Revitalizing Dell Case Analysis

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personnel, helping customer configure the systems they needed and promote Dell products. Dell also had inside representatives in call centers taking orders. On the other hand, the Transactional buyers were mainly small and medium firms and home buyers. These transactional buyers were served through online systems. Customers could easily obtain product information, customize computer systems, check pricing, place order and track order.

Divided customers into two large groups ¡V

Relationship Buyers: Primarily large Businesses and Government organizations

Transactional Buyers: Small and medium companies and Home users.

In addition to selling PCs, Dell produced Enterprise Products ¡V Servers, Network Switches, Storage Devices etc. Though Dell offered these products at the same price as their competition, however, Dell¡¦s products were comparatively more powerful in systems performance.

Dell focused on Return on Invested Capital - the key element on increasing rate of return is minimizing the invested capital. Dell¡¦s effort to minimize the inventory was the key.

Dell developed a software tool ¡V ¡¥Symphony¡¦. Very powerful and productive tool that Dell used to globally monitor their inventory. This tool helped them determine time it took to build a product, and the profit it would generate.

In general, Dell¡¦s Direct Business Model was their key to success. Though there was threat by the competition like IBM, Lenovo, IBM, Gateway, Asus etc. for imitating this model, they were not successful as compared to Dell.

Dell¡¦s Value Chain

Customer Desired Outcome Internal Objectives Activities Resources

Low Price Lower production cost Minimize inventory

Maximize Return on Investment.

Direct Selling

Economies of scale Trained personnel

Trusted suppliers

Tools like Symphony for inventory monitoring, assessing time to build and profitability.

Efficient production facility - 16 PCs built per minute!

Peace of mind Product Reliability

Excellent technical support Effective inventory management.

Technical Expertise via Phone

¡¥On site¡¦ service provision Trained personnel to support customers via phone. Field engineers for onsite support.

Spare parts for field engineers¡¦ support.

Trusted suppliers

Tools like Symphony for inventory monitoring, assessing time to build and profitability.

Customized products Understand customer requirements.

Customize the product to fulfil customer requirements. Effective inventory management.

Product design that can easily be customized.

Availability of the parts Trained personnel to understand customer needs and be able to convert the customer requirement into product specification.

Trusted suppliers for spare parts availability.

Tools like Symphony for inventory monitoring, assessing time to build and profitability.

Dell¡¦s relative cost advantage

In general, PC industry brand companies are selling their product to end customer through the channels, which adds extra expense in selling process. Conversely, Dell dealt directly with the end customer and offered them computers with high-performance and lower price, which cause Dell computer¡¦s pricing identical competitive. Also, Dell only started assembly customized PCs after receiving the orders, which reduce the inventory rate. Dell has its cost advantages against its competitors as below:

Cost saving from Channels (Direct model) (distributors/resellers/retailers)

Dell¡¦s Direct model helps to save variety of costs such as inventory and marketing costs as compared to its competitors. For indirect channels, PC makers had historically agreed to buy back channel inventory that did not sell. They also provided price protections to resellers and distributors. In addition, by one estimate, inventory buy-backs and price protection cost PC manufacturers 2.5% of revenue in the late 1990s. Manufacturers spent another 2.5% as marketing funds to resellers and distributors. All above condition cause PC makers need to pay huge extra expense to sell their PCs.

Inventory Control, Operation and Logistics

With good management in inventory control, operation and logistic, Dell reduced the operational expense compared to its competitors. Since the PCs are customized to customer needs, Dell held no inventory for common PCs that reduce the inventory rate and warehouse expense. In which, Dell only carried 4 days of inventory while most of its competitors had between 20 to 30 days. For operation, Dell has daily meetings to match production schedules with sales flows. By 2003, Dell manufactured more than 50K PCs per day. For Logistics, electronics links allowed Dell to direct some suppliers¡¦ shipments straight to its customers.

Payment timing

Just-in-time delivery, is the policy that helps Dell to avoid vendor¡¦s inventory responsibility. Also, Dell received payment for its products 48days before it had to pay suppliers that means Dell¡¦s AR is shorter than the AP. Those timing differences should be a cost advantage create by Dell¡¦s management and strategy.

Conclusion

By the strategy and management, in mid-2000 Dell¡¦s success caused its competitors to take both notice and action. However, in January 2007, due to Growth slowed and company missed analysts¡¦ earnings estimates repeatedly, Michael Dell replaced Rollins as CEO. He quickly brought in senior talent from outside and aimed to reduce annual costs by an estimated $3 billion. Michael Dell and his new management team have brand-new strategies to enhance Dell to revive in the PC market. The strategies