I came across the following quote attributed to Roger Babson:

It is wise to keep in mind that neither success nor failure is ever final.

For many years, our supply chain community had admired Dell for its superior supply chain capabilities.  The “Dell model” was the substance of many case studies and texts addressing world class supply chain management. This was the company that pioneered Internet commerce and the direct sales to consumer model.  This was the same company that demonstrated outstanding working capital management, with the ability to collect customer money before the order was even shipped.  This was one of the initial pioneers in the concept of just-in-time pull-oriented manufacturing, and the first in utilizing a network of contract manufacturers.

But that was then, and this is now, and Dell is reaching a crisis point where all previous praise might well be neutered.

New York Times reporter Ashlee Vance has written a scathing article that portrays Dell “as a company plagued by serious problems, including misreading the desires of customers, poor customer service, suspect product quality and improper accounting.” The article reports that in the period from May 2003 to July 2005, Dell shipped at least 11.8 million desktop computers that had a good risk of failing because of a faulty, leaking capacitor on the motherboard.  The capacitors were sourced from Asian supplier Nichicon, and Dell was not the sole recipient of these defective capacitors.  The Times reviewed unsealed documents from a three-year-old lawsuit filed in 2007 by Advanced Internet Technologies against Dell, which alleges that Dell management and employees were well aware of the potential for motherboard failures, but instead chose to deflect failure complaints back to customers. The article notes: “A study by Dell found that Optiplex computers affected by the bad capacitors were expected to cause problems up to 97 percent of the time over a three-year period, according to the lawsuit.” An outside contractor hired by Dell found that ten times more computers were at risk of failing than Dell had estimated, and to make matters worse, faulty motherboards were replaced with other faulty motherboards, indicating a breakdown among Dell’s supply chain procurement teams in locating reliable capacitors.  In 2005, Dell took a $300 million charge related to fixing the problem with the troubled computers.

What disturbed me the most in reading this article was the reporting that noted that Dell management and employees went to great lengths to conceal these component failure problems, instructing sales teams to deflect customer concerns, blaming customers themselves for the failures.  While other manufacturers proactively responded to customers service needs, Dell chose to procrastinate.

Readers can certainly form their own opinions after reading this Times article and are invited to share comments below.  Keep in mind that the lawsuit is still pending.  Bill Snyder pens on his InfoWorld blog that today’s Dell is not the same company as it once was and has demonstrated “a shocking breach of faith with customers.”

In my view, Dell should no longer appear on any list of the best performing supply chains, until and unless it can demonstrate customer responsiveness and quality practices.  As a long time Dell customer, I’m not inclined to buy another Dell computer. Apologies not accompanied by true remediation are just PR and now fall on deaf ears.

Customer trust is very difficult to regain, once it is lost.

Dell is about to face the biggest threat to its brand in the company’s history, and we may well have a far different supply chain case study.

Bob Ferrari