When analyzing a firm’s competitive advantage, it is important to look both at its revenue and ist cost side. In this particular case, Dell’s competitive advantage can be mainly attributed to its reduced average costs. In general, the reduction of average costs can be mainly traced back to Dell’s improved Supply Chain Management by the following measures: •
A decrease in the cost of capital commitment can be achieved through just-in-time production, which is facilitated by a reduced number of suppliers and the co-location of existing suppliers. It can be assumed that the cost of warehousing facilities can be substantially reduced.
A further step in just-in-time production is the common database with Sony, where both companies have access to orders, which allows them to perfectly adjust their production processes. The shipping company can then deliver the two components simultaneously, thus avoiding unnecessary transportation costs. •
In contrast to its competitors, Dell can avoid inventory buy-backs and price protection cost totaling 2.5 cents on every dollar of revenue due to directly distributing their computers to their end consumers. •
With its “Direct model”, Dell is able to decrease inventory significantly by implementing justin-time delivery. Reduced inventory means reduced costs for warehousing, and lower capital commitment. This again contributes to higher liquidity and cash low. On the other hand, just-in-time delivery allows Dell to benefit from the steadily decreasing prices of components – either by offering lower prices to ist own customers or by keeping the prices stable and profiting from higher margins. •
Compared to its major competitors, Dell has a small sales force, thus keeping personnel cost in this area low, relative to its revenue. •
Because of the fact that among Dell’s customers there is a large share of so-called “relationship buyers” it can be assumed that Dell will be confronted with lower...
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