Matching Dell Case Analysis

8/10/2019 Matching Dell Case Analysis

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MATCHING DELL CASE ANALYSIS

This analysis describes the case of compter and peripherals indstry especially the sccessfl

mana!ement of Dell Compter Corporation "hich !re" t"ice as fast as its ma#or ri$als li%e Compa&'

Gate"ay' He"lett (ac%ard and I)M* The main reason for the sccess of Dell "as their +Direct Model+

of sellin! compters "hich eliminated all traditional channels li%e distribtors' resellers and retailers*

Traditionally all its competitors li%e I)M' H(' and Compa& etc* sed reseller' retailers and distribtors

to sell their compters to end sers* I)M "as the first company to lanch its (C in ,-., and soon held

/01 of the mar%et* )t the !ro"th of I)M pro$ed to be short li$ed as "ith Schmpeterian rents "hen

it failed to ta%e any proprietary competiti$e ad$anta!e and ceded ri!hts of the microprocessor and

operatin! system to Intel and Microsoft* Dell thro!h its direct sellin! approach sed to ta%e orders

directly from the cstomers' ths sellin! cstomi2ed machines* This pro$ed to be a re$oltionary

bsiness strate!y "hich "old enable it !ain cost leadership and competiti$e ad$anta!e in the (C

mar%et' enablin! the company to eliminate "holesale and retail dealers that pro$ed to be $ery

e3pensi$e and "asta!e of time* It also pro$ided for a cheap and efficient "ay of distribtion and

prodction of compters* 4rthermore the direct model also pro$ided a better nderstandin! of

cstomer needs*

This efficient system of distribtion "as possible only becase the company "as able to ali!n its

resorces and capabilities "ith cstomer e3pectations* The company "as able to bild h!e and hi!hly

inte!rated and efficient e3ternal as "ell as internal sales forces* The e3ternal sales force "as

entrsted "ith the responsibilities of nderstandin! cstomer e3pectations and ma%in! sre that each

and e$ery aspect of the (C "as bild accordin! to cstomer specifications* The internal sales force "as

assi!ned to ta%e orders from cstomers* An important point to mention here is that the internal sales

force also had an additional responsibility of creatin! cstomer loyalty and con$incin! them of byin!

the best a$ailable prodct* This also helped eliminate the roles of resellers ths pro$in! to be a stron!

competiti$e ad$anta!e for the company* It also sbdi$ided its cstomers into t"o lar!e !rops5

relationship byers and transaction byers "ith specific sales !rop caterin! to each cadre of

cstomers* This "as a !ood mar%et se!mentation strate!y as it helped the company retain cstomers*

6hile sales representati$es loo%ed after relationship byers' Dell ser$iced transaction byers $ia

telephone* The company also pro$ided an intensi$e after sales ser$ice' both online and in call centers

to impro$e cstomer satisfaction* The problems "hich appeared comple3 "ere otsorced to other

companies* As its sales and cstomer base increased the company frther di$ided its cstomers into

bsinesses' !o$ernments' indi$idal cstomers and edcational instittions*

An important aspect of its capability "hich helped achie$e competiti$e ad$anta!e "as that it prodced

compters based on actal orders rather than demand forecasts* It "as only possible becase of the

resorces "hich it employed in assemblin! its (C7s* It manfactred the (C7s based on celllar

manfactrin! nits "hich consisted of fi$e employee manfactrin! cells* This enabled to achie$e

fe"er defects and 2ero in$entory tar!ets* Ths sccessfl application of #st in time manfactrin!

and #st in time deli$ery pro$ided Dell the ability to deli$er prodcts in one or t"o days after recei$in!

an order* An !ood e3ample mentioned in the case in this re!ard is that of the company shippin! ei!ht

cstomi2ed' tested se$ers "ithin 89 hors "hen it recei$ed emer!ency orders from the NASDA: stoc%

e3chan!e* The #st in time deli$ery "as also sccessfl mainly becase the company had sond

relationships "ith its sppliers $ia close electronics lin%s and ths commnicatin! replenishment needs

to them on an horly basis* It also enabled the company to direct some spplier shipments sch asmonitors from Sony directly to cstomers "hich "as a ma#or cost ad$anta!e* Another important

aspect of the lo!istics strate!y adopted by Dell "as that sppliers "ere encora!ed to locate

"arehoses and prodction facilities close to its assembly operations to ensre smooth flo" of

materials across the $ale chain* This ensred that its $ale chain "as capable eno!h to handle the

lar!est of orders in smallest possible time frame* Thro!h this $ale chain the company "as able to

introdce a "ide ran!e of prodcts* All the abo$e stated resorces and capabilities decreased

operatin! costs "ith enhanced cstomer ser$ice and ths helped maintain sbstantial profit mar!ins

thro!h relati$ely lo" in$entory and capital e3penditres in comparison to the re$enes* Ths if "e



tal% in terms of the strate!y trian!le "e can say that Dell had the resorces and capabilities sch as

hi!hly inte!rated sales forces' efficient spplier relations' a able leadership in Michael Dell' cross

fnctional e3cellence and otstandin! corporate cltre' "hich e$entally led the company to achie$e

its core strate!y of direct distribtion and sellin! and hence maintain a relati$ely hi!h !ro"th rate* I

"old also li%e to mention that to impro$e its systems and processes' Dell hired mana!ement

e3perience from other companies li%e Motorola' Apple compter and Intel "ho focsed especially on

operations and manfactrin! and ths focsed on retrn on in$ested capital It is also important tomention here that the company had achie$ed a radical inno$ation in the indstry as far as its direct

model "as concerned*

Competitors of Dell li%e I)M' Compa& and H( tried to imitate the direct sell strate!y bt faced a lot of

isses to do so not only becase of inefficiencies in their $ale chain bt also becase of de$iations in

their bsiness strate!ies "hich they "ere follo"in! since many years* I)M "hich mo$ed from a mar%et

leader to third position in the mar%et tried to replicate the direct sell strate!y in its o"n "ay by

initiatin! pro!rams li%e the #oint manfactrin! athori2ation pro!rams and the enhanced inte!ration

and assembly pro!rams "ith its distribtors and resellers sch as MicroA!e' In!ram Micro and Tech

Data ths shippin! hea$ily confi!red (C7s to these distribtors "ho in trn completed the

confi!ration accordin! to cstomer specifications* Also to inte!rate the $ale chain' I)M set

component prices sch that total costs "ere same for channel;assembled and I)M assembled (C7s* To

combat clones' it lanched di$ision Ambra to prodce lo" end (C7s "ith direct sellin! a$ailable thro!hphone' mail and later on "ebsite* I)M failed to sho" reslts becase of inefficient cstomer ser$ice'

hi!her operatin! costs* It "as also not easy to replace sppliers to smoothen the flo" of !oods*

Compa& in ,--/ became the "orld7s lar!est manfactrer and had a lar!e ran!e of distribtion

net"or%s* )t in order to conter the direct sell strate!y of Dell' it mo$ed from a prodction system in

"hich it relied on forecasts made by channel partners* )t this type of a system pro$ed to be too slo"

becase of hi!h in$entory and lon! lead times before deli$ery to the cstomer* Conse&ently in order

to smooth ot the inefficiencies of the spply chain' the company introdced an optimi2ed distribtion

model nder "hich the (C7s "ere bilt only after orders "ere recei$ed* Compa& also introdced

standardi2ation in their prodction processes "ith standard machines bilt to order in its plants* In

,--. the company introdced the direct pls pro!ram offerin! (C7s to small and mid si2e companies

$ia telephone and the internet "ith a lead time of arond < days* )t hi!h de!ree of resistance from

the resellers and distribtors made sre that Compa&7s mo$ement to online sales "as &iettroblesome*

H( had a reptation for hi!h &ality and performance' offerin! a comparable ran!e of prodcts as

Compa&* They also had a "ide distribtion net"or% of sppliers and resellers* In ,--= the company

introdced an e3tended soltions partnership pro!ram "hich "as aimed at bildin! cstomi2ed

soltions for lar!e corporate offices* Their spply chain comprised of ten channel partners* The

company hoped to considerably ct costs' redce in$entories and minimi2e defects thro!h this

pro!ram* The company also tried to imitate Dells7 online sellin! strate!y by introdcin! a "eb ser$ice

%no"n as H( shoppin! $illa!e thro!h "hich cstomers cold ma%e prchase (C7s directly from the

"ebsite*

Gate"ay adopted a similar model to Dell bt ser$ed different needs as Dell* It focsed on home and

small office sers aimed at the (C ser$er bsiness* )t they coldn7t mana!e a rapid chan!e from

indi$idal and small bsiness cstomers to a "ider prodct ran!e and conse&ently "as forced to

refocs on its ori!inal mar%et of small bsiness* It also tried to smooth ot its spply chain by

introdcin! di$isions li%e Gate"ay (artners*

Ths "e can say the competitors of Dell "ere nsccessfl in imitatin! Dell7s direct sell strate!y

becase they had inefficient capabilities and resorces li%e inefficient cstomer ser$ice' lac% of &ality

sppliers "hich can ensre smooth mo$ement of prodcts alon! the spply chain' inefficient spplier

relationships' and lac% of nderstandin! and %no"led!e of the $ale chain* Also it "as not easy for

them to eliminate distribtors' retailers and resellers "ho once "ere a part of their core competencies*

The case mentions that =>1 of their bsiness came from distribtors and resellers*



A ma#or concern for Dell is to be a continos impro$ement firm* It has to indl!e in systematic

inno$ation so that it does not fall nder the cate!ory of Schmpeterian rents as happened "ith I)M*

The reason for this is that the direct model of sellin! is difficlt to imitate bt o$er the time' its

competitors "ill be able to catch p and since it is a lo" profit indstry' the pressre of !ro"in! and

impro$in! simltaneosly cold case it to loose its competiti$e ad$anta!e*

Dell needs to impro$e its ran!e of cstomers ths mo$in! from bsiness and indi$idal cstomers to

edcational instittions ths tar!etin! a ne" se!ment*As the competition in the ?S mar%et increases' Dell "ill ha$e to loo% to e3pand internationally* )t the

company needs to nderstand the basic dynamics of cstomer relations before introdcin! the direct

model to e$ery mar%et* 4or e3ample in most Asian contries cstomers are still do not rely on internet

byin! becase of secrity and thefts of information o$er the internet and some"hat nreliable

prchasin! mechanisms and are still dependent on retailers and resellers for prchasin! specific items

sch as compters* A !ood e3ample in this re!ard is the 6almart store in Germany* It did not

nderstand the mar%et dynamics and hence "as a failre*

Also "ith ad$ent of soft"are soltions in e$ery aspect of bsiness li%e health care' prodction and

manfactrin!' the ons "old shift from bein! #st a compter manfactrer to a company "hich

pro$ides a total soltion* This cold be a ma#or threat for the company* 4or that Dell needs to

$ertically inte!rate "ith companies pro$idin! sch soltions so that its prodcts can be pro#ected as a

total pac%a!e rather than #st any other compter*Also Dell needs to concentrate on the desi!n and stylin! of its ne" prodcts and hence focs on it

bein! in the stats symbol in addition to its hi!h performance prodct symbol* That is an important

part of systematic inno$ation*

4inally it needs to contine its e3cellent spplier relationships loo%in! to identify and "or% "ith ne"

sppliers "ho "old be a solid $ale addition to its $ale chain*

In the end I "old li%e to say that in order to ha$e a sstainable competiti$e ad$anta!e' Dell needs to

focs on satisfyin! its internal i*e* its employees as "ell as its e3ternal cstomers to achie$e

or!ani2ational le$era!e and be a continally impro$in! firm

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Matching Dell Case Analysis