Dell Vs FordTeri Takai, Director of Supply Chain Systems, has been asked what sounds like a relatively narrow question by the company’s most senior executives: How should Ford use Internet technologies to improve the way it interacts with suppliers? Students quickly realize, however, that the question requires broad discussion and is surprisingly difficult. To answer it, Ford needs to think about relationships not only with suppliers but also with dealers and customers. As Supply Chain Systems staff members study the Dell model in particular, they come to appreciate that “virtual integration” must include design of fulfillment, forecasting, purchasing, and a variety of other functions that had long been considered separately within the Ford hierarchy. The question is in fact explosive in its implications, because it inevitably leads to fundamental questions about the way Ford has historically operated internally and how it has interacted with important partner constituencies (including dealers).
The Dell product is built not just on its design, but on the design and use of the technology as a whole. That conception is so strongly rooted in Dell’s founding, the company’s role in designing and building products is so extensive (and so clearly defined by the new CEO) that it was almost impossible, without any formal recognition, to even begin to explore this issue at first. Dell’s approach involves a mixture of the “business world,” which in some ways feels more like a business and business culture in a way that almost every industry in which the company has established itself will probably feel. The challenge lies with the way that a company can be truly business-like, in part so that it can be better understood for a broader range of customers. For example, it means that it can be seen as a means of making more money for its suppliers more often than not. And it means that it is not simply a problem of choosing a particular model of a product, but of taking any of the advantages that have long been recognized in that model, such as a higher level of productivity, wider adoption, and more flexibility with its suppliers. That approach also means that it can be viewed as a way to “set business practice standards,” which, as the company points out, is a rather arbitrary notion used to decide whether or not to offer an item you like at a discount.
Dell’s strategy, then, begins to take shape within a context where there will always be many customers, including more than just a few people with various opinions regarding an item. As one senior vice president explained in testimony before the Senate Subcommittee on Corporate and Government Reform:
When we get to the point of when we make a decision, as we did when we started out, when we started to talk to people, we want customers to see that you can change things. You have to say, ‘Okay, but in the end, why would this be good for you if it was good for more customers? Because we can make more money.’ But in this case we have made quite a few changes. First, we added an option that you could buy an off-the-shelf computer if the price was too low, that is, the price paid for a standard Dell product, the cost of shipping and handling. That sort of thing. And secondly, we also added a ‘best value proposition’ that is an option for customers who want to buy them at a fair price. This is the idea that once you add service and you see that the customer buys the Best Value proposition, then you can offer that to the whole entire chain. It’s one of those things that you can do that you haven’t done in any of the previous three companies on the list.
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Another senior vice president expressed some of these same concerns, noting that Dell’s current approach does not give any indication that it is actually committed to creating more value for customers:
When we were announcing that the software was coming, we were talking about an important business component. And in particular, this was a really big component that the consumer was willing to pay for what they wanted in a great deal of savings right up until now. So, if you were going to do a big software purchase, you would get all of that. And you would actually see prices of that model going up. And that is a new point of differentiation.
While each of these changes seems important, in the end they must be taken as part of a larger strategy to drive down total value for its customers, and provide more opportunities for its suppliers to take their business closer to home. To that end, given our focus on more than two and a half years on new technology as part of our goal of working to expand our supply chain, a more expansive approach is needed.
Dell’s approach to this is a very radical transformation. The company’s top staff is now part of a single, highly integrated, multi-organizational process by which each of its senior executives
Takai’s staff is divided on what the recommendations should be. Members of one group are enthusiastic about the possibilities and think the only appropriate way to answer the question is to consider, evaluate and recommend radical changes to Ford’s overall business model; this group considers Dell a serious model for Ford’s business. Another group is more cautious and believes that the fundamental differences between Dell’s industry and Ford’s industry necessitate significant differences in business models. Takai must consider the inputs of her staff (provided as case exhibits) and decide what to recommend to her senior managers, including the CEO, who has taken a special interest. Students are asked to consider Takai’s choices and recommend a way for her (and Ford) to move forward.