Table of Contents
In the course of carrying out their operations, companies are faced with numerous operational challenges that call for decisions to be made. Companies are always looking for way of improving their profitability by saving as much costs as possible during the production process. For this reason, production decisions that are made by companies must be well thought so that they promote the best welfare for the company. One of the operational management issues that will be discussed in this paper is the Competency Approach to Make or Buy. The paper will also examine the use of the 4vs approach to production. The paper will examine how the Dell Company has managed to use these approaches in its operations and how the strategies have worked for the company.
The kind of industry that Dell operates in is very dynamic and calls for a company to keep pace with the changing environment if it is to remain competitive. Dell operates in the technology industry which keeps on changing as new product are invented each day. The competition in the technology industry is so fierce that companies have to produce new products several times in a year. Any company that operates in the technology industry, and is unable to keep up with the technological changes risks losing the competition war to the competitors (Simchi-Levi, 2010). Keeping up with the fast pace of the technology industry calls for any company to invest a lot of money in human resource especially highly trained and experienced engineers who will be in a position to innovate products that will be competitive in the market and which will enable the company to remain competitive. Technological products that are produced in this industry have a very short life cycle and the manufacturers must make sure that they are able to recoup all the costs that they have incurred in developing the product within the short period that the product will be competitive in the market.
Keeping up with the emerging and new technological trends is however very expensive for any company as it requires structural adjustments which will cost a lot of money. In some instances, investing such amount of money can be more expensive for a company as compared to outsourcing the products (NMIMS, Optumis, 2011). Companies that are not well established as compared to their competitors may find it easier for them to outsource from companies that are well established so as to save on the costs that are associated with the adoption of new technology. It is based on this reasoning that Dell outsources most of its software and hardware from independent manufacturers. Dell Company receives its products from its contracted manufacturers and distributes them through their well established distribution channels. If the company is unable recoup all its expenses and fails to make its projected profits within this short period, it is likely to run into losses.
Theoretically, the Competency Approach to operations management that spells out whether it is appropriate for a company to make its own products or buy them from other manufacturers have been seen as the best approach in some business operations. There are many advantages that are associated with this approach and which operations manager seek to exploit and take advantage of once they are faced with certain operational challenges that may make producing the products to be economically unviable for the business. This approach calls for outsourcing when it is cheaper to do so as compared to doing the production in the company’s facilities. Outsourcing is not only restricted to production but it is also a key factor in the management of human resource. In some countries, it can be very expensive to use the local labor and this may force the companies that operate locally to outsource from other countries.
There are many topics that form the core of operations management. One of such topics is improved efficiency. Operations managers examine the available alternatives and select the one that enhances efficiency for the organization. Implementing the competency approach to operations management in Dell Company has created a form of differentiation where the company has entrusted independent manufacturers with producing its products. The companies that are contracted by Dell have specialized in the production of different hardware and software and this makes them to be very efficient in their production. Dell benefits in that they are able to buy products from these companies at a relatively low price compared to what it would have cost the company if it had decided to produce these products on its own. This operations management strategy has enabled the company to concentrate more on the distribution aspect of the supply chain as opposed to doubling both as the producer as well as the distributor of the products.
Cost reduction is another key aspect in operations management (Christopher, 2015). Outsourcing its products has enabled Dell to save a lot of costs in several areas. One of such areas is in the overheads that are involved in managing a production plant. First, there are the inventory costs as the raw materials have to be kept in the warehouses waiting processing. Second, there are rental expenses that are associated with maintaining a production plant. A lot of money is used in paying rent for the factory buildings in case they are for hire, paying for warehouses and well as paying rent for stores where finished products are stored before they can be distributed to the market. There are are also logistical costs that are eliminated by having the production done by independent companies. Acquiring raw materials from the source and taking them to the production plant entails a lot of logistics both in the procurement of the materials as well as their transportation to the factory. The company may even be required to have its transportation trucks and this would call for massive investment both in purchasing these trucks as well as servicing them.
The greatest cost saving comes from the money that is saved by eliminating thousands of employees who would be engaged in different areas in the manufacturing plant as well as in the transportation of the products and raw materials. A fully fledged manufacturing plant will have all the departments that are typical to any organization. These departments include human resource, procurement, warehousing, and production, technical among other crucial departments. Human resource contributes a significant operational cost for any organization and one of the strategies that are commonly taken in reducing the operating costs is downsizing. Eliminating the entire human resource is even better as it will ensure that the entire amount that would have been used in paying employees is saved. In the technological industry, a lot of money is used in hiring and maintaining the best talents to ensure that the company continues to be competitive.
There are some peculiarities that are associated with the technology industry that makes the decision by Dell to outsource most of its hardware and software products the most viable decision. The operating cost for most of it production plants in North America had proved to be quite expensive to run and this fact was interfering with Dell’s strategy of offering its products at an affordable cost. To make the company’s dream a reality, the company had first to seek for ways of producing its products at the lowest possible cost as compared to its competitors. Outsourcing most of the production from Asia where the cost of production is much lower was the solution to the problem.
Reaching a decision on whether to buy or to make is usually a very complex one for any organization. The decision becomes even harder for a company that has already put in place a well established manufacturing infrastructure such as Dell (Thomas, 2008). Before the company decided to start outsourcing most of its products, the company had a number of well established production factories. The decision to outsource means that the production in these factories will be reduced to the bare minimum and that a lot of jobs had to be lost. In addition to this, the company had to decide on what should be done to the existing companies. Selling off the companies is usually hard as few companies or investors would buy the companies without a commitment from the company that they will be contracted to supply products to them. Coming up with such a commitment however may be hard for the company as it may be more expensive than carrying out the production on its own as the new owners will have to include their margins in the cost of the products thereby making them to be more expensive.
Despite these intricacies that affect the decision of a company to outsource its products, there are times when outsourcing is the only viable solution especially in the short term (Wolfe, 2012). For Dell, the cut-throat competition in the technology industry calls for all the players to keep on reevaluating their products, processes, services as well as technology so as to remain on top of the pack and make sure that the product remain competitive. For Dell, the decision to outsource has proven to be the most strategic as it is enabling the company to meet its short term goals as well as to remain competitive in a market where new and innovative products keeps on being introduced in the market at very short intervals.
Arriving at a decision to outsource usually entails critical analysis of several performance parameters that makes outsourcing to be more attractive and cost effective as compared to adopting the self manufacturing strategy. One of the dynamics that makes dell to be best suited to adopt the competence approach is the nature of its competitors. Its major competitor such as IBM produces almost all its hardware and software. The high demand for products from this company makes it possible for huge production volume that makes economic sense due to economies of scale (Weigelt, 2009). For Dell however, the situation is different as the volume that it produces cannot be compared to that of its major competitors such as IBM. Dell therefore does not enjoy the economies of scale that comes with increased production. The decision made by dell to opt to outsource its hardware and software is an indication that production at certain levels can only be effective when outsourcing is done. The companies from where the products are outsourced are able to produce these products cost effectively since they produce for many companies that contract them and this makes production to be very efficient.
To further cut down on its operating costs, dell has in the past engaged not only in outsourcing its products, but also in outsourcing its human resource (Stokes, 2015). The American labor is quite expensive as compared to labor in other countries such as India. For this reason, the Dell Company decided to seek call services for its call center from India (Chithelen, 2014). The cost of hiring Indians is quite low as compared to that of hiring Americans and this makes economic sense for this company to hire the cheap labor as it will lead to cost savings.
Dell Company has also strived to implement the 4vs approach in the production and marketing of its products. The first V represents the volume dimension. In this dimension, it is held that the volume that a company produces influences the strategies that the company will take in its production process (Fredman, 2009). Dell for example produces a considerably smaller volume as compared to companies such as IBM. The low volume calls for this company to think whether producing products in its factories is the best approach that will make it to be competitive in the market. Considering the fact that the volumes at Dell are not as high as that of its competitors, it can be quite expensive and uncompetitive for Dell to produce its own products and hence the decision to outsource.
The second V relates to variety and this implies that for a company to be competitive, it must engage in production of a wide range of products as well as a variety of cost cutting measures to ensure that the company remains competitive. Dell has managed to produce several products such as computer hardware and software as well as smart phones. The company has as well managed to engage in a variety of cost cutting measures such as outsourcing its production as well as labor. Another V is the visibility dimension where the products that a company produces must be visible to the consumers. Consumer must be aware of the existence of products that the company produces. Dell has effectively managed to make its products visible by concentrating on the marketing and distribution aspect of the business. Outsourcing of the manufacturing has enabled the company to specialize in other critical elements of the business such as marketing and making the products to be visible.
The success of any business depends on the strategies that are taken by the business. Good strategies that can lead to good results are based on proper analysis of the operating environment. The strategies that the business adopts should aim at overcoming the identified challenges so as to maximize on profitability. Operations management is one of the areas where an organization can make a difference in terms of savings. Operations manager must be well versed with the strategies that can result into profit maximization and adopt them in their business. Operations managers should critically examine the available options at any one given time and adopt the one that he feels is most appropriate for the business.
Dell Company is among the companies that have managed to survive the competitive technology market through the adoption of effective strategies that have helped it to remain competitive. Through the analysis of the market, Dell determined that it was more cost effective for it to outsource as opposed to producing its products. This strategy has enabled the company to continue being profitable by minimizing its costs. The reason why Dell has managed to survive in the market is because it has been able to clearly understand the market in which it operates in. technology industry such as the one that dell operates in is very dynamic where changes are recorded very often. Products in this industry have a very short life cycle and companies need to keep on inventing if they are to remain competitive. Companies that fail to be innovative and stick to the same products without producing new ones risk losing its market share as other companies will come up with better products that will make the products from this company to be obsolete. In collecting data for this research, there are a number of challenges that were encountered one of them being selecting the data to be included in this paper from the many sources that were consulted. The limitation that is associated with the research conducted in this paper is that the information relates to Dell Company and it is therefore not transferrable. This limits the practicality of this data is therefore very limited.
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