1. Why, historically, was Dell so profitable compared to its rivals? Come to class prepared to present and discuss your ICA analysis of the profitable period in Dell’s history. What factors created this pattern of forces?
Since his days at UT Austin, Michael Dell and his company have historically built computers that were designed specifically for the needs of the customer. Dell would optimize, upgrade, and otherwise customize the PC’s he sold which later served as a foundation for his company.
Dell’s profitability and success was largely due to their “Direct Model” which streamlined the process of PC manufacturing and distribution tailored specifically to end consumers. While Dell’s competitors often focused on selling retail products for the masses, Dell made custom order PC’s for large customers such as big businesses, government, and education institutions. The entire production process at Dell was performed in a matter of hours and by 2003, over 50,000 computers were manufactured a day. More uniquely perhaps, they only carried four days worth of inventory while most of their competitors took between 20 and 30 days to perform the same task. Their operations were so large that their Texas-based manufacturing center had the capacity to produce over 1,000 customized computers every hour, while only having seven hours worth of inventory. Furthermore, Dell had a consolidated supply chain, which minimized their days in inventory. For instance, monitors from Sony would be shipped and packaged to the customers the same time that their Dell computer would arrive. This streamlined production process of the direct model allowed Dell to be profitable by lowering inventory costs, increasing delivery times, and fitting specific customer needs, all of which helped increase their profits.
Positive. Customers have limited bargaining power. High need for computers. Dell and its competitors were making good profits....
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