achieve consolidation of buying power and get better rates and term from suppliers

For some specific components and peripherals, the locations are as follows:

• Monitors Europe and Asia (Phillips, Nokia, Samsung, Sony, Acer)
• PCBs Asia, Scotland, and Eastern Europe (SCI, Celestica)
• Drives Asia, mainly Singapore (Seagate, Maxtor, Western Digital)
• Printers Europe (Barcelona)
• Box builds Asia and Eastern Europe (Hon Hai/Foxteq)
• Chassis Asia and Ireland (Hon Hai/Foxteq)

---

Logistic:-

        In order to understand the role of Logistic in Production chain of Dell, we will analyse the logistic process of EMEA (Europe, Middle East and Africa). There are two types of logistic flow in Dell: Inbound Logistic and Outbound Logistic. The entire dell inbound logistics are handled by supplier who are located within 30 minutes of manufacturing plant.  For outbound logistics (i.e. for sending finished goods to customer/market) Dell has set up five distribution hub which are strategically close to main market and transportation networks (such as Air, Train, Road or Sea) . The five outbound logistics hubs are:

• Limerick for Ireland, Eastern Europe, Middle East and Africa (except South Africa);
• Liverpool for UK;
• Tillberg, Netherlands for middle Europe;
• Gottenberg, Sweden for Nordic countries; and
• Johannesburg for South Africa

Call Centre:-

        In order to achieve total customer satisfaction, Dell makes an extensive use of call centre for sales and support. Dell has set up a regional call centres for particular region, however sometimes customer may rout to different regional call centre. The list of regional call centre is as shown below:

• U.S.: Round Rock and Nashville. A new call centre is planned in Fort Worth, Texas.
• EMEA: Limerick, Ireland; Bracknell and Bray, U.K. Relationship customers are handled through Bracknell, whereas HSB customers are handled through regional centres in Montpelier, France for France, Spain, Italy and the southern countries; Amsterdam for the middle and central countries; Copenhagen for the Nordic countries; and Bray, Ireland for the UK, Ireland and other English speaking countries. The Limerick call centre specializes in higher-level technical issues, and also operates as a backup call centre when telecommunication problems occur or call volume is exceptionally high.
• Asia-Pacific: Bangalore, India.

Factor influencing international location decisions:-

 In any global production process, the location/place plays a most important role. According to Motwani et al. (1998), the global production chain provides TNCs to gain advantage of diversity in global environment by identifying and exploiting regional differences. Factor influencing international location decisions are discussed by researcher like Badri et al.(1995), Hoffman and Schniederjans (1994) and Canel and Khumawala (1996).Jungthirapanich and Benjamin (1995) .in the past when firm made a decision of international location the factors which were taken into consideration were limited such as transportation and labour cost . However, recently there has been a increase in wide range of qualitative and quantitative factors plays an important role such as social and political factors (MacCarthy & Atthirawong, 2003). Survey findings of Badri et al. (1995) indicates that global competition and economic related factors are more serious and highly-considerable as compare to conventional factors like cost and transportation. However according to Epping (1982) theses factors are subjected to change significantly over a period of time. To understand this decision making process in practical manner, we will analyse the Dell’s location decision.  

Decision making factors behind USA Facility  

Round Rock

• The original headquarter of Dell where Michael Dell founded the company in 1984, after 10 year Dell was approached by neighbour city Round Rock who offered dell a usual 2% tax on dell sale, the city rebate 31% for 60 years; property tax abatement of 100%for first 5 year; 75% for another 5 years and 50% for rest 50 years (Schnurman, as cited in Kraemer,et al. 2000 ) .
• As a result of same, Dell moved it’s headquarter to Round Rock and built another facility today it employees 39,500 people.

Tennessee

• The first North American manufacturing facility outside Texas opened in 1999 at Nashville, Tennessee.
• It was chosen because generous state and local tax incentive, good transport infrastructure, adequate labour supply and strategically located to east coast market.
• The Nashville government offered also offers the gift of 100 acres of airport area valued at $6.5 million, and lease contract of another 600 acres for 40 year at fair market rate.
• $8 million infrastructure  improvement (excluding the state’s $12 million)  as well as $1.5 million toward demolition of old buildings on site (Locker,1999)

Decision making factors behind Europe/Middle east/Africa (EMEA)

• Dell set up a first assembly plant in Limerick, Ireland in 1990 with a strategic objective to serve European market.
• The reason for selecting Limerick because low cost and high quality of labour as well as skilled and non union.
• Dell also received good cooperation from educational institute around area to develop that Dell required; as a result 50 % of staff working in Dell Limerick have at least a bachelor’s degree.

Decision making factors behind Asia-pacific

• In 1996, Dell opened its first manufacturing centre in the Asia-pacific region in 1996 in Penang Malaysia.
• The main reasons behind selecting Malaysia were it was centrally located in region, proximity to supplier, reasonable wage rate and attractive incentive plan.
• Dell received a five year tax holiday.
• In 1998, Dell opened a new manufacturing facility in Xiamen, China which is directly across the straits from Taiwan, which is known as home of number of Taiwanese computers and component makers.  

To conclude the above discussion according to Epping (1982) theses factors are subjected to change significantly over a period of time.

The Role of Government policies, in process of TNC’s Production chain (Nelson, 2003):-

In earlier discussion, the factors behind the selection of location for TNC has been analysed, however, according to Maruca (1994) the effectiveness of Production chain is important not only for TNC’s profit but also for host country’s economic growth (UNCTAD, 1992). Till now we have analysed and understand a Production Chain of Dell from TNC’s (Dell Corporation) point of view. At this stage, we will analyse the role of Government policies in formation of production chain. In order to have a practical perspective on the issue we will analyse successful strategy adopted by Rio Grande Do Sul to attract Dell Corporation in year of 1999.

According to some scholars (Strange 1999; kobrin 1999; Mittleman 1996), globalisation would undermine state autonomy specially in developing nation like Brazil. During 1990s Globalisation was leading its journey to 21st century; almost every government in Latin America was actively seeking foreign direct investment from high technology transnational firm. The reason behind the hunger for FDI amongst government in Latin America was to provide jobs with higher wages, attract high technology “cluster” of firms to make their own state attractive and development sustainable in long run (Porter, 1990).

Dell had experienced a long period of astonishing growth in 1998, and it started to begin short listing a sit for manufacturing plant in Brazil in same year. Brazil was strategically placed location for Dell because sale of personal computers were growing faster in Latin America as compare to anywhere in world. Brazil was the largest Latin American country with population of 170 million was lucrative market for dell. In 1992 Brazilian Government had derelict its “market reserve” policy which was allowing only domestic manufacturers to produce computer in the country. Brazilian government was playing role of “state as competitor” .Brazil was a member of Mercado Común do Sul (Mercosul), which includes Argentina, Uruguay and Paraguay with Chile and Bolivia as associate members that means, having a facility in Brazil is trade access to Mecosul countries with zero tariffs.  

The most crucial question for Dell after selecting Brazil was where exactly to set up manufacturing plant? .it would be interested to note that Brazil had a federal system, with 26 separate states, and it goes without saying that each state wants to grab opportunity of grabbing a Dell Project . Dell Selection team visited five different states in Brazil : Sao Paulo, Minas Gerais, Río De Janeiro, Paraná and Rió Grande do Sul . All the five state were meeting the basic requirement like level of adequate education and adequate supply of qualified individuals, adequate supply of electrical energy and telecommunication set up as well as transport system. However, the whole decision making had depended on special financial incentive each state offered.

Rio Grande do Sul,the final choice

 

It would be surprised to know that Rio Grande do Sul was no where in the final short list when state government and representatives from Polo (A state hired company specially for Dell Project) in early 1998.  The reason for success of Rio Grande do Sul were:

• A professional and time bound approach which they were able to show because of private partnership firm POLO which was partnering government to grab Dell Project.
• It had well organised and maintained infrastructure and the first privatise Telecommunication Company.
•  Home of world regarded universities like Universidade Federal de Católica which makes it home of well educated population.
• Highest standard of living rating amongst all other state of Brazil.

Apart from that the over all offering from both side were as shown below;

Thus, the argument of   “globalisation would undermine state autonomy specially in developing nation” proved wrong here. By collaborating with private partner like POLO Rio Grande Do Sul was not only to grab the Dell Project but also able to harness Dell to accomplished its own state/government goal.

The People Management in TNCs:-  in our earlier discussion of essay , we have learn How Dell computer manage its production chain and how Government/state. It would be interesting to know that Dell has its presence over 34 countries. In total it provides employment to 89100 people all over the globe. The break up of the same is as follows:

one of the most critical issues for this kind of global companies has always been to strike the balance between the local autonomy between subsidiaries and the control of corporate headquarter(Muratbekova-Touron, 2008). In case of Dell situation is even more though as it has one local head quarter to regional headquarter. Apart from cultural issues, in many cases TNCs also suffers from “language Issue” (Maclean, 2006).  Dell has some unique strategies to deal with issues like this and have come up with some ethical employee practice which are applicable at Global level to all Dell employees. These strategies are extracted from DELL CORPORATE RESPONSIBILITY REPORT FISCAL YEAR 2008.

• Every year Dell runs a survey program named “Tell Dell” which is voluntary, confidential employee opinion survey, Dell employee can respond to this survey in 19 languages.
• Global diversity and inclusion is a core strategy in people management at Dell. With the help of Employee Networking Group Dell connects employee who share common ethnicity, gender, nationality, life style and sexual orientation. Dell currently has five Networking group which are as under:

• The recruitment method of Dell is also unique and design to ensure recruit diversify talent. Dell sponsors and participates in diversity recruiting events to attract and retain top performer through organisation like :

• Black Data Processing Associates
• National Association of Asian American Professionals
• National Black MBA Association
• National Society of Black Engineers
• National Society of Hispanic MBAs
• Reaching Out MBA
• Society of Women Engineers
• Women For Hire

• As a part of employee well being, Dell runs Health benefit program to fight fatal disease like cancer, diabetes and HIV. it would be interesting to know that Dell promote and run this program in the regional language of Dell Unit for e.g. in china Dell provide education on health benefits or physical activity to encourage healthy behaviour. To promote this event the health broacher are printed in local language of china “mandarin”.

On the base of Perlmutter’s (1969) typology model, Dell falls under Geocentric Dimension of organisation where:

• Identification of organisation is global/international
• Communication and information flow are two way i.e. headquarter to subsidiary and vice versa.
• Complexity is part of management which is really complex and interdependent.

Conclusion

Under the purview of above defined and explained areas there are list of argument being developed which are as shown follow:

• Though Dell entered into PC market in 1985 but in very short span of time it has spread its wing in America, Asia and EMEA.  The core reason for this outstanding success of dell goes to its outstanding ability to source location of facilities and it’s direct to customer business model.

•  Dell’s decision of selecting location is not based upon any one factor, but based on multi dimensional factors like character and potential growth of future market, labour and infrastructure requirement, and last but the most important is measuring and analysing of Government incentive to cut down the production cost and increase profit margins.
•  Dell has also played a role of “Ethical TNC” in case of Brazil project where it created win -win situation for state and company.
• Dell has distinct value based diversified culture which engage employee in positive, productive and fair environment.

To conclude "There cannot be a successful globalization without a successful 'localization'." Juan Somavia, ILO Director-General

---