Harvard Case - Matching Dell

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Matching Dell

1. Analyzing Dell’s value chain and competitive strategy, explain how Dell was able to succeed (build competitive advantage) in the low profitable situation of the PC market.

“Value Chain Analysis” is a tool for analyzing the value creation system of competitors. Objective is to develop a value creating system with competitive advantage. A value chain is a chain of activities. Products pass all activities of the chain in order and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities. It is important not to mix the concept of the value chain, with the costs occurring throughout the activities. A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds too much of the value of the end product, since a rough diamond is a lot less valuable than a cut diamond.

The value chain categorizes the generic value-adding activities of an organization. The "primary activities" include: Inbound logistics, Operations manufacturing, Marketing / Sales, Outbound logistics, and After sales service. The "support activities" include: Firm infrastructure, Human resource management, Technology management, and Procurement. The costs and value drivers are identified for each value activity. The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic planning. Its ultimate goal is to maximize value creation while minimizing costs.

“Inbound Logistics” Dell worked closely with suppliers to arrange just-in-time delivery of parts. Dell had whittled its days of inventory down from 32 in 1995 to 7 in 1998. Since 1992, it had reduced the number of suppliers for its Austin facility from 204 to 47. With remaining suppliers, Dell maintained close electronic links, communicating replenishment needs to some vendors on an hourly basis. The electronic links allowed Dell to direct some suppliers’ shipments straight to its customers. Computer monitors supplied by Sony, for instance, never passed through Dell’s facilities. Rather, Dell communicated the order for a monitor to Sony and to its shipper. The shipper picked up the computer at Dell’s site, picked up the monitor at Sony’s, brought the boxes together, and delivered them simultaneously to the customer. A web site customized to Sony gave both Sony and Dell continuous access to ordering and manufacturing information.

Dell encouraged suppliers to locate warehouses and production facilities close to its assembly operations. Co-location was particularly easy to arrange near Dell’s major facilities in Austin, where local and state government officials had worked since the 1950s and 1960s to attract high-technology companies. Now known as “Silicon Hills,” the Austin region included 72 semiconductor manufacturers and related suppliers, 160 computer and electronics manufacturing firms, more than 600 small and midsized software companies, and 825 technology consulting and services firms.

“Operations Manufacturing” Dell manufactured machines that were – within the guidelines of a broad menu – tailored to customer needs. The company made customized PCs based on actual orders and held no finished goods inventory of standardized machines. Once received, an order was sent electronically to the appropriate manufacturing facility. There, a computer generated a parts list for the order a bar code for tracking purposes. Dell’s older facilities were organized in assembly-line fashion. Its newest facility in Austin employed five-person manufacturing cells. The company found that the cells delivered machines with fewer defects more efficiently. After assembly, the machine moved to a software loading zone. There, special machines and a very-high-speed computer network installed software specified by the customer. The fully equipped machine proceeded to a “burn-in”...
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