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    DELL Case Study: Dell Direct

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    Dell pioneered a direct sales and custom-built computer manufacturing model that revolutionized the PC industry. Key elements included bypassing retailers, building computers only after receiving customer orders to minimize inventory, and developing close relationships with suppliers and customers. This allowed Dell to reduce costs, quickly provide customized systems, and gain a competitive advantage over other PC manufacturers. While imitated, Dell's model scaled rapidly and contributed significantly to its explosive growth in the 1990s.

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    DELL Case Study: Dell Direct

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    bah.bah.blah
    527 views32 pages
    Dell pioneered a direct sales and custom-built computer manufacturing model that revolutionized the PC industry. Key elements included bypassing retailers, building computers only after receiving customer orders to minimize inventory, and developing close relationships with suppliers and customers. This allowed Dell to reduce costs, quickly provide customized systems, and gain a competitive advantage over other PC manufacturers. While imitated, Dell's model scaled rapidly and contributed significantly to its explosive growth in the 1990s.

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    DELL Case Study: Dell Direct

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    Dell pioneered a direct sales and custom-built computer manufacturing model that revolutionized the PC industry. Key elements included bypassing retailers, building computers only after receiving customer orders to minimize inventory, and developing close relationships with suppliers and customers. This allowed Dell to reduce costs, quickly provide customized systems, and gain a competitive advantage over other PC manufacturers. While imitated, Dell's model scaled rapidly and contributed significantly to its explosive growth in the 1990s.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    527 views32 pages

    DELL Case Study: Dell Direct

    Uploaded by

    bah.bah.blah
    Dell pioneered a direct sales and custom-built computer manufacturing model that revolutionized the PC industry. Key elements included bypassing retailers, building computers only after receiving customer orders to minimize inventory, and developing close relationships with suppliers and customers. This allowed Dell to reduce costs, quickly provide customized systems, and gain a competitive advantage over other PC manufacturers. While imitated, Dell's model scaled rapidly and contributed significantly to its explosive growth in the 1990s.

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    © All Rights Reserved
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    Download as ppt, pdf, or txt
    of 32

    Dell Inc.

    Case Study : Dell Direct

    2013.4.18

    Susie
    Riri
    1
    Supply Chain Management

    Table of Contents

    Storytelling
    - History of Dell
    - Case Questions
    Analysis
    - Who is Dell?
    - External Analysis
    - Internal Analysis
    Conclusion
    - Summary
    - Implications

    Personal Computer
    1976, Stephen Wozniak & Steve Jobs, Apple computer
    Storytelling
    Questions
    Analysis
    Conclusions

    1980, IBM, open architecture, off-the-shelf component


    -

    MS Dos from MS
    Intel 8088 microprocessor
    Tandon disk drive
    Computerland and Sears Business as Retailers

    1981, IBM commanded 42% of PC market share while


    Apples share was driven down to 20%
    Structure of the computer industry
    Vertically-integrated corporations -> Horizontal slices
    Silicon platform | Computer platform | System software | Packaged application

    This structure enabled IBM-PC clones like Compaq,


    Hewlett Packard
    One of them was DELL Computer Corp.
    3

    Dell History

    Storytelling
    Questions
    Analysis

    $25265M

    Birth &
    Childhood

    Profitless
    Growth

    Explosive
    Growth

    Conclusions

    $3,475M
    $69.5M
    83 86 87 88

    $546M
    89

    Net Revenue(in Million $)

    90

    91
    4

    92

    93

    94

    95 96

    97 98 99

    Dell : Birth & Childhood (1983 1990)


    Dell Corp.
    1983, Founded by 19-year-old
    Michael Dell in a dorm
    Profitless
    Explosive
    Growth
    Growth
    University of Texas
    at Austin
    Upgraded IBM-compatible PCs
    Then he assembled entire PC with
    15% discount to established brands

    Storytelling
    Questions
    Analysis

    Birth &
    Childhood

    Conclusions

    83 86 87 88

    89

    Net Income(in Million $)

    90

    91
    5

    92

    93

    94

    95 96

    97 98 99

    Dell : Birth & Childhood (1983 1990)


    Support services such as 24-hour
    hotline and guaranteed shipment
    of replacement part
    Profitless
    Explosive

    Storytelling
    Questions
    Analysis
    Conclusions

    Birth &
    Childhood

    Growth

    Growth

    Quality at a reasonable price

    Simplicity
    Efficiency
    Agility

    Dell grew from nothing to $500M


    sales in 1990
    Michael Dell became the richest
    person in Texas
    International Expansion to serve to
    European, middle eastern and
    African markets

    83 86 87 88

    89

    Net Income(in Million $)

    90

    91
    6

    92

    93

    94

    95 96

    97 98 99

    Dell : Profitless Growth (1990 1994)

    Storytelling
    Questions
    Analysis

    Birth &
    Childhood

    Profitless
    Growth

    Explosive
    Growth

    Conclusions

    Dells model being


    imitated by other
    Entering Retail
    Booked their first
    loss in 93
    83 86 87 88

    89

    Net Income(in Million $)

    90

    91
    7

    92

    93

    94

    95 96

    97 98 99

    Dell History
    Launching www.dell.com
    Storytelling
    Questions
    Analysis
    Conclusions

    We think about internet commerce as a


    logical
    of our Profitless
    direct
    Birthextensions
    &
    model..Because
    were Growth
    all about
    Childhood
    shrinking the time and the resources it
    needs to meet customers need.

    Explosive
    Growth

    Internet increased efficiency


    of sales process and service
    Extranet to let supplier share
    information with Dell

    83 86 87 88

    89

    Net Income(in Million $)

    90

    91
    8

    92

    93

    94

    95 96

    97 98 99

    Case Questions
    Storytelling
    Questions
    Analysis
    Conclusions

    What does Dell do well and where does it struggle?


    What contributed to Dells success and rapid growth in the
    late 1990s?
    What is Dell? A computer manufacturer? A consumer
    electronics company? An IT service partner? What is their
    focus?
    What did Dell do to set itself apart from the competition in
    the highly competitive and rapidly evolving personal
    computer industry?
    How did Dell segment its customers? What types of
    customers? What were they like?
    What are the advantages of this direct marketing and
    direct manufacturing model?

    Analysis : Who? & What problems?


    Storytelling
    Questions
    Analysis
    Conclusions

    Who is Dell? Whats the issue?


    Computer Manufacturer (Assembler) + IT service partner
    Build trust with suppliers
    High technology, Short life cycle
    Maintain latest technology
    Fast Follower
    Secure customers (quality, price, service,)

    10

    Analysis (MECE)
    Storytelling
    Questions
    Analysis
    Conclusions

    External
    Environment

    When?
    Where?

    Internal
    Why?
    Competence How?

    11

    Analysis (MECE)
    Storytelling
    Questions
    Analysis
    Conclusions

    When?
    Where?

    Why?
    How?

    SWOT Analysis
    12

    External Analysis (PEST)


    When & Where : 1980s~1990s, in U.S.
    Storytelling

    Category

    Issue

    Threats/Opportunities

    Political

    E-government (90s)

    Opportunity Increase in Govt.


    spending on IT infra

    Economic

    U.S. Economic Recovery (80s)


    U.S. Economic Boom (90s)

    Opportunity companies and


    individuals spend more on IT

    Rising incomes and demand for


    IT in Asia, Europe, Middle East

    Opportunity - of worlds
    population, new market

    Change from Industrial Society


    to Information Society

    Opportunity increasing
    demand for servers and network
    gear

    Questions
    Analysis
    Conclusions

    Lots of
    Opportunities!!

    Social

    Technological

    Explosion in data information


    and content (1PC/1Person)
    WWW era opened

    13

    Opportunity increasing
    demand

    External Analysis (Porters 5 Forces)


    Computer Industry
    Storytelling
    Questions
    Analysis
    Conclusions

    14

    Analysis (MECE)
    Storytelling
    Questions
    Analysis
    Conclusions

    When?
    Where?

    Why?
    How?

    SWOT Analysis
    15

    Analysis : Internal Analysis (AHP)


    Why?

    Storytelling

    Simplicity, Efficiency, Agility

    Questions
    Analysis
    Conclusions

    Reduce
    Channel
    Costs

    Speed of
    Execution
    (JIT)

    Minimize
    Inventory

    Direct
    Customer
    Relation
    Close
    Relation
    w.
    Suppliers

    How?
    Initiatives
    1)Direct Model
    2)Customers &
    Segmentation
    3)16 WWW

    New Sales

    Increase
    Efficiency

    Secure
    Customer
    s

    Build
    Tight
    Relations

    Initiative 1. Dell Direct Model


    Indirect Channels
    Storytelling
    Questions
    Analysis

    Reseller Customized the PC to customer


    requirements, installed components and provided
    additional service and support

    Conclusions

    Based on Forecasting
    Fig. Corporate PC Sales through Indirect Channels

    17

    Initiative 1. Dell Direct Model


    Storytelling
    Questions
    Analysis
    Conclusions

    Direct Model
    Bypassing the dealer channel, selling directly to
    consumer
    Focus on Speed of Execution and Minimum Inventory
    Characteristics of Direct Model
    Eliminate costs & risks of carrying large inventories
    JITM : high velocity, reduced channel costs from 15% to 2% of
    production revenue
    Direct customer relationship
    Latest tech. introduced faster than indirect channels
    Use IT to control value chain and achieve a high deg. of
    coordination
    Build-to-order
    Build-to-Order

    18

    Initiative 1. Dell Direct Model


    Storytelling
    Questions
    Analysis
    Conclusions

    Days of supply in Dells Inventory

    19

    Initiative 1. Dell Direct Model


    Storytelling

    Questions
    Analysis
    Conclusions

    Manufacturing Process
    No Warehouse Space
    No inventory other than work in process (WIP)
    Components arrive from suppliers just in time for
    manufacturing through the factorys cargo doors
    Manufacturing is synchronized to avoid storing parts or
    finished systems
    This needs close relationship with suppliers
    Dell has small number of suppliers
    - even reduced number from 204 in 1992 to 47 in 1997
    Trust Manufactures like Sony, Logistics like UPS
    No test time
    20

    Initiative 1. Dell Direct Model


    Storytelling

    Questions
    Analysis
    Conclusions

    Customer Service
    First on-site service for PCs Well be out tomorrow to fix it
    1,300 technicians, accessible by phone 24 hours a day
    90% solved by standard troubleshooting procedures
    Employs Third-party maintenance providers like Unisys,
    Wang, Decision one consulting and Digital Equipment
    Tight coordination with maintenance providers feels like
    Just one large company
    In Computerworlds 1998 survey Dell ranked first in user
    satisfaction followed by Gateway
    21

    Initiative 1. Dell Direct Model


    Build-to-Order : Pros & Cons
    Storytelling
    Questions
    Analysis
    Conclusions

    Advantages

    Disadvantages

    Selling direct to customers cuts out


    the middleman, which increases
    Dells margins.

    Customers not able to touch and


    feel the product, which is a large
    ticket purchase

    Mass customization using


    standard parts allows Dell to
    control their costs and enables them
    to pass savings to customer.

    Build to order requires innovation


    and investment in manufacturing
    technologies and facilities.

    Build to order allows for JIT,


    reducing costly inventories of
    components, which may quickly
    become obsolete.

    Competitors are able to outsource


    to third party manufactures,
    pushing the burden of component
    inventory costs onto suppliers.

    This strategy can be applied to other competitors?


    Does it still work well NOW?
    22

    Build-to-Order (Now and Then)


    Storytelling
    Questions
    Analysis
    Conclusions

    23

    Analysis : Internal Analysis (AHP)


    Why?

    Storytelling

    Simplicity, Efficiency, Agility

    Questions
    Analysis
    Conclusions

    Reduce
    Channel
    Costs

    Speed of
    Execution
    (JIT)

    Minimize
    Inventory

    Direct
    Customer
    Relation
    Close
    Relation
    w.
    Suppliers

    How?
    Initiatives
    1)Direct Model
    2)Customers &
    Segmentation
    3)24 WWW

    New Sales

    Increase
    Efficiency

    Secure
    Customer
    s

    Build
    Tight
    Relations

    Initiative2 : Customer Segmentation


    Storytelling
    Questions
    Analysis
    Conclusions

    25

    Initiative2 : Customer Segmentation


    Storytelling

    Questions

    We figured they (competitors) could be the ones to teach


    consumers about PCs,while we focused our efforts on more
    profitable segments

    Analysis
    Conclusions

    Dell Focuses on Computer-literate customers


    Targeted segments where revenues could grow faster
    than expense

    Gold Accounts (sales of $5-$10million) ; Platinum accounts


    (sales >$10million)

    Platinum Councils to listen their


    customer opinions

    26

    Initiative3 : WWW
    Storytelling
    Questions
    Analysis
    Conclusions

    Increased Efficiency of Customer Service


    We think about internet commerce as a logical
    extensions of our direct model..Because were all
    about shrinking the time and the resources it needs to
    meet customers need.
    Build Relationship with Supplier (Extranet)
    The real potential of internet is its ability to transform
    relationships within traditional supply chain and to create
    value that can be shared..
    Its more valuable to be in front with
    imperfect internet implementation
    rather than to be a late comer with
    the perfect website..

    27

    Analysis (MECE)
    Storytelling
    Questions
    Analysis
    Conclusions

    When?
    Where?

    Why?
    How?

    SWOT Analysis
    28

    29

    Summary : Core Competence


    Competency
    Storytelling
    Questions
    Analysis

    Build to order
    Direct to Sales

    Conclusions

    Value added
    services

    Internet Coupled
    Biz. Model

    Description

    Allows for JIT, keeping inventory costs down


    Keeping manufacturing in-house enables control
    of quality and faster new product releases

    Cuts out retail markup


    Maintain higher profit margins and lower price

    Do not just sell product, sell values


    Proactive in solving clients pain
    Customer services like software downloading
    differentiate Dell from competitors in B2B market

    Sell directly to end customers


    Dell was much less mature compare to IBM/HP
    when Internal took off, less efforts to adapt system
    Yellow: Possible for competitors
    Green: Very difficult

    IBM and HPs: product innovation & development


    Dells: expertise in assembling and catering business needs
    30

    Conclusion
    Storytelling

    Perfected the credo Cut out the middleman.


    DELL eliminated the need for inventory or middlemen and gave
    itself a built-in price advantage, which it in part keeps as
    profit and in part passes on to customers.Fortune 2005

    Questions
    Analysis
    Conclusions

    Dells Focus on Customer Segmentation


    Behind the simple proposition of direct selling is a complex
    infrastructure that dell has developed over 15 years
    Dells service advantage may be a greater differentiator than its
    10-15% cost advantage, Dell has everything we want in a tech
    company, especially Focus, Dell does nothing but PCs

    Internet as Natural Extension of Business Model


    31

    Thank You!

    The only constant thing about business is that everything is changing.


    We have to take advantage of change and
    not let it take advantage of us.
    -Michael Dell-

    32

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