Enterprise Risk Management at DELL Computer
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Case Details:
Case Code : ERMT-005
Case Length : 13 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Dell
Industry : Computer products and services
Countries : USA
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Excerpts
Overview of Risks Contd...
Technology Risks
The computer industry underwent continuous technology improvements. This resulted in the frequent introduction of new products, short product life cycles and continual improvement in product price/performance characteristics...
Marketing Risks
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Dell believed that any general economic, business or industry conditions that
caused customers or potential customers to reduce or delay their investments in
computer systems could have an impact on the company's business. During fiscal
2002, worldwide economic conditions had a negative impact on the demand for
Dell's products and resulted in declining revenues and earnings compared to the
previous year. Dell believed that worldwide economic conditions would improve.
However, if economic conditions continued to worsen, or if they did not improve
as rapidly as expected, the company's revenues and earnings could be negatively
affected...
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Operational Risks
Dell's manufacturing process consisted of assembly, functional testing and
quality control of computer systems. Testing and quality control processes were
also applied to components, parts and sub-assemblies obtained from suppliers.
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The company's flexible build-to-order manufacturing
process was designed to achieve rapid inventory turnover and to
quickly incorporate new technologies or components into its product
offerings.
Dell's manufacturing process required a high volume of quality
components that were procured from third-party suppliers. Reliance
on suppliers, as well as industry supply conditions, generally
involved several risks, including the possibility of defective
parts, a shortage of components, reduced control over delivery
schedules and increase in component costs. Dell outsourced most
components from various suppliers and assembled them as per the
customers' specifications... |
Intellectual Property Risks
In February 2002, Dell held a portfolio of approximately 730
US patents and 535 pending US patent applications. Dell also had a large number
of related foreign patents and patent applications pending. Dell's US patents
expired in years 2003 through 2020. Dell was developing a portfolio of patents
that might be of value in negotiating intellectual property rights with others
in the industry...
Financial Risks
Dell was exposed to a variety of financial risks, including foreign currency,
interest rate and stock market fluctuations. Dell had clearly defined policies
and procedures to manage these risks.
Foreign Currency Risk
Foreign currency fluctuations could have a negative impact on earnings and cash
flows. Dell utilized option contracts and forward contracts to hedge foreign
currency exposures. The principal currencies hedged during fiscal 2002 were the
British pound, Japanese yen, Euro and Canadian dollar. Dell monitored its
foreign currency exposures to ensure the overall effectiveness of its foreign
currency hedge positions...
Exhibits
Exhibit I: Dell Financial performance
Exhibit II: Dell Global Network
Exhibit III: Dell An Illustration of Build-to-Order model
Exhibit IV: Refinement of the Dell Model
Exhibit V: Extension of the Dell Model
Exhibit VI: Dell Key Financial Data
Exhibit VII: Dell Financial Performance
Exhibit VIII: Dell Break up of Income by Segment
Exhibit IX: Dell Key Financial Ratios
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