Fast Company: Dell is constantly trying to build speed and efficiency into its supply chain. Why is speed so critical?
Kevin Rollins: Whenever you compress time you end up with lower cost. So we do everything we can to cut inventory and reduce the cycle time from order to delivery. That ends up being a cost and performance advantage for the company.
One of the untold secrets of the supply chain is the direct connection with the customer, which means taking an order from the customer and not through an intermediary. Most people think of the manufacturing process as the supply chain. When we think of the supply chain, we think from the customer all the way back to the component supplier. Because we don't have any intermediaries, we can see directly into the demand side — we get good information directly from the customer, which enables us to forecast well. That lets us optimize the manufacturing-procurement chain and move very fast.
Our competitors all try to copy our supply-chain model, but they don't have the front-end! They sell through distributors and resellers and aggregators, so there is no way for them to know what the demand is. They're always out of position. They have bad forecasts on the front-end and they don't know what their suppliers have in inventory.
FC: Why does Dell spend so little on research and development, compared with HP and IBM?
Rollins: If R&D spending is the driver of success, why aren't IBM and HP making money in the computer business? Compaq and HP haven't made money in their desktop business for at least five years. IBM spends a lot on R&D but they lose every quarter in the PC business. We ask: If [product] innovation is such a competitive weapon, why doesn't it translate into profitability? Either their innovation is a sham and their customers aren't willing to pay for it. Or we are spending the appropriate amount of R&D to get the right products with the right level of innovation for our customers. We've decided to innovate around adding value to our customers, rather than creating new odds and ends that nobody wants.
FC: I've heard several of your supply-chain chiefs say that inventory scares them — they hate inventory. Yet a lot of companies take comfort from a big order backlog. Why isn't that the case with Dell?
Rollins: Our product is unique, in that it's like fresh fish. The longer you keep it, the more it loses value. In our industry, the product depreciates anywhere form a half to a full point a week. You can literally see the stuff rot. Cutting inventory is not just a nice thing to do, it's a financial imperative.
FC: Your Austin PC factory has cut the amount of inventory it holds to just five to seven hours, and yet recently you challenged them to slash their order-to-delivery lead-time in half. Why do you set such a high bar?
Rollins: If I asked them to reduce it by 3% or 5%, they'd come back with 3% or 5% improvement. But if I ask them to improve by 50%, they might not hit that number, but they may well come back with 30% improvement. When you give people a massive challenge, you get a massive change in performance.
I was just in Japan, where I talked about kaizen, the Japanese principle of continuous improvement. Usually it refers to very small, incremental improvement. I told the team in Japan, "No, we want big kaizen — big improvement. Multiples." When you challenge them to achieve multiples, they come back with big changes to get those multiples. That's the watershed mindset.
FC: What does it take to be a hero at Dell?
Rollins: Historically, we had heroes at Dell who would cause their own crisis and fix it. But that's a bad way to run the ship. Heroes have a short half-life here because the issue for us is, "What did you do for me today?" You can't run a company as big as ours by super-human acts. You need to create great business institutions and constantly beat [your numbers.] That requires superhuman planning and design, and an ability to tweak that design constantly. The way you get to be a real hero is to deliver heroic results.
FC: Dell is a very contrarian organization. Every major American computer company has outsourced their assembly operations; you've kept two factories in the US. Most high-tech companies like to use inventory as a safety net; you don't. Many of your peers spend billions on R&D; you don't. Why does Dell consistently choose the road less traveled?
Rollins: We figure that if we do the same things as the rest of the industry, we'll get the same result, which is a bad one. If we followed industry convention, we'd be in a mess. We believe that if you find something that's different from the industry norm, you'll be more successful.
FC: Some of your competitors call you the Wal-Mart of high-tech — you're a highly efficient distributor that delivers bland products.
Rollins: They're trying to damn us with faint praise. We think of it as high praise, when you look at Wal-Mart's success. So beat me with that noodle. People delight in saying what they believe are disparaging things about us. That's great, because it gives us something to prove. We want to be the underdog. We constantly want to be chasing. We never want to lose our edge.
FC: You've certainly set yourself some Wal-Mart-sized goals. Dell is well on its way toward surpassing its goal of $60 billion in revenue within the next few years. Is there a sense that you've arrived?
Rollins: We're not satisfied with the company yet and we don't think we've seen our best days. In the PC marketplace, which represents just 60% of our business, we've only got 19% of the global market. And we only have 3-5% of the entire IT industry budget. We're so small, compared to the total of what we could be. To have any thought that we've arrived is nuts. We look at new opportunities, new portions of the industry and share of existing markets, and conclude that what we've achieved is peanuts. If we double the size of the company we'll have 6% of the IT industry — still nothing. What about 40% of the industry — what would that look like? Then people say, "We'd have to quadruple." Well, yeah. Let's quadruple.