Dell’s Journey to Vested Innovation

Dell logoDell is much in the news lately, and for good reason, what with founder Michael S. Dell’s controversial plan to buy out the company and take it private for $24.4 billion coupled with mounting opposition to his plan from no less an eminence than the financier Carl Icahn and other major shareholders.

I’m not here to analyze the value of Dell’s bid or to take sides. But I am clearly a fan of organizations promoting better long term decisions that will help drive innovation, which is one of the reasons Michael Dell has indicated he wants to take the company private.

One example of how Dell is driving innovation and long term thinking is with its supply base. Dell’s efforts in this area are so impressive it recently won the IACCM innovation award for driving innovation through contracting.

What was the winning secret?  Changing the definition of a “strategic partner” to focus on a longer term, “what’-in-it-for-we” Vested relationship.  What follows is a peek under the hood into how Dell helped transform their GENCO ATC strategic partnership to a Vested relationship.

To set the stage, I’ll share a little history about Dell’s relationship with GENCO ATC. It dates back to 2005, when GENCO ATC began working as a Dell supplier to help expedite Dell’s return and repair processes.

In 2009, Dell decided to take a more strategic approach to outsourcing, by consolidating existing sites and establishing a single refurbishment center including testing, re-manufacture, repair, and refurbishment of desktop, notebook, server, and storage systems at its Lebanon, TN facility. GENCO ATC won an aggressive competitive bidding process and acquired Dell’s buildings, assets, and people under a three-year outsource contract. (At the time, Dell considered a three-year contract a long-term deal under its “every dollar, every year” procurement strategy.)

The deal—a transaction-based arrangement—challenged GENCO ATC to assume the risk of meeting price-per-activity while maintaining high service levels. It worked okay for a time, but the relationship became stressed as Dell leaders continued to demand cost reductions based on the “every dollar, every year” procurement philosophy.

As the contract expiration date neared, it was apparent that a fix was needed. Dell, always known as an innovator, decided to pilot Vested Outsourcing as a potential solution to turn what had become a strained outsourcing relationship into a win-win Vested business model.

Team members from both companies forged ahead to convert their transaction based business model to a Vested business model—working hard to create a shared vision, mutually agreed Desired Outcomes, and win-win pricing model supported by a powerful governance framework promoting insight versus oversight.

What started out as a project led to a new way of thinking about each other and doing business together. Dell-GENCO ATC inked their Vested agreement based on Vested’s Five Rules in early 2011 and the rest as they say is history. Both parties stopped thinking about “what’s-in-it-for-me” and instead embraced “what’s in-it-for-we.”

“I knew that a Vested approach would work, but we have been far more successful than anyone imagined,” says Darrin Browder, Dell supplier relationship manager. How successful? Dell and GENCO ATC say benefits are in the multi-million dollars in benefits after just the first two quarters. In fact, the margins for Dell’s Global Dell Outlet is at an all-time record high, cost per box was reduced by 32%, and scrap reduced by 62%. But, consistent with a true Vested relationship, the supplier also comes out a winner. GENCO ATC has earned roughly triple profit margins for the efforts in driving innovations that have resulted in Dell’s success in how it manages reverse logistics.

John Coleman, GENCO ATC’s general manager, said the Vested approach “gave us the freedom to get creative. It’s like we broke open a new innovation piñata. GENCO ATC employees now know that we will share in the reward for good ideas. Now, every quarter we make new priorities that align with our defined mutual outcomes.”

There’s much more about the Dell-GENCO ATC journey to Vested in the forthcoming second edition of Vested Outsourcing: Five Rules That Will Transform Outsourcing. In addition, the presentation at CSCMP’s Annual Global Conference last year, “Dell: The Vested Outsourcing Journey,” by Raj Subramonian, general manager of Global Dell Outlet and Herb Shear, chairman and CEO of GENCO ATC, was lauded as the best presentation of 2012 by Supply Chain Digest.

So why should you care?  Innovation is more challenging than ever. A Vested approach creates true collaboration and trusting relationships at the human and operational level, not just at the latest technology and software level. This leads to the type of disruptive innovations that can revolutionize a market, enhance and stabilize the value chain and make the relationship a long-term partnership.

And as the Dell-GENCO ATC case shows it enhances the value of all the companies involved.

Image: Dell Logo on Box by Kalebdf via Flickr CC

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