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CASE STUDY
HOW IT ALL STARTED
• Started by Michael Dell (19 at that time) in his dorm room at the University of Texas in 1984 with $1000.
• Company headquartered in Round Rock, Texas, U.S.A.
• Its revenue is around US$ 63.07 billion in 2012.
• In 2001, became the No. 1 computer systems company in the world.
• At present (2013), it is the third largest PC vendor in the world after HP and Lenovo.
ACQUISTIONS
• Dell has grown by both increasing its customer base and through acquisitions since its inception; notable mergers and acquisitions including Alienware (2006) and Perot Systems (2009).
• Notable Acquisitions: -
2006 – Alienware
2009 - Perot Systems
2010 - KACE Networks
2010 - SaaS
2012 - Sonic Wall
2012 - Wyse
DELL SUPPLIERS AND PRODUCTS
PRODUCT LINE
• Desktop computers
• Notebook computers
• Network servers
• Workstations
• Storage products
• Dell offers a total of 1.6 million different possible product configurations for all its product lines
SUPPLIERS
• MICROSOFT - for Windows
• INTEL - for micro processors
• NVIDIA - for Graphic chips
• SONY - for monitors
SUPPLY CHAIN CHART
Customer places an Order(By phone or through the Internet on www.dell.com)
Dell processes the order
Financial evaluation
(credit checking)
Configuration evaluations
(checking the feasibility of a specific technical configuration)
Sends the order to assembly
plant (any one in Austin, or any other)
Plants build, test &
package the product
(about eight hours)
Dell typically ship all orders
(no later than five days after receipt)
2-3 days
SUPPLIERS REVOLVERS
CUSTOMERS
HOW DO THEY DO IT?
Dell’s success is a combination of:
• Direct Sales.
• Inventory Management
• Supplier Integration
Together these allow for maximum effectiveness with minimum cost.
CORE ELEMENTS OF STRATEGY
• Mass customization (end result: Delivers
exactly what the customer wants)
• Partnerships with suppliers
• Just-in-time components inventories (Quick
Introduction of Latest Technology)
• Direct sales
• Market segmentation
• Customer service
• Extensive data and information sharing with both supply partners and customers.
DELL DIRECT SELLING
• New Value Chain: Dell had no in-house stock of finished goods inventories unlike competitors using the traditional value chain model
• Pull Mechanism: It did not have to wait for resellers to clear out their own inventories before it could push new models into the marketplace (typically operated with 60-70 days stock)
• Personalization: Customers got the satisfaction of having their computers customized to their particular liking
Traditional “build to stock value chain”
Component
Manuf.
PCManufact
urer
Distributor
/Reseller Order
Product Product
Forecast
Component
Components
MicroAge,CompuCom
Corporate
customer
DELL DIRECT MODEL
Component manufactur
er
DELL CompCorp
Distributor
Final customer
Components
Order
Product
DELL DIRECT MODEL Continued……
• Dell Computer’s direct model departed from the industry’s historical rules on several fronts:
The company outsourced all components but performed assembly.
It eliminated retailers and shipped directly from its factories to end customers.
It took customized orders for hardware and software over the phone or via the Internet.
It designed an integrated supply chain linking Dell’s suppliers very closely to its assembly factories and order-intake system
THREE GOLDEN RULES OF DELL
Always listen to Custome
rs
Never Sell Indirect
Disdain inventor
y
INVENTORY MODEL
KEY TO SUCESSES ... MINIMUM INVENTORY
• BUILD-TO-ORDER MODEL
• DIRECT TO SELL
• INVENTORYMANAGEMENT is primarily about specifying the size and placement of stocked goods.
1. Just-in time inventory management - 3 days.
2. Focus on speed of inventory delivery process.
MICHAEL DELL –
“8 days of inventory competitors 40 days, if Intel comes out with a new chip, I am going to get that to the market 32 days sooner”
INVENTORY MANAGEMENT
INSTRUMENTS FOR INVENTORY MODEL
Build-To-Order Model
Value Chain
Program
Revolver
or SLCs (Supplier Logistics Centers)
BUILD TO ORDER
• In contrast to others who produce –to stock, dell first receives the order and
the money and only then starts to build, using that money to purchase from
supplier
• Therefore there is customization of products for each and every customer.
• While other companies had to guess, DELL knew exactly what its customers wanted before manufacturing the product
• Others had to maintain inventory as there existed middlemen, so to support reseller and retail channels.
DELL INVENTORY MANAGEMENT
REVOLVERS
SupplierManufacturing
(SLC)Warehouse
Factory / Merge Center
Material Transfer
• To compensate for long lead times & buffer against demand variability, Dell requires its suppliers to keep inventory on hand in the revolvers.
• Revolvers or supplier logistics centers (SLCs) are small warehouses located within a few miles of Dell’s assembly plants.
• Each of the revolvers is shared by several suppliers who pay rents for using their revolver.
• Dell does not own the inventory in its revolvers; this inventory is owned by suppliers & charged to Dell indirectly through component pricing.
INVENTORY MODEL
• Dell has a special vendor-managed-inventory (VMI) arrangement with its suppliers
• Suppliers decide how much inventory to order & when to order while Dell sets target inventory levels & records suppliers’ deviations from the targets.
• Dell withdraws inventory from the revolvers as needed -- on average every two hours.
• It uses a quarterly supplier scorecard to evaluate how well each supplier does in maintaining this target inventory in the revolver.
Customer
Local Suppliers
Dell FactoryRevolvers
(SLCs)
Suppliers
3 days of inventory - Inventory turns of 122 per year
Delivery
Supplier Owned Dell Owned
LEAN INVENTORY MODEL
VALUE CHAIN PROGRAM
• Value Chain is intended to extend Dell’s successful direct-sales approach back into the supply chain
• The goal of it is increasing the speed and quality of the information flow between Dell and its supply base
• The portal, valuechain.dell.com acts a secure extranet for Dell suppliers to collaborate in managing the supply chain
• Dell envisions using this site to exchange with suppliers current data, forecasted data, new product ideas, and other dynamic information
SUPPLIERS SELECTION AND VALUATION
SELECTION
i. Quality
ii. Price
iii.Delivery
iv. Response to feedback.
EVALUATION - to measure performance uses suppliers score
• Cost
• Delivery
• Availability of technology
• Velocity of inventory
• Ways in which they did business with dell over the internet.
ADVANTAGES OF THIS MODEL
• Returns grew disproportionately as the carrying costs and obsolete stock is avoided.
• Saves enormous amounts of money on purchasing components because the component prices drop by 3 percent per month.
• Reduces handling cost. Common factors that drive up holding costs include opportunity costs, increased rent required for the space of the inventory, higher premiums to insure the inventory, and cost of obsolete goods.
CUSTOMER SERVICE
• Service became a feature of Dell's strategy in 1986
• It provided free on-site service for a year after sale
• Contracted with local service providers to handle customer requests for repairs
• On-site service was provided on a next-day basis
• Technical support via a toll-free number, fax, and e-mail
Global PC Market Share by Units, Percent. 2001-2005
Rank 2001 2002 2003 2004 2005
1 Dell 13.3 HP-Compaq 16.2 Dell 15.0 Dell 16.4 Dell 16.8
2 Compaq 11.1 Dell 15.2 HP 14.3 HP 14.6 HP 14.5
3 HP 7.2 IBM 6.0 IBM 5.1 IBM 5.5 Lenovo 6.9
4 IBM 6.4 NEC 3.4 Fujitsu 3.8 Fujitsu 3.8 Acer 4.6
5 NEC 3.8 Toshiba 3.2 Toshiba 2.9 Acer 3.4 Fujitsu 3.8
Others 58.1 56.0 58.9 56.4 53.3
Global PC Market Share - 2001-2005
Global PC Market Share - 2006-2011Global PC Market Share by Units, Percent. 2006-2011.
Rank 2006 2007 2008 2009 2010 2011
1 Dell 15.9 HP 18.2 HP 18.4 HP 19.3 HP 17.9 HP 17.2
2 HP 15.9 Dell 14.3 Dell 14.3 Acer 13.0 Dell 12.9 Lenovo 13.0
3 Lenovo 7.0 Acer 8.9 Acer 11.1 Dell 12.2 Acer 12.0 Dell 12.1
4 Acer 5.8 Lenovo 7.4 Lenovo 7.2 Lenovo 8.1 Lenovo 9.7 Acer 11.2
5 Toshiba 3.8 Toshiba 4.0 Toshiba 4.5 Toshiba 5.1 Toshiba 5.4 ASUS 5.9
Other 51.6 47.1 44.5 42.3 42.1 40.7
Dell’s motivation for rethinking direct sell business model
Limitation of direct sell model in emerging market
Buying habit
Not access to internet
Lack of online payment (i.e. credit card)
IN THE PAST TODAY
PC customizability was highly
appreciated by customers
Surplus stock lost value quickly
Demand was typically low for
each product variant
Assembly-to-order more
effective than selling pre-
configured PCs in retail stores
Customers are willing to
choose from a few
standardized PCs model.
Inventory of standardized
models moves fast
Demand was relatively high for
each standardized model
PC became a popular
commodity, price has dropped
significantly
Direct sell model is less
effective in today’s more
standardized market
Continued……..
Direct sell
Retail
stores
Hybrid
business
model
DELL’S HYBRID MODEL
“The direct model has been a revolution, but it’s not a religion.”
- Michael Dell in April, 2007 memo to employee -
In Jun 2007, Dell offered two PC models through Wal-Mart stores sell Inspiron
notebook computers through Wal-Mart’s Sam’s Club outlets.
In Oct 2007 Dell sold its PC through, China’s largest electronics retailer fifty
Gomez Electrical Appliances stores
Later Dell also extended its international retail strategy by opening its first retail
store in Russia
SWOT ANALYSISStrength:1. Direct Model Approach, it provides Dell a way to interact to customers directly2. Customization of products3. Reliability, Service and Support4. Latest Technology
Weakness:1.Market share growth is slow due to competition; Fake products/ imitations affect sales2. Overdependence on Suppliers.3. Lack of Dell Stores, can be an issue for some customers.
Opportunity:1. With increase in e-commerce the online retail stores of Dell provide them better framework to tap new business2. The Direct approach Model of Dell would help them there existing to sell the other IT products, so new product development opportunity is for Dell3. Tablet and Smart phone Market.
Threats:1. With the increase in innovation in the market the computer systems are becoming outdated, so Dell should constantly come out with new products2. People need the quality products at low price which was Dell strength due to it’s customize solution, but now its competitors are coming up with products in same price range
AT PRESENT
• It’s bad news for a PC manufacturer (Particularly if it don’t also produce tablets or mobile phones.) A new study predicts that the rise in sales of tablets and cell phones will directly, and negatively, affect the sales of PCs, which have already been steadily slowing down.
• Many people attribute the decline of PC sales to various factors, like the growing popularity of smartphones and tablets.
• Last year, tablet sales totalled around 116 million units; this year it’s expected to jump up to 197 million, a nearly 70 percent increase. The reason for the increase is largely due to decreasing prices, love of the cloud, and addiction to apps. On the other end of the spectrum, while PCs sold 341 million units last year, anticipated sales will drop to 315 million this year.
HOW IT EFFECTS DELL
• DELL, literally has no market share in tablet and smartphone segment. It solely depends on Laptops and Desktops in consumer market for its revenue.
• Due to decline in PC sales, Dell Profits plunged by 47% in 2012.
• The much hyped Windows 8 didn’t play any part in increasing the PC sales.
DELL’S FUTURE
• Dell in $24 Billion Deal to Go Private in 2013 (biggest by far since the days of the recession)
• Microsoft helped with up to $3 billion loan as part of the financing. (This is not the first time for Microsoft. In 1997, It rescued Apple with a $150 million investment from Bankruptcy)
• Reason - Dell's in the midst of a complex restructuring, realigning its focus to become more of a full-featured, enterprise-oriented company. (By going private, it has NO stress from share holders to generate profits)
THANK YOU