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Now, that's all changing. Since June, Dell has reinvented its procurement and manufacturing processes, and can now complete 90% of its purchases entirely online -- up from virtually none just a few months earlier. CEO Michael Dell spoke with Business Week's David Rocks about the changes and how the company has used the Net to improve its performance. Q: What is the importance of harnessing the Web to build Dell? A: It's all about speed and bringing value to our customers. Over the last seven years, as we've integrated the Net into our business, our return on capital has gone from 30% to 290 %. The only way you can get return on capital like that is you have the ability to use information that is profoundly better than others'. Dell is all about improving the value-chain cycle, how information flows between the company and its customers and suppliers. What we've done online with Dell.com and Value Chain [Dell's site for suppliers] enhances that. For some businesses the Internet is pretty easy to implement. For other businesses it's a whole different system -- it's a radical shift, a "disruption" in the words of [Harvard University professor Clayton M.] Christensen. The Internet wasn't a disruption for Dell. It just made Dell's business better than it was. Dell was doing just fine before the Internet. What the Internet did is it turbocharged the efficiency of our direct business model. It's a mutually reinforcing mechanism because the Internet was a demand generator, and now we're using it to gain efficiencies in supply. Q: What are the lessons other companies can learn from Dell's Internet initiatives? A: Some of the simplest lessons are that you can use information to replace physical assets. Information is a whole lot easier to manage than physical assets. The other lesson is that you can deliver entirely new products and services if you use customer information as opposed to trying to guess what will sell. Demand drives supply rather than supply driving demand. We can be a whole lot more responsive to the demand signal. Q: You've been asked by the likes of Ford Motor CEO Jacques Nasser for advice on setting up an e-business. What questions are companies like Ford asking you? A: It's our supply chain that's got a tremendous amount of interest from all sorts of people. That and Internet-enabling their business. Every company is trying to figure out how to become more efficient, and there's no question there's a lot of opportunity here. Some of it is hype. You have to sort through what things really have value. In our case, we don't do things on the Net just for the thrill of doing them. We do them to deliver very clear bottom-line improvement to our business -- higher order-fill accuracy, lower lead times, improved asset management. Q: Your employees have told me about what they call the "Dog Food" e-mail, in which you asked leaders of the supply-chain group why they weren't "eating their own dog food" and using the latest Web techniques. What was that about? A: There was a time where we were getting frustrated because we hadn't connected our supply base with our own internal operations nearly to the degree we'd done with Dell.com [Dell's sales site]. We had made some pretty fantastic progress on Dell.com and were lagging in the other area, and I was goading our team to get with the program. I'm glad to say that we've really made a lot of strides there. We've got about 30 or 40 suppliers linked to our systems, but they sell us 80% to 90% of the materials we buy. Q: Were you dissatisfied with the supply chain as it was working? Are you now satisfied? A: Our supply-chain system was working better than any of our competitors', but were we satisfied with it? No. But we're never satisfied. We're pleased sometimes, but we're not satisfied. I'd like to have 100% of our sales online and 100% of supply purchases online. We need to set unrealistic goals for ourselves. We wouldn't have gotten to 50% [of sales online] if we didn't have unrealistic goals. Q: What was wrong with the supply chain before June? A: There was a higher degree of manual intervention, and it worked well, but it wasn't as scalable as we would like, and it required a lot of specialists. And whenever you talk about having more plants and selling tens of millions of units, the operation gets that much more complex. [The new system] helps us make sure that we can scale our business and grow and have visibility of parts around the world, and drive the transaction costs down as far as the day-to-day work flow will allow. Our suppliers ultimately are going to benefit as much as Dell will. Dell is going to be the most efficient customer for them. We'll be sending suppliers a pure demand signal that is closely linked to actual demand. It's not a perfect signal, but the accuracy of the demand signal is higher than anyone else's. |
