Dell Computers (a)

8/3/2019 Dell Computers (a)

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Submitted by Group 8


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y Introduction to Dell

y Corporate philosophy and initial success

y Operating margin

y Problem identification

y Pros vs. cons of expanding to new market

y Call center for corporate clients

y

New market and challengesy Possible outsourcing


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y Founded by Michael Delly Founded in 1983

y $ 70 million sales by 1985

Annual report Dell, 2001


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y Dell Direct:

y Business clients comprised 90% of Dells customer.

y Low Inventory Control:

y Days inventory reduced from 31 in 1996 to 5 in 2001y Low-Cost Production andLow Prices:

y No intermediary to decide on mark up

y operating cost per unit from $330 to $240 in a span of 5

years.y CustomizedWeb Page:

y Advantage ofPremier is discussed below.


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Net revenues (in millions) (Ex 7) $31,888COGS $ 25,455

SGA (Ex 7) $3,193

R&D (Ex 7) $ 482

Special charges (Ex 7) $105

Average total revenue per unit ($) 2,050

Units sold (millions) 15.55

COGS/ unit ($) $1,636

SGA/ unit ($) $205R&D/ unit ($) $30.99

Special charges / unit ($) $ 6.75

Margin per unit $ 171.2


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-10%

-5%

0%

5%

10%

15%

20%

25%

1998 1999 2000 2001

Y

earonYearchangeinRatio

Years

Note: if a ratio for example Net income/ net revenue is 5% in 2001 it means if in 1998 it

was 115 then in 2001 it is 105.

Gross Margin/ Net Revenues OperatingIncome/ Net RevenuesNet Income / Net Revenues


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Reasons for entering large server:

1. The core competence of Dell, the sale model-Delldirect, can extend to other segment, large server

2. The excellent customer relationship managementwill help Dell to break into the new segment.

3. The high service quality inPC field makes customersbelieve in Dell's new product.


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Reasons for not entering large server:

1. The Dell-direct maynot succeed in large server due to differentrequirements. The customer of large server has differentbackground.

2. The position of Dell is to focus on low-cost production and lowprices. This position cannot be accept by large server market.

3. The Price wars are expected to take profits even lower.

4. The existed competitors are doing well in field service. Dell'sstrategy might not make difference to them.

5. The way to large server is incremental. Dell has to followcustomers' needs. Such needs are different from PC market.

6. The trading and cost for an inhouse field service team aremore critical for server.


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Initiatives Payoffs

Ship totarget

1. Reduction of cost of transit2. Improved customer service

First-timeResolvers

1. Improved number of issues solved in the first go2. Thus improved customer perception of the product and hence

reduced number of technical visits thus reducing after salescost.

Call centrerepresentatives

1. Reduction of technical visits to 75%2. Hence enabled company to place more stringent constraints

on service levels that can be delivered to customerFrequentlyaskedquestions

1. Reduced the technical visits required further2. Help improve after sales service turnover time3. Also leveraged the technical knowhow of the technical team

for its advantage4. It helped in gaining customer satisfactionwithout employing

extra resources for the sameFeedback forthe product

1. Helped in improving Frequently asked questions2. Helped as gold mine for product development team and

support team to handle queries more effectively hence

reduction of cost.


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Mainly the employee cost is discussed here


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IBM cost

RevenueMiddle range server (million $) 4,996

High end server (million $) 4,149

Total (million $) 9,145

Number of client (Pg 7) 12,000Margin of profit (Ref 3) 50%

Expenses (million $) 4,573

Number of after sales employee (Pg 7) 135,000

% of employee cost (Assumption) 40%Employee expenses (million $) 1,829

Employee expenses per client (million $) $ 0.38

Employee expenses per employee ($) 33,870

Employee per customer 11


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Approximate cost if Dell enters

i Cost cut due to CSR's (inPC) (Pg 6) 25%

ii Cost cut due to CSR's ( technicality is double) (Assumption) 50%

iii nonFirst time resolves (PC case) (Pg 6) 10%

iv nonFTR's (for server is at least double) (Assumption) 20%

v Multiplication factor due to repetition 1.2

vi Service level provided (hrs) 24

vii Service level i n server (hrs) 4

viii Multiplication factor due to service level (Assumption) 6

Total Multiplication factor (ii*v*viii) 3.6

case 1

ix Employee expenses (Table 1) $ 205

x Employee cost in expansion (ii*v*viii*ix) $ 738

if Efficiency of Dell employee in Server is less (Assumption) 50%

xi Employee cost in expansion $ 1,476

case 2

xii Number of employee per customer (PC) (per million) 2571.5

Number of employee per million customer in server (per million)

(xii*viii/(ii*(1+iv)) 25715

Employee cost in expansion $ 2,053

case 3

xiii Employee expenses (IBM cost) (Assumption) $ 33,870

xiv Employee cost in expansion (ii*v*viii*xiii) $ 10,839


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Points in favour Points againstDecision One1. High reach in the target market2. Highly experienced in providing

service for server especially high end(Pg 7)

1. Customer interface will vary henceagainst Dell-direct

2. Might or might not make up to theSLAs hence a risk at Dells end

3. Stringent Dells operation and servicepolicies may be heavy for them

IBM1. High reach in the target market2. Highly experienced in providing

service for server especially high end(Pg 7)3. High employee/ customer ratio

hence will have workforce to meetSLA

4. Might help in boast in sales due tobrand associationwith IBM.

1. Direct competitor in the market2. Will it have any pressure to deliver

the SLA of Dell3. Might lead to breach of corecompetency i.e. operationalefficiency to IBM.


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Documents

Dell Computers (a)