In 2001, Dell Computer became the world’s largest personal computer vendor, continuing to gain market share and post profits in an industry struggling with slumping sales and billions of dollars in losses. Dell sells 90% of its PCs directly to the final customer, largely bypassing there seller channel that accounts for most of the world’s PC sales. This direct customer relationship is the key to Dell’s business model, and provides distinct advantages over the indirect sales model. Dell’s direct relationship with the customer allows it to tailor its offerings to customer needs, offer add-on products and services, and use the Internet to offer a variety of customer services. Dell’s direct sales and build-to-order model has achieved superior performance in the PC industry in terms of inventory turnover, reduced overhead, cash conversion, and return on investment. Dell’s business model is simple in concept, but very complex in execution. Building PCs to order means that Dell must have parts and components on hand to build a wide array of possible configurations with little advance notice. In order to fill orders quickly, Dell must have excellent manufacturing and logistics capabilities supported by information systems that enable it to substitute information for inventory. Dell’s corporate philosophy and contribute to its early success Dell’s corporate strategy is to provide products directly to customers. To provide high technology quality products and services through customization. Eliminating middlemen in distribution resulted in the following savings: *
No buyback or price protection since Dell was not dealing with resellers and distributors 2.5 cents on every dollar of revenue, savings of $0.5bn *
Total addition to gross margin in 1994 is 12%. When Dell tried to sell through retailers, price in the retail channel was 88% of the price in the Direct Model. *
No advertising to resellers and distributors, funding the market development activities of channel players. Dell employed a cost based focus strategic positioning, Dell’s competitive advantage through lower costs manifested in all of the value chain activities. Based on this concept, the strategies are:
Build-to-order manufacturing, mass customization, and partnerships with suppliers: Dell customers could order custom-built servers and workstations based on the needs of their applications. Michael Dell believed it made much better sense for Dell Computer to partner with reputable suppliers of PC parts and components rather than to integrate backward and get into parts and components manufacturing on its own. *
Just-in-time components inventories: Dell's just-in-time inventory emphasis yielded major cost advantages and shortened the time it took for Dell to get new generations of its computer models into the marketplace. *
Direct sales: Selling direct to customers gave Dell firsthand intelligence about customer preferences and needs, as well as immediate feedback on design problems and quality glitches. *
Customer service: Service became a feature of Dell's strategy in 1986 when the company began providing a guarantee of free on-site service for a year with most of its PCs after users complained about having to ship their PCs back to Austin for repairs. Dell contracted with local service providers to handle customer requests for repairs; on-site service was provided on a next-day basis. Dell also provided its customers with technical support via a toll-free number, fax, and e-mail. If a customer preferred to work with his or her own service provider, Dell gave that provider the training and spare parts needed to service the customer's equipment. *
Extensive data and information sharing with both supply partners and customers: Dell’s blur the traditional arm's-length boundaries in the supplier- manufacturer-customer value chain that characterized Dell's earlier business model and other direct-sell competitors...
References: * www.google.co.in
* Dell Annual Report, 2000&2001
* Frances. X. Frei., Amy. C. Edmondson, “Dell Computers(A): Field Service for Corporate Clients”, Harvard Business School, Case No: 9-603-067.
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