With the resignation of Dell CEO Kevin Rollins today, it is clear that there is a limit to how much a company can squeeze from its suppliers and operations. Now it's up to founder Michael Dell to take back the reigns and try to put the computer maker back on the right path. But when you are talking about a hulking company with $56 billion in revenues operating in an industry with one of the most brutal pricing pressures around, there may not be much more the aging wunderkind can do.
During the 1990s, Dell became the paragon of manufacturing efficiency by selling direct to consumers over the phone and the Internet, and actually building a computer only after it had been ordered. It kept shrinking the number of days it held parts that quickly lost their value, and cranked up the number of times it could turn inventory through its just-in-time assembly lines. Of course, everyone else in the computer industry began to copy Dell's manufacturing and mass-customization approach. At the same time, the gains Dell could eke out of its business became less and less spectacular.
So now Michael Dell is faced with the law of diminishing returns, on the one hand, and the law of large numbers, on the other. His direct model cannot get much more efficient than it already is (after all, we are still talking about physical parts that need to be shipped around the world, not digital bits). And his business is already so big, that finding new ways to grow will become harder and harder. Perhaps Rollins bailed because he finally came to terms with these hard facts.
