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 SUPPLIERS

Desktop computers MICROSOFT - for Windows
Notebook computers INTEL - for micro processors
Network servers NVIDIA - for Graphic chips
Workstations SONY - for monitors

Storage products
Dell offers a total of 1.6 million
different possible product
configurations for all its product lines
 SUPPLY CHAIN CHART
SUPPLIERS REVOLVERS

Plants build,
Customer Sends the order test &
places an Order 2-3 to assembly package the
Dell
(By phone or days plant product
processes
through the (any one in Austin,
Internet on
the order (about eight
or any other)
www.dell.com) hours)

Dell typically
ship all orders
Configuration (no later than five
evaluations Financial
days after receipt)
evaluation
(checking the
feasibility of a specific (credit
technical checking)
configuration) CUSTOMERS
 HOW DO THEY DO IT?

Dells 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

Product Product
Component PC
Component Distributor Corporate
Manufactu
Manuf. /Reseller customer
rer
Order
Forecast

MicroAge,
CompuCom
Components
 DELL DIRECT MODEL

Product
Components
Component DELL Comp Final
manufacturer Corp customer
Order

Distributor
 DELL DIRECT MODEL Continued

Dell Computers direct model departed from the industrys 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 Dells suppliers very closely to
its assembly factories and order-intake system
THREE GOLDEN RULES OF DELL

Always
Disdain
listen
Never inventory
Sellto Customers
Indirect
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

Revolver
Build-To-Order
Model or SLCs (Supplier
Logistics Centers)
Value
Chain
Program
 DELL INVENTORY MANAGEMENT
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.
 REVOLVERS
Material Factory / Merge
Supplier
Transfer Center
Manufacturing
(SLC)
Warehouse

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 Dells 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.
 LEAN INVENTORY MODEL
3 days of inventory - Inventory turns of 122 per year

Suppliers
Revolvers
(SLCs) Dell Factory Delivery

Local Suppliers

Customer
Supplier Owned Dell Owned
 VALUE CHAIN PROGRAM

Value Chain is intended to extend Dells 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 - 2001-2005
Global PC Market Share by Units, Percent. 2001-2005

Rank 2001 2002 2003 2004 2005

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

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

Toshib
5 NEC 3.8 Toshiba 3.2 2.9 Acer 3.4 Fujitsu 3.8
a
Other
58.1 56.0 58.9 56.4 53.3
s
 Global PC Market Share - 2006-2011
Global 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

Dells 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)

 Continued..
IN THE PAST
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
TODAY
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
todays more standardized market
 DELLS HYBRID MODEL

The direct model has been a revolution, but its 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-Marts Sams Club outlets.

In Oct 2007 Dell sold its PC through, Chinas 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 ANALYSIS
Strength:
1. Direct Model Approach, it provides Dell a
way to interact to customers directly
2. Customization of products
3. Reliability, Service and Support
4. Latest Technology
Opportunity:
1. With increase in e-commerce the online retail
stores of Dell provide them better framework to
tap new business
2. The Direct approach Model of Dell would
help them there existing to sell the other IT
products, so new product development
opportunity is for Dell
3. Tablet and Smart phone Market.
Weakness:
1.Market share growth is slow due to
competition; Fake products/ imitations affect
sales
2. Overdependence on Suppliers.
3. Lack of Dell Stores, can be an issue for some
customers.
Threats:
1. With the increase in innovation in the market
the computer systems are becoming outdated, so
Dell should constantly come out with new
products
2. People need the quality products at low price
which was Dell strength due to its customize
solution, but now its competitors are coming up
with products in same price range
 AT PRESENT

Its bad news for a PC manufacturer (Particularly if it dont 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 its 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 didnt play any part in increasing the PC sales.
 DELLS 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