Dell Working Capital

1. One of the main things that differentiates’ Dell from its competitors is that they built the computer systems after they received the order. Therefore, Dell’s work-in-process (WIP) and finished goods inventory remained low compared to industry leaders, such as, Compaq, Apple, and IBM. Dell maintained their inventory. They ordered parts and components based on sales forecasts. Many of their suppliers, who had warehouses near their Austin Texas and Ireland plants, often delivered parts on a daily basis. Dell issued “releases” for a certain amount of parts on a regular basis.
Dell’s competitive advantage was that they only built what customers wanted when they wanted it. They didn’t have a lot of inventory taking up space and capital; therefore, their inventory was much lowers then their competitors.

2. The cash conversion cycle is a metric that expresses the length of time, in days that it takes for a company to convert resource inputs into cash flows. The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted into cash through sales to customers. This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills without incurring penalties. At first Dell was primarily focused on growth, but between September 1993 to January 1996, Dell started to focus more upon liquidity, profitability, and growth. Dell’s institution of the cash conversion cycle required each of its business units to provide a detailed profit and loss statement. In order to heighten performance, Dell improved its internal systems for forecasting, reporting, and inventory control. They also cut the number of suppliers in order to improve quality standards and delivery performance. On top of this Dell re-entered into the notebook market and quickly introduced computer systems based on