Client Reinvention: Building the Most Flexible and Effective Value Chain

DellShares

New insights and perspectives into Dell and the world of investor relations.

DellShares

New insights and perspectives into Dell and the world of investor relations.

Client Reinvention: Building the Most Flexible and Effective Value Chain

On our Q4 earnings call, we highlighted how we've essentially reached our $4B COGS and OpEx cost savings goal, which was targeted for completion by the end of FY11 and we introduced a strategic initiative that we have described as "client reinvention".  Over the past couple of weeks, the team has fielded a fair number of questions on this topic, so I want to take another run at it.  Our goal is to align our supply chain initiatives with what customers value most.  Direct relationships and feedback from our customers is a competitive differentiator and we are using this input to redesign our supply chain.   Let me start with a bit of history.

 In the past, we utilized a single direct configure to order model and we gave our customers a cascade of options to choose from when configuring a product specifically for their needs.  This was, and still is, a great model for custom configuration where our customers value and will pay for this service but it has become too complex and costly for significant portions of consumer and some portions of our commercial businesses.  As a result, we are addressing this complexity and added cost with client reinvention.

 So what exactly is client reinvention?  Client Reinvention is primarily a COGS initiative to improve our forecasting, streamline the supply chain model, and ultimately reduce costs in the client (primarily desktop, mobility and workstation products) value chain.  We are establishing a segmented supply chain that delivers either lean fixed configuration products or configurable for customization products with slight derivatives of each.  For the most part, fixed configurations utilizing our lean supply chain model will be sold directly through our consumer and small business segments and indirectly through our retail and VAR partners.  Configurable products will be sold primarily direct in our commercial segments and we will continue to offer full custom factory integration and premium care services.  But, as I said, there will be derivatives of each.  For example, we will provide limited personalization in the fixed product supply chain and we will provide lower cost ocean ship in the configure-to-order supply chain for customers than can commit to longer delivery times on their orders. 

 Cost savings will come from further reduction in product complexity, larger bulk orders to contract manufacturers, strategic component buys and use of lower cost shipping lanes.  For example, one year ago, Dell had never shipped a finished good to a customer via ocean freight.  We have now started to move a small percentage of our product to a low touch, fixed configuration, ocean ship model and you will see more orders going over the water going forward.  In another example, today our contract manufacturers often receive orders from us in small lots and hold them until the number is large enough for them to push through their factory process. That accumulation process comes at a cost so going forward, we want to get to a point where we are forecasting and grouping orders before they go to contract manufacturers.   These changes will also improve our procurement strategy and enable us to better adjust to component costs dynamics.   These are just a few examples. 

These leaner capabilities will apply across both commercial and consumer, and will enable us to be more competitive especially in entry level products.  Ultimately, these changes will further match the changing ways customers buy with what they value in technology today.  Stay tuned as we share more on this strategic initiative here on DellShares and in our other communications with investors. 

  • So basically Dell can no longer follow their built to order model and will turn into every other manufacture out there.  So if we want anything custom, we have to go to a specialized vendor like Falcon or go to HP which seems to have no problems....

  • There will still be customization options for consumer and commercial customers.  In the case of consumer, we are introducing fixed configurations, but will retain options for a number of products.  However, years of data show that we have too many different combinations of product configurations and that a significant percentage of these configurations sold in very low or no volumes.  Our overall goal is to simplify the options, focus on what customers do value in terms of choice and reduce costs which will allow us in many cases to pass along these savings to customers as we have an easier supply chain to manage.  Stay tuned as we provide more information around this strategy and what products will be impacted.