CASE STUDY

HOW IT ALL STARTED

• Started by Michael Dell (19 at that time) in his dorm room at the University of Texas in 1984 with $1000.

• Company headquartered in Round Rock, Texas, U.S.A.

• Its revenue is around US$ 63.07 billion in 2012.

• In 2001, became the No. 1 computer systems company in the world.

• At present (2013), it is the third largest PC vendor in the world after HP and Lenovo.

ACQUISTIONS

• Dell has grown by both increasing its customer base and through acquisitions since its inception; notable mergers and acquisitions including Alienware (2006) and Perot Systems (2009).

• Notable Acquisitions: -

2006 – Alienware

2009 - Perot Systems

2010 - KACE Networks

2010 - SaaS

2012 - Sonic Wall

2012 - Wyse

DELL SUPPLIERS AND PRODUCTS

PRODUCT LINE

• Desktop computers

• Notebook computers

• Network servers

• Workstations

• Storage products

• Dell offers a total of 1.6 million different possible product configurations for all its product lines

SUPPLIERS

• MICROSOFT - for Windows

• INTEL - for micro processors

• NVIDIA - for Graphic chips

• SONY - for monitors

SUPPLY CHAIN CHART

Customer places an Order(By phone or through the Internet on www.dell.com)

Dell processes the order

Financial evaluation

(credit checking)

Configuration evaluations

(checking the feasibility of a specific technical configuration)

Sends the order to assembly

plant (any one in Austin, or any other)

Plants build, test &

package the product

(about eight hours)

Dell typically ship all orders

(no later than five days after receipt)

2-3 days

SUPPLIERS REVOLVERS

CUSTOMERS

HOW DO THEY DO IT?

Dell’s success is a combination of:

• Direct Sales.

• Inventory Management

• Supplier Integration

Together these allow for maximum effectiveness with minimum cost.

CORE ELEMENTS OF STRATEGY

• Mass customization (end result: Delivers

exactly what the customer wants)

• Partnerships with suppliers

• Just-in-time components inventories (Quick

Introduction of Latest Technology)

• Direct sales

• Market segmentation

• Customer service

• Extensive data and information sharing with both supply partners and customers.

DELL DIRECT SELLING

• New Value Chain: Dell had no in-house stock of finished goods inventories unlike competitors using the traditional value chain model

• Pull Mechanism: It did not have to wait for resellers to clear out their own inventories before it could push new models into the marketplace (typically operated with 60-70 days stock)

• Personalization: Customers got the satisfaction of having their computers customized to their particular liking

Traditional “build to stock value chain”

Component

Manuf.

PCManufact

urer

Distributor

/Reseller Order

Product Product

Forecast

Component

Components

MicroAge,CompuCom

Corporate

customer

DELL DIRECT MODEL

Component manufactur

er

DELL CompCorp

Distributor

Final customer

Components

Order

Product

DELL DIRECT MODEL Continued……

• Dell Computer’s direct model departed from the industry’s historical rules on several fronts:

The company outsourced all components but performed assembly.

It eliminated retailers and shipped directly from its factories to end customers.

It took customized orders for hardware and software over the phone or via the Internet.

It designed an integrated supply chain linking Dell’s suppliers very closely to its assembly factories and order-intake system

THREE GOLDEN RULES OF DELL

Always listen to Custome

rs

Never Sell Indirect

Disdain inventor

y

INVENTORY MODEL

KEY TO SUCESSES ... MINIMUM INVENTORY

• BUILD-TO-ORDER MODEL

• DIRECT TO SELL

• INVENTORYMANAGEMENT is primarily about specifying the size and placement of stocked goods. 

1. Just-in time inventory management - 3 days.

2. Focus on speed of inventory delivery process.

MICHAEL DELL –

“8 days of inventory competitors 40 days, if Intel comes out with a new chip, I am going to get that to the market 32 days sooner”

INVENTORY MANAGEMENT

INSTRUMENTS FOR INVENTORY MODEL

Build-To-Order Model

Value Chain

Program

Revolver

or SLCs (Supplier Logistics Centers)

BUILD TO ORDER

• In contrast to others who produce –to stock, dell first receives the order and

the money and only then starts to build, using that money to purchase from

supplier

• Therefore there is customization of products for each and every customer.

• While other companies had to guess, DELL knew exactly what its customers wanted before manufacturing the product

• Others had to maintain inventory as there existed middlemen, so to support reseller and retail channels.

DELL INVENTORY MANAGEMENT

REVOLVERS

SupplierManufacturing

(SLC)Warehouse

Factory / Merge Center

Material Transfer

• To compensate for long lead times & buffer against demand variability, Dell requires its suppliers to keep inventory on hand in the revolvers.

• Revolvers or supplier logistics centers (SLCs) are small warehouses located within a few miles of Dell’s assembly plants.

• Each of the revolvers is shared by several suppliers who pay rents for using their revolver.

• Dell does not own the inventory in its revolvers; this inventory is owned by suppliers & charged to Dell indirectly through component pricing.

INVENTORY MODEL

• Dell has a special vendor-managed-inventory (VMI) arrangement with its suppliers

• Suppliers decide how much inventory to order & when to order while Dell sets target inventory levels & records suppliers’ deviations from the targets.

• Dell withdraws inventory from the revolvers as needed -- on average every two hours.

• It uses a quarterly supplier scorecard to evaluate how well each supplier does in maintaining this target inventory in the revolver.

Customer

Local Suppliers

Dell FactoryRevolvers

(SLCs)

Suppliers

3 days of inventory - Inventory turns of 122 per year

Delivery

Supplier Owned Dell Owned

LEAN INVENTORY MODEL

VALUE CHAIN PROGRAM

• Value Chain is intended to extend Dell’s successful direct-sales approach back into the supply chain

• The goal of it is increasing the speed and quality of the information flow between Dell and its supply base

• The portal, valuechain.dell.com acts a secure extranet for Dell suppliers to collaborate in managing the supply chain

• Dell envisions using this site to exchange with suppliers current data, forecasted data, new product ideas, and other dynamic information

SUPPLIERS SELECTION AND VALUATION

SELECTION

i. Quality

ii. Price

iii.Delivery

iv. Response to feedback.

EVALUATION - to measure performance uses suppliers score

• Cost

• Delivery

• Availability of technology

• Velocity of inventory

• Ways in which they did business with dell over the internet.

ADVANTAGES OF THIS MODEL

• Returns grew disproportionately as the carrying costs and obsolete stock is avoided.

• Saves enormous amounts of money on purchasing components because the component prices drop by 3 percent per month.

• Reduces handling cost. Common factors that drive up holding costs include opportunity costs, increased rent required for the space of the inventory, higher premiums to insure the inventory, and cost of obsolete goods.

CUSTOMER SERVICE

• Service became a feature of Dell's strategy in 1986

• It provided free on-site service for a year after sale

• Contracted with local service providers to handle customer requests for repairs

• On-site service was provided on a next-day basis

• Technical support via a toll-free number, fax, and e-mail

Global PC Market Share by Units, Percent. 2001-2005

Rank 2001  2002  2003  2004  2005 

1 Dell 13.3 HP-Compaq 16.2 Dell 15.0 Dell 16.4 Dell 16.8

2 Compaq 11.1 Dell 15.2 HP 14.3 HP 14.6 HP 14.5

3 HP 7.2 IBM 6.0 IBM 5.1 IBM 5.5 Lenovo 6.9

4 IBM 6.4 NEC 3.4 Fujitsu 3.8 Fujitsu 3.8 Acer 4.6

5 NEC 3.8 Toshiba 3.2 Toshiba 2.9 Acer 3.4 Fujitsu 3.8

Others 58.1 56.0 58.9 56.4 53.3

Global PC Market Share - 2001-2005

Global PC Market Share - 2006-2011Global PC Market Share by Units, Percent. 2006-2011.

Rank 2006  2007  2008  2009  2010  2011

1 Dell 15.9 HP 18.2 HP 18.4 HP 19.3 HP 17.9 HP 17.2

2 HP 15.9 Dell 14.3 Dell 14.3 Acer 13.0 Dell 12.9 Lenovo 13.0

3 Lenovo 7.0 Acer 8.9 Acer 11.1 Dell 12.2 Acer 12.0 Dell 12.1

4 Acer 5.8 Lenovo 7.4 Lenovo 7.2 Lenovo 8.1 Lenovo 9.7 Acer 11.2

5 Toshiba 3.8 Toshiba 4.0 Toshiba 4.5 Toshiba 5.1 Toshiba 5.4 ASUS 5.9

Other 51.6 47.1 44.5 42.3 42.1 40.7

Dell’s motivation for rethinking direct sell business model

Limitation of direct sell model in emerging market

Buying habit

Not access to internet

Lack of online payment (i.e. credit card)

IN THE PAST TODAY

PC customizability was highly

appreciated by customers

Surplus stock lost value quickly

Demand was typically low for

each product variant

Assembly-to-order more

effective than selling pre-

configured PCs in retail stores

Customers are willing to

choose from a few

standardized PCs model.

Inventory of standardized

models moves fast

Demand was relatively high for

each standardized model

PC became a popular

commodity, price has dropped

significantly

Direct sell model is less

effective in today’s more

standardized market

Continued……..

Direct sell

Retail

stores

Hybrid

business

model

DELL’S HYBRID MODEL

“The direct model has been a revolution, but it’s not a religion.”

- Michael Dell in April, 2007 memo to employee -

In Jun 2007, Dell offered two PC models through Wal-Mart stores sell Inspiron

notebook computers through Wal-Mart’s Sam’s Club outlets.

In Oct 2007 Dell sold its PC through, China’s largest electronics retailer fifty

Gomez Electrical Appliances stores

Later Dell also extended its international retail strategy by opening its first retail

store in Russia

SWOT ANALYSISStrength:1. Direct Model Approach, it provides Dell a way to interact to customers directly2. Customization of products3. Reliability, Service and Support4. Latest Technology

Weakness:1.Market share growth is slow due to competition; Fake products/ imitations affect sales2. Overdependence on Suppliers.3.  Lack of Dell Stores, can be an issue for some customers.

Opportunity:1. With increase in e-commerce the online retail stores of Dell provide them better framework to tap new business2. The Direct approach Model of Dell would help them there existing to sell the other IT products, so new product development opportunity is for Dell3. Tablet and Smart phone Market.

Threats:1. With the increase in innovation in the market the computer systems are becoming outdated, so Dell should constantly come out with new products2. People need the quality products at low price which was Dell strength due to it’s customize solution, but now its competitors are coming up with products in same price range

AT PRESENT

• It’s bad news for a PC manufacturer (Particularly if it don’t also produce tablets or mobile phones.) A new study predicts that the rise in sales of tablets and cell phones will directly, and negatively, affect the sales of PCs, which have already been steadily slowing down.

• Many people attribute the decline of PC sales to various factors, like the growing popularity of smartphones and tablets.

• Last year, tablet sales totalled around 116 million units; this year it’s expected to jump up to 197 million, a nearly 70 percent increase. The reason for the increase is largely due to decreasing prices, love of the cloud, and addiction to apps. On the other end of the spectrum, while PCs sold 341 million units last year, anticipated sales will drop to 315 million this year.

HOW IT EFFECTS DELL

• DELL, literally has no market share in tablet and smartphone segment. It solely depends on Laptops and Desktops in consumer market for its revenue.

• Due to decline in PC sales, Dell Profits plunged by 47% in 2012.

• The much hyped Windows 8 didn’t play any part in increasing the PC sales.

DELL’S FUTURE

• Dell in $24 Billion Deal to Go Private in 2013 (biggest by far since the days of the recession)

• Microsoft helped with up to $3 billion loan as part of the financing. (This is not the first time for Microsoft. In 1997, It rescued Apple with a $150 million investment from Bankruptcy)

• Reason - Dell's in the midst of a complex restructuring, realigning its focus to become more of a full-featured, enterprise-oriented company. (By going private, it has NO stress from share holders to generate profits)

THANK YOU