Dell Inc., one of the most successful information technology companies in the world, experienced record high share price above industry average in 2002 due to its renowned direct sale model and customized computers. However, at the beginning of 2006, Dell lost leading position to Hewlett-Packard, triggered several subsequent reactions to more adapt to fiercer marketplace as well, to win market share back. One of the key changes Dell implemented was introducing retailers into the supply chain. Dell also outsourced manufacture to contractors. Also launched new model series embedded with user-friendly features to capture potential market from rivals. It is certain there are two sides of each practice. This will be analyzed in this report, followed by critical reasoning as to possible causes that raised problems in Dell.
In 1984, a freshman named Michael Dell, with the concept of direct marketing and a thousand dollars, founded the Dell Computer Corporation. From then, Dell has proven to be the global computer industry's fastest-growing company over the past decade. Dell’s success was primarily attributed to three key factors, the direct sale model, the built-to-order system and the just in time system. However, in 2006, Dell confronted severe underperformance and dropped sales, a sequence of reactions took place then.
Dell’s Direct-to-consumer model allowed customers to order products through phone call or internet. Dell was able to meet customers’ specification, based on the product customization strategy. This enabled Dell to have an agile supply chain that could cope with volatile demand and avoid bull-whip effect effectively, as well as save the logistical costs.
The built-to order system allowed Dell to achieve lean production. Eliminating unnecessary waste (efficiency) and in fact, enabling Dell to achieve effective demand management (responsiveness) saving inventory carrying costs. For instance, Dell has a seven day shipping schedule, after customer placed the order. The whole process, from order to load on the truck, took only 36 hours, far beyond industry average.
Afterwards, customized products were assembled via Just in time (JIT) system, this enabled Dell to achieve the strategy, fit by transfer part of uncertainty to suppliers. Inventories and orders can be tracked through valuechain.dell.com website by suppliers. This web-based connection facilitated suppliers to meet Dell’s standard on an efficient basis. Problems contributed to underperformance
There are various underlying causes as to why Dell gave up its pre-built prominent competitive advantage which illustrated above. The decrement of needs for order-to-make products was key determinant which forced Dell to re-tailor its distribution strategies. Additionally, neglecting of low-end consumers leads Dell to lose a substantial slice of the market in fierce competition. Firstly, as more varieties articulated in the marketplace, customers were given more choice to decide which brands they prefer. Customers are less willing to wait for 1-2 weeks for Dell’s customized products. Consumption behaviors changed with customers having a high willingness to buy at stores, rather than online. Secondly, computer prices had dropped significantly in the last decade. Meanwhile, with the enhancement of user-friendly features added into the model, which diminished the low price advantage of Dell. One of Dell’s rivals Acer, used retailers to sell low priced computers with adaption of LINUX operating system to medium-high end market. HP tried to reach the commercial market by acquisition of Compaq, as well as launching pavilion to retrieve high-end market. Apple, successful for its renowned innovative design and features, recently collaborated with education sectors for uniformity of library facilities. Also Lenovo’s advanced technologies and increasing reputation from the acquisition of IBM PCs (refer to...