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Zones



Direct to Dell: I Hunt For Michael's Supply Chain Secrets

Give a bitter ex-computer geek a plane ticket to Austin and a Visa purchasing card and he might just blow the cover of the poster child for supply chain management. Then again, he just might blow it altogether...

Why Didn't I Think Of That?
In 1984, I was a pre-adolescent computer whiz. So much so that I spent my summer vacation at computer camp, hunkered over a keyboard programming a Dungeons & Dragons-style adventure game. When I returned home, I asked my dad if we could get a new, more powerful computer at home, an IBM PC-compatible like I had used at camp. Dad said, "No." They were just too expensive. Undaunted, I looked through some computer magazines; buried in the back pages I spotted small black-and-white ads for computer parts: cases, motherboards, memory, video cards, hard drives, monitors, etc. I pulled out my trusty TI calculator and reckoned that the sum of the parts that were necessary to build the computer I wanted cost considerably less than the fully assembled product being advertised in the glossy full-page color ads in the front of the magazines. So I convinced my dad to let me order the parts and build my first computer. Unbeknownst to me, at about this same time a student at the University of Texas in Austin figured this trick out, too. But he didn't just build one computer for himself like I did. He started a business that has since grown into one of the biggest and most profitable computer companies in the world.

Metric 12: Dell is lean, but it's no Toyota.

Dell Computer's revenue in the past 12 months amounts to something like $27-billion, which, in turn, means that Michael Dell is rich beyond anyone's (save Bill Gates') wildest dreams. This makes me bitter and jealous enough, but to add insult to injury, Mike is regarded by most around the world as a veritable business genius. He even put out a book last year, so now he's a famous writer, too. The sight of him grinning from the cover of that damn book makes me sick with rage. But the final straw was that he spoke at the Detroit Economic Club last November, and everyone in the auto industry became enamored of him and his company. Enamored of Dell's ability to carry little-to-no inventory. Enamored of Dell's supposedly superior supply chain management. Enamored of Dell's "direct model."

I may be a bit paranoid…but it's almost like Michael Dell has a personal vendetta against me. First the computers: that may just be a coincidence. But now with the writing and the supply chain stuff? No way can this be written off as mere happenstance. His visit to Detroit was a personal challenge that I can't ignore.

So I set out for Austin to discover the truth about Dell.

Never Trust a Guy With Two First Names
With a certain amount of cajoling over the phone, I managed to convince Dell PR man Rick Scott to let me come down to Texas for a plant tour of Dell's Metric 12 plant, where they assemble OptiPlex desktop computers. I figured that with my winsome personality and charming presence, I could land an interview or two. Perhaps even get taken out for a cold Celis White. But instead of getting beers on Dell's nickel when I got to Austin, I just got the nickel tour.

Metric 12 is clean and efficient. Components are delivered to one side of the facility eight times each day and finished computers leave nearly as frequently on the other. Everything flows down the line flawlessly as operators in cells perform multiple tasks using error-proof methods. Parts are tracked with a sophisticated Windows-based software package that makes sure every computer is built with exactly the right SKUs. One Dell representative boasted to me that 98% of prospective customers who take a tour of Metric 12 buy from Dell. On the surface, it was an impressive and efficient plant. But there was still one thing that troubled me.

Many of the components that arrive at the plant with just-in-time clockwork come from China, Thailand, or some other low-wage Asian country. But they don't come to Metric 12 directly. First they spend some time sitting in a nearby warehouse where a number of Dell suppliers have co-located inventories. And while Dell doesn't own the warehouse, it does specify the inventory that must be maintained there. This arrangement helps Dell out in a number of obvious ways, and it allows Metric 12 to run overtime when orders call for more of a particular computer than can be built on straight time.

I had found a flaw.Inventory.

Even better, when Dell "ships" its completed computers out of Metric 12, they don't go to customers. They go to another Dell facility where orders are collated for shipping to Dell's predominantly corporate and institutional customers.

Muda! Michael Dell was not perfect.

But that was it. They were on to me. Before I could get anything else out of them, I was done. Left alone in the plant parking lot sweating, both literally and figuratively.

What next? Scott had just sped off in his SUV, leaving me with the proverbial don't-call-us-we'll-call-you impression.

I looked over my notes from the tour. Given their answers to my questions, you'd think that Dell was a defense contractor. They wouldn't even tell me who their top 10 suppliers are; when I asked that question, Scott suggested that I buy a Dell computer and open it up to see whose components were inside. Though the Dell Factory Outlet was just across the street and my Corporate Visa was stuffed in my shirt pocket, I wasn't about to give them any of AM&P's money, lest I draw attention to the numerous bar tabs on my expense report.

There was this vague promise of an interview later in the week with one Martin Garvin, vice president of Global Supply Chain. But Scott had made it clear that if I got the interview at all, it would be limited to 15 minutes on the phone and any of the really interesting questions I had would not be answered due to the same "proprietary reasons" that prevented divulging the names of suppliers. If I was going to find another smoking gun, I clearly had to find some angle of approach that involved more than interrogating a man whose name sounds like a Monopoly property.

Miller Time at the Hotel San Jose.

I set off back to my bungalow at the Hotel San Jose for a dip in the pool and an ice cold High Life. After a few hours, I was beginning to like Austin. And my flight back to Detroit didn't leave until the next day...

VP-Speak
"Clearly our objective is to capitalize from our customers all the way back to our suppliers, driving for predictable value in terms of cost and high-quality product transitions," said the voice on the speaker phone. "We manage many of those throughout the year."

It had started. My interview. His attempt at saying nothing.

"Even though we have segmented on specific customers and markets, we still draw our product lines and our supply chain from the same groups of people," he continues. Garvin goes on to explain that despite the fact that Dell is "segmented" into a variety of business units focused on specific customers (one unit for large corporations, one for smaller businesses, one for government agencies, one for home-use customers, etc.), they still have to attempt to fulfill all the technology needs of each business unit in the most cost-effective manner.

Not unlike the concept of platform sharing in the auto industry, I think.

"One reason we've maintained fewer suppliers and leveraged focus is because these are much deeper and complex accounts that need to provide the needs for all our business units," he continues.

Again, I think, not unlike recent developments in the automotive supply chain.

"We expect first and foremost that our primary suppliers that we buy finished products or subassemblies from have all the appropriate supplier management programs in place and are very aggressively managing capacity, capability, and price."

This guy would fit in just fine in Detroit, I think, especially when he begins talking about the Internet by saying, "We eat our own dog food, so to speak."

Would You Buy A Car From This Man?
I was stymied. I had read Dell's book. I had read copies of all of his speeches. I had gotten my glimpse at his company. I had even begun to respect the man. But I was still not convinced that there was any reason to admire him. There is no silver bullet at Dell Computer, no great secret that I could see. Despite the attempts to make me think that something big is hiding at Dell, it is just another company.

But it is a company that understands one thing above and beyond all else: the customer. Dell sells directly to the customer and operates what is as close to a true pull system as anything in business today.

You could go down to Austin yourself; God knows you couldn't come up with less than I did. But what you'll find is that the Dell guys aren't just spinning when they attribute all of their success to "the direct model." Michael Dell got involved in the computer business because had found the proverbial buy-low-sell-high opportunity. And he found that as long as he was able to control his relationship with the customer—meaning he was able to know what the customer wanted and deliver it in a timely fashion with good service—his business would be successful. Thus, the whole business has truly been built around the customer.

Dell does not build computers that have not already been sold to real customers. Dell does keep track of what customers buy and uses this data to predict future sales. Dell does not create amazing new technologies. Dell does buy the best new technologies available to the market from suppliers that are eager to get immediate feedback on their developments.

But this still doesn't explain the admiration.

Then it hits me like a gigabyte of RAM. The supply chain starts with raw materials, but it doesn't end when the iron moves out of the factory. The great fallacy of the auto industry's lean manufacturing movement is that we still have the dealers and all their requisite baggage. There is still inventory on their lots, and someone needs to sell it. Dell knows how to sell because its strength is managing the customer relationship, while the upstream supply chain is left alone to figure out most everything else.

That is Michael's great secret, and that's why they're all really in love with Dell. The smug look and the immaculately tailored shirt he's wearing on the cover of his book should have been my first clue. But I was too blinded by emotion to recognize it.

But now I am relieved. To think I was so disturbed by a mere salesman.