Dell: Real World Analysis
Real world situation – Dell Inc.
Dell Inc. was founded in 1984 by Michael S. Dell, who developed the supply chain formula, which would end up making Dell one of the world leaders in PC sales. When applying the resource-based view and the VRIN-framework to Dell, it becomes clear that Dell has a definite competitive advantage. Dell’s success-formula combines several resources which are “unique, valuable to customers, and difficult to imitate”.
What makes Dell so special, is the fact that it does not use a middleman. The firm sells directly to its customers, which means that it has significant cost savings. Even in the 1990s, when Dell was just becoming successful, the operating costs were only 18 percent. This was roughly a half of the operating costs of its competitors. Dell still has a competitive advantage caused by cost leadership, which in turn is the result of experience. One reason for these low costs was mentioned earlier, the lack of a middleman, which in this case would be the retail stores. As a result, the products sold by Dell are often cheaper than its substitutes found in stores, because the latter include the retailer’s extra expenditures. Dell can afford to charge cheaper prices because of its second cost saving advantage: the fact that its inventory costs are minimal. Since customers tell Dell exactly what kind of product they want, Dell does not have to guess what the demand will be. As a result, Dell does not have to order unnecessary components from its suppliers and thus it can save inventory costs. Traditional PC sellers, do not know what the customers demand or will demand in the future. They have to guess, and often they end up with either a shortage of products because of a sudden rise in demand, or with high inventory costs because of the products waiting to be sold during low demand periods. Dell has found a way around this, which gives it a competitive advantage: direct sales.
Recognizing its clear competitive advantage, Dell
Dell Inc. was founded in 1984 by Michael S. Dell, who developed the supply chain formula, which would end up making Dell one of the world leaders in PC sales. When applying the resource-based view and the VRIN-framework to Dell, it becomes clear that Dell has a definite competitive advantage. Dell’s success-formula combines several resources which are “unique, valuable to customers, and difficult to imitate”.
What makes Dell so special, is the fact that it does not use a middleman. The firm sells directly to its customers, which means that it has significant cost savings. Even in the 1990s, when Dell was just becoming successful, the operating costs were only 18 percent. This was roughly a half of the operating costs of its competitors. Dell still has a competitive advantage caused by cost leadership, which in turn is the result of experience. One reason for these low costs was mentioned earlier, the lack of a middleman, which in this case would be the retail stores. As a result, the products sold by Dell are often cheaper than its substitutes found in stores, because the latter include the retailer’s extra expenditures. Dell can afford to charge cheaper prices because of its second cost saving advantage: the fact that its inventory costs are minimal. Since customers tell Dell exactly what kind of product they want, Dell does not have to guess what the demand will be. As a result, Dell does not have to order unnecessary components from its suppliers and thus it can save inventory costs. Traditional PC sellers, do not know what the customers demand or will demand in the future. They have to guess, and often they end up with either a shortage of products because of a sudden rise in demand, or with high inventory costs because of the products waiting to be sold during low demand periods. Dell has found a way around this, which gives it a competitive advantage: direct sales.
Recognizing its clear competitive advantage, Dell