Dell’s Value Chain

Supply Chain Management

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Dell’s Value Chain
 History
 Founded by Michael Dell in 1984
 The single concept: Selling computer
systems directly to customers
 Designed and built the first computer
system of its own design in 1985
 Was one of the first computer companies to
send a technician to homes to service
personal computers in 1985
Dell’s Value Chain
 History
 Introduced the 316LT, the company’s first
notebook computer in 1989
 Joined the top-five computer system makers
worldwide in 1993
 Earning appr. $1 million per day 7 months
after the launch of dell.com in 1996
 Introduced E-Support, an online tool to
provide technical support to customers in
1999
Dell’s Value Chain

 History
 For the first time, Dell achieves No. 1
ranking in global market share in 2001
Dell’s Value Chain
Dell’s Value Chain
 How has Dell used its direct sales and build-
to-order model to develop an exceptional
supply chain?
Close relationship with customers and
suppliers
First-hand and pure customer feedback
High volumes of customer information

Huge amount ANALYSE

Exceptional
of customer and Excellent
information Supply Chain
Dell’s Value Chain
 “These relationships with customers and
suppliers allow us to know what we must be able
to supply in real time and then very quickly and
precisely meet that demand while maintaining low
inventory.” says Dave Schneider, continuous
improvement engineering manager of Dell.
Dell’s Value Chain
 How has Dell exploited the advantage of the
Internet to improve performance?
 Dell established a unique e-commerce model by
embracing the Internet in its supply chain.
 Dell brings products to market faster than its competitors

 Customization and quick response

 Attract large business customers

 Reduce Bullwhip Effect

 Collecting the payments

Dell’s Value Chain
 Dell brings products to market faster than
its competitors
 Dell uses direct sales via Internet, whereas Traditional PC
manufacturers previously assemble PCs ready for purchase at
retail stores.

 PCs have life cycles of only a few months

 Thus, Dell enjoys early-to-market advantage.

Dell’s Value Chain

 Customization and quick response

 Dell
 uses the Internet to sell its products

 offers a virtually unlimited variety of PC

configurations.

 Buyers can click through Dell and assemble a

computer system piece by piece, based on their
budgets and needs
Dell’s Value Chain

 Attract large business customers

 To facilitate B2B sales, the Dell site offers each corporate

customer an individualized interface called “Premier page”
 purchasing managers log on and order using an interface
customized for their company's needs
 While Dell’s consumer sales are highly visible, its business
sales are a much bigger revenue source
 “About 15 percent of our total revenue is consumer business
and the rest is B2B” says Bob Kaufman, Media Relations
manager of Dell.
Dell’s Value Chain
 Reduce Bullwhip Effect

 Dell constracts special Web pages for suppliers,

allowing them to view orders for components they
produce.

 This allows suppliers to plan based on customer

demand
Dell’s Value Chain
 Collecting the payments

 Because of direct sales, Dell can collect payments in

averagely 5 days after they are sold.

 However, Dell continues to pay their suppliers

according to the traditional billing schedules.

 Low level of inventory and negative working capital

helps Dell increase its performance.
Dell’s Value Chain
 What is the main disadvantage of Dell selling
PCs over the Internet?

 High Shipping Costs

 Economies of Scale
Dell’s Value Chain
 Dell company can’t enjoy EoS (Economies of Scale)
in shipping because it sends individual PCs to
customers from its factories.

 Competitors
 sell through distributors and middlemen
 ship their products with EoS using large truck shipments to
warehouses and retailers

 The transportation cost of a PC relative to its price

is generally between 2-3%.
Dell’s Value Chain
 How does Dell compete with a retailer who
already has a stock? (Continued)
 Advantages of Direct Sales system over Brick
and Mortar system

 Price Advantage

 Differentiation advantage
Dell’s Value Chain
 How does Dell compete with a retailer who already has a
stock? (Continued)
 Price Advantage of Dell
 Increase in Dell’s profit margin
 Elimination of retailer and distributer margins

 Decrease in Inventory Costs

 5 days inventory vs. 30-45-90 days inventory
 Decrease in costs of materials

 Negative Working Capital

 Suppliers financing Dell’s growth

 Better Forecasts due to better sales information/feedback

Cheaper Prices
Dell’s Value Chain
 How does Dell compete with a retailer who
already has a stock? (Continued)

 Differentiation Advantage of Dell

 Feedbacks and Evaluation

Dell’s Value Chain
 How does Dell’s supply chain deal with the
bullwhip effect? (Continued)

 Bullwhip Effect

 The phenomenon in which order variability is amplified as it

moves up the supply chain from end-consumers through
distribution and manufacturing to raw material suppliers.

 Supply Chain Management

Dell’s Value Chain
 How does Dell’s supply chain deal with the bullwhip
effect? (Continued)

 Materials costs account for about 74% of Dell’s revenues

 Around $21 Billion is spent on material every year

 0.1% Decrease in Material Costs

Making Supply Chain Management very critical for Dell

Dell’s Value Chain
 How does Dell’s supply chain deal with the bullwhip
effect? (Continued)

 Sharing Data with suppliers

 Flexibility

 Investment

 Privileged Suppliers

 Long time relationship with suppliers

 Helping suppliers become more like Dell
Dell’s Value Chain
 Conclusion

 Mission
 High Customization (Mostly based mission on High Customization)
 Fast Response
 Lowest Cost (Highest Value)
Fast response and cost considerations are not as high as customization considerations.
 Benefits
 Early to Market
 Payment Advantage
 Customization Option

 Expert Supply Chain Management

Dell’s Value Chain
 References

 http://corp.bankofamerica.com/public
 http://courses.washington.edu/smartman/DellStumble.htm
 http://www.ecommerce-guide.com/news/news/article.php/2013731
 http://www.oracle.com/newsletters/information-indepth/lean-supply-chain/jun-
07/dell-supply-chain.html
 www.isye.gatech.edu/~jvandeva/Classes/6203/BullWhip.ppt
Dell’s Value Chain

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