Category: International Business & Marketing

A few weeks after Dell announced the sale of its Tennessee plant to Genco, Dell stated that it will close the facility and cut 900 workers in North Carolina. Dell describes its decision to close the facility as “part of an ongoing initiative to enhance the long-term value it delivers to customers by simplifying operations and improving efficiency.”

As a former Dell employee, this news gave me a little feeling of nostalgia. I joined Dell China as their pioneer staff, with employee ID 49, when Dell just got their feet wet in the Chinese market. I experienced the most glorious time of Dell when their stock was traded more than $100 and split again and again. I witnessed the Dell China factory grew from a leased temporary factory to a campus of new factories with advanced technology.  I even had a hand-shaking photo with Michael Dell when he visited the China plant. Being a young professional out of college without a lot of experience, Dell gave me a great opportunity to learn the management of a western company and opened the door for me to supply chain management.  When I came to the States to pursue a degree in supply chain management, I read so many cases and articles about the innovated manufacturing and supply chain in Dell, and how their “U” shaped manufacture display was one of their core competencies to enable production flexibility for their made-to-order business model.

However, after a decade, the core competency is not core anymore. Dell sold its former world class manufacturing in order to create more value for the customers.  In a Harvard business blog article “Why the U.S. Tech Sector Doesn’t Need Domestic Manufacturing”, David B. Yoffie says

HP has become the world’s leading computer company by focusing on sales, marketing, and distribution of computers made at very low cost in Taiwan and China. In comparison, archrival Dell, which was widely celebrated 10 years ago as one of the world’s best manufacturers, is now saddled with high cost factories and is struggling to compete.

What has been changed in the past decade?

Technology advancements have made personal computers a commodity and changed consumer behavior significantly. In the past, customization and capability of “made-to-order” created huge value to computer users. Customers enjoyed selecting from the different capacity of parts to customize computers meeting their price and usage requirement. At that time, Dell’s flexible manufacturing had a huge advantage over its competitors, and their made-to-order and ship-direct business model were the most innovated and successful supply chain practices.

However, a few years ago, Dell started to sell their products through distributors such as Staples, Best Buy and even Wal-Mart. Their ship-direct strategy slowly started shifting to a traditional made-to-stock distribution channel.  Computers become such a commodity that consumers can pick up any model at different price levels in a store and be happy with the standardized capacity. There is no need for consumers to place customized order online and wait for delivery. So, the flexible manufacturing designed for made-to-order is fading away.

Time changes, consumer behaviors changes, and technology changes. In 2005 Dell was valued at $100 billion, or more than HP and Apple combined. Today, it’s worth $30 billion, less than a third of its rivals’ market values. (Businessweek, Dell’s Extreme Makeover) If Dell wants a makeover to catch up to its rivals in this rapidly changing business environment; if Dell doesn’t want to become an OEM of PC manufacturer; it’s the right move for Dell to get away from its traditional production efficiency and cost cutting modal and focus on marketing, customer service and innovation.

Even I am not using a Dell computer nowadays. However I wish my former employer, who taught me the best supply chain practice and changed my life and career direction, can achieve its makeover goals.