Business Process Analysis and Measurement Paper
Length: 1840 words (5.3 double-spaced pages)
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Within the successful planning and execution of every prominent business today is the underlying factor of operational management. Although in the early terms most companies that focused on this area were manufacturing companies, this innovative idea has struck cords into service and retail. From creating software to computers Dell has risen in the last 20 plus years to become one of the worlds leading technological innovators. In 2006 Dell achieved a pivotal goal and was named on the list of the Fortune 500 a coveted seat among all businesses.
How does Dell achieve such staying power? “Direct relationships with our customers give us an advantage of seeing changing customer requirements and needs earlier than companies who do not have the same breadth of direct relationships” (Dell, 2009). Customer satisfaction is just one of the many areas Dell focuses on; from developing new and effective processes to extensive performance measurements Dell strives to excel in every field.
In the year of 1994 Dell was a struggling PC maker like all the other PC makers. Dell ordered components in advance and carried a large amount of component inventory; it was then when Dell started to invent a new business model (Byrnes, 2003). The new business model circumvented the idea of build-to-order process with direct sales to customers. This change drew in a large sum of cash that dell used to fuel the growth of the company. Today in Dell’s daily business the organization uses multiple processes to perform to the best daily. Account selection is a process that Dell implemented deliberately to select customers with relatively conventional purchasing patterns and low service costs.
The demand management process that Dell incorporated into its daily business cycle was the motto “Sell what you have.” Dell developed this motto for the critical function of matching inward bound demand to forecast the supply. Another important daily business process that Dell incorporated into the business is the product lifecycle management. Since Dell’s customers were largely high-end replicated buyers that were sympathetic towards new technology, Dell’s marketing focused on product managing product lifecycle transitions.
The supplier management is also a key component in the daily business process for Dell. Dell’s manufacturing systems featured multiple combinations of build-product-to-order and buy components to plan processes.
This way the company worked closely with the suppliers to introduce more flexibility into the system. By utilizing forecasting into the daily process Dell has contained accuracy from 70-75 percent due to the companied careful account selection. As far as daily transactions are concerned Dell’s daily business process is processed via credit cards. Direct sales for Dell were explicitly inundated at high-end customers who pay with credit cards (Jonathan, 2003).
Through the use of profitability management in the daily business process, Dell matched the supply and demand on a daily, weekly, and monthly basis. In many companies today the managers face a choice between profitability and inventory management and with that come new daily processes into invention.
Every business has stakeholders who are affected in one manner or another by the actions that the company takes. Each of those stakeholders also affects those decisions in one manner or another. This section will look at some of those stakeholders, both internal and external and analyze how they and the actions that they take affect the business processes and Operational Management (OM).
As the head turns, so the body turns. When an executive decision is made, the entire company will feel the affects of that change. Dell Computer’s executives have endeavored and very much succeeded in creating an atmosphere of operational excellence that promotes “a combination of quality, price, and ease of purchase that no one else can match” (Chase, Jacobs, and Aquilano, 2006, p. 30). Their decisions affect shareholders’ decisions to invest in the company, suppliers being willing to provide products or services to Dell and customers’ willingness to purchase their desktops, laptops, PDA’s or other electronic equipment and software from Dell.
Pearce and Robinson (2005), tell of Dell’s innovation in this manner, “Dell Computer built its first 10 years of unprecedented growth by creating an organization capable of the speedy and inexpensive manufacture and delivery of custom-built PCs. Gateway and Micron have attempted to copy Dell for most of that time but remain far behind Dell’s diverse organizational capabilities” (p. 151).
Face it, shareholders are after one thing and one thing only, returns on his or her investments. Preferably, they want big returns. If a shareholder loses confidence in the company that he or she has invested their dollars into, they will sell those shares and make the investment in some other company or investment opportunity. This loss of confidence would cause Dell Computer to have to make up that working capital in other ways such as cutting staff or looking for ways to cut spending. On the other hand, if an investor feels confident that his or her investment would bring them the returns that they desire from Dell, it would infuse Dell with additional working capital to bring more innovative ideas to the marketplace.
Every company buys a product or service from somebody. For Dell, it uses components from Intel, Microsoft, McAfee and others. If a supplier would choose not to conduct business with Dell, it would cause Dell to have to come up with alternative choices in which it delivers maximum value and performance to its customers without sacrificing the returns to its shareholders. Every transaction a supplier has with Dell makes a difference on the overall bottom line to the company and its shareholders. If a supplier raises or lowers its prices to Dell, it will have an effect on the price that a customer will pay for a computer and be the deciding issue a customer uses to purchase his or her computer from Dell or another company.
Without a customer to purchase Dell Computer’s products or services, Dell Computer ceases to exist. Ultimately, an investor will not invest in a company that has no customers, suppliers will have no need to sell to Dell and Dell’s executives and employees will not have jobs. The customer is what creates the bottom line. A customer will spend his or her hard earned money only on a product or service that they feel like will deliver the performance necessary and value added benefits that they require to make a purchase from any company.
Performance measurements are used by organizations to assess how well an organization is doing against established objectives and standards. In operational management, four performance measurements commonly used to measure performance are productivity, efficiency, utilization, and operation time performance measures.
Productivity measures are important to operational management because they indicate the effectiveness of how well an organization is using its resources. “Since operations management focuses on making the best use of the resources available to a firm, productivity measurement is fundamental to understanding operations-related performance” (Chase et al., 2006, p. 39). Productivity is measured by dividing an organization’s outputs by inputs. To increase productivity, an organization increases the number of inputs appropriate for the task. Productivity can be measured in two ways. It can be measured by comparing an organization’s productivity to other organizations in its industry or use time of the same operations to compare productivity.
Efficiency measures are common measures used in the computer manufacturing industry. Dell for instance, uses the receivable turnover efficiency measure to determine how quickly it receives payment for the products it has sold (Chase et al, 2006). In general, efficiency is measured by dividing actual output by a standard output. Efficiency is also referred to as a way to measure the loss or gain of a process.
Utilization is another performance measurement and perhaps the most common process measurement. Utilization is used to measure the time an organization’s resource is actively used. How effectively an organization’s resource is being used is measured by taking the time a resource is being used and dividing it by the time the resource is available for use.
The fourth performance measurement is operation time. Operation time is the sum of setup time and run time. The setup time is the time it takes for an organization to prepare a machine in order for it to be ready for use and the run time is the time that is needed to produce or deliver a task.
Productivity, efficiency, utilization, and operation time performance measurements are important to Dell’s success because they help determine how effectively and efficiently a process is working and how productivity is affected over time. They serve as indicators in how well the organization is progressing toward improvements. By measuring process performance, Dell is able to make adjustments and process improvements that will help the organization achieve performance standards and objectives. Measuring performance is a management tool that enables operational managers to improve product quality, reduce time and costs, improve the quality of work life, and enhance learning and empowerment in order to achieve desired performance results (Davenport & Short, 1990).
Additionally, the metrics derived from process measurements allows organizations to benchmark by providing organizations with a way to compare their performance with other organizations in their industry. This is important to investors since the relative cost of providing a good or service is essential to high earnings growth (Chase et al., 2006). The importance for Dell to understand the relationships between performance measures and their outcomes in order to best achieve organizational objectives can not be understated. Ultimately, the measures are a way for operational managers to monitor and control operations held on a routine basis.
Dell’s ultimate goal is staying power. Competiveness, customer satisfaction, producing quality products, and insuring stockholders profits are certain; Dell is able to achieve these goals by understanding the nature of the business and selling directly to customers on a personal level understanding and meeting their needs. With the built-to-order processes Dell is able to maintain the supply and demand focus on profitability and create new and innovative ways to ensure continued success. “Provide great value to customers and partners through direct relationships” (Dell, 2009).
Byrnes, J. (2003). Dell Manages Profitability, Not Inventory. Working Knowledge for
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Chase, R. B., Jacobs, F. R., & Aquilano, N. J. (2006). Operations Management for Competitive
Advantage (11th Ed.). McGraw Hill: New York, NY. [University of Phoenix Custom Edition e-text]. Retrieved April 15, 2009, from University of Phoenix, ISCOM/471 --- Operations Management Course Web site.
Davenport, T. H., & Short, J. E. (1990, Summer). The New Industrial Engineering: Information
Technology and Business Process Re-design. Sloan Management Review, 31(4), pp. 11-27.
Dell (2009). Form 10-K for Fiscal Year 2009. Retrieved April 20, 2009
Pearce, J., & Robinson, R. (2005). Strategic Management (9th ed.). Boston , MA: McGraw Hill.
Byrnes, J. (2003). Dell Manages Profitability, Not Inventory. Retrieved April 20, 2009, from