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Analyses The Value Chain For Dell

Business Essay
Published: 23, March 2015

This report analyses the value chain for Dell Inc. and goes on to identify the
sources of its competitive advantage. The diagrams supporting the analysis can
be found in appendices. Porter's Value Chain Model was used to evaluate the
business operations of Dell Inc. The value chain categorises the business
operations into Primary and Support Activities. The report looks at the
resources and capabilities of Dell Inc. that differentiates it from its competitors
by providing low cost solutions. In an effort to maintain their position as a low
cost provider of effective IT solutions, Dell's future strategies should consider
the impact of the rapidly changing global economic environment affecting the
way companies do business.

Introduction:
Dell Inc. was founded by Michael Dell in the early eighties. It has now grown to
become one of the largest players in the Information Technology sector. The
initial business model aimed selling PC's directly to customers however, now
they have diversified into other areas like printers and software that allows
management of IT assets. This helps provide efficient effective solutions to the
customers ever changing needs.
In the recent years they have faced stiff competition from other competitors like
HP, Apple, Toshiba and Sony to name a few. Unlike its competitors Dell Inc.
adopted a build-to-order, sell direct value chain which has proved successful
over the years.

Value Chain
Value Chain is the most conventional approach towards exploring career
opportunities. The concept was designed by Michael E. Porter to express the
customer value that builds up along the chain of activities that an organisation
performs to lead to the final product or service (BNet, 2010). A company's value
chain is categorised into two groups of activities namely Primary Activities and
Support Activities.
The constitution of the primary and secondary activities depends on the nature
of the business. The value chain of a company represents the business
operations, the technology, the operating procedures and the organisation
strategies. Since these factors are different for different companies, the value
chain for a company differs from the other, sometimes within the same industry
(Thomson Jr, Strickland III, & Gamble, 2010).
Primary Activities lead to generating a profit margin for an organisation and
help in creating value for customers. They are inbound logistics, operations,
outbound logistics, marketing and sale services (QuickMBA, 2010).
The primary activities illustrated are helped by support activities. These activities
are industry specific. They are procurement, technology development, human
resource management and general administration (QuickMBA, 2010).
Value chain activities are not different from one another; one value chain
activity affects the performance of the other (NetMBA, 2010). The value chain
diagram is listed in Appendix I.

3.1 Value Chain Analysis for Dell Inc.


Given below is the Value Chain Analysis for Dell Inc.

3.1.1 Primary Value Chain analysis for


Dell Inc.
Inbound Logistics: - Dell Inc. has adopted Just-in-the-nick-of-time, a variation of
Just-in-time, for inbound logistics. The parts needed to assemble PC's are
delivered by suppliers every couple of hours and each assembly point is served
by double-decker conveyor belts. Dell Inc. aims at reducing the inventory
turnover time and constantly strives to do so. The reason for this is the rapid
advancements taking place in the computer components field. Their success in
doing so can be gauged from the fact that in 1998 their inventory turnover was
seven days where as the inventory turnover of the industry leader at that time,
Compaq, was twenty three days, by 2007 Dell Inc. managed to bring it down to
seven days. For the procurement of computer components Dell Inc. has
favoured strategic alliances with its suppliers over backward integration.
Operations: - Until 1997 each worker performed a particular task in the
assembly lines. However, after reorganisation in 1997 the company shifted to
"Cell Manufacturing" where a team of workers assembled the entire PC to
consumer specification. Cell Manufacturing was also dropped in favour of more
improved assembly line. This improvement in assembly line was largely
associated to PC design, innovative assembly process and reduction in the
number of time a computer was touched by workers. Instantaneous build and
test facilities also allowed the testing of components before the assembly of PC
thereby saving on cost and time. As consumer specifications vary for certain
computer components only, Dell Inc. latest initiative is to pre-assemble a
mixture of configurations that are commonly ordered by the consumers. In
times where major PC rivals have outsourced their manufacturing process Dell
Inc. has stuck to in house assemblies as it believes that there is a six percent
cost advantage in doing so.

Outbound Logistics:- After assembling, the PC's are transferred to the shipping
department through conveyer belts where they are packed and shipped to the

customers. The delivery of these PC's takes three to five business days. Major
output of the company is build to customer orders with only a small fraction of
inventory being produced to cater to the needs of retailers and whole sellers.
Marketing and Sales: - Dell sales are a mix of sell-direct-to-customer strategy
and selling through retailers. Dell Inc. sells its products through its website, toll
free lines and in case of corporate clients; it has special sales teams taking care
of them. In markets where the sell-direct-to-customer strategy failed Dell Inc.
installed Kiosks in leading electronic stores for the customer to physically check
the product and then place an order. In a response to its declining share in the
computer market, Dell inc. lately has formed partnerships with computer
retailers and has had success in doing so.
Unlike other manufactures whose marketing efforts are directed more towards
the retailers and wholesalers Dell Inc.'s marketing efforts are focused towards
the end users. Advertising is a major emphasis in Dell Inc.'s business strategy.
Dell Inc.'s advertising efforts include TV promotion, promotion in magazines,
inserts in news papers, newsletters, online promotion and periodic mailing of
Dell's latest product catalogue to existing Dell customers.
Service: - Dell Inc. has undertaken number of initiatives to provide after sale
service and support to its customers. Some of these initiatives are premier
pages, product design services, value-added services for customers and after
sale services.

Support Activities for Dell Inc.


Product R&D, Technology and systems Development: - Dell Inc.'s R&D group
employed four thousand engineers and had a budget of six hundred million
dollars in 2008. In 2007 through its website Dell Inc. invited customers to give
their ideas on improving Dell's products and till date has received 8900 ideas
out of which 45 have been incorporated into Dell's products.
Dell Inc. has high standards of quality control in it plants with all plants having
ISO 9001:2000 certification. Various tests and quality control process are in

place to check the quality of parts, components, sub-assemblies and end


products. Audits are conducted for ongoing product reliability; failure tracking
process is also in place for early detection of problems.
Procurement: - Dell Inc. is works closely with their suppliers to maintain high
quality of components. Dell's long term relationship with reputable suppliers
has provided the following advantages:
Supply of enhanced quality components like branded processors, disk drives,
modems etc.
Timely delivery of components
Suppliers have located their distribution centres close to Dell's assembly plants.
Suppliers' engineers are stationed at the company's plants for development and
launch of new products.
Suppliers adapt new ways to reduce costs out of the supply chain
Human Resource Management: - Dell Inc. has 88,200 employees worldwide as
part of its primary value chain and to support it. Fifty seven percent of these
employees are in customer facing and frontline roles.
General Administration:- Dell Inc. has formed strategic alliances with local
service providers to provide on-site services to its customers. Dell Inc. has also
entered into White-Box PC Segment forming alliance with private labels. Dell Inc.
formed strategic alliance with Lexmark to make printers and cartridges under
the Dell label.

4.0 Competitive Advantage


Competitive advantage plays a key role in any company's strategy. According to
the positioning view a firm can achieve two types of competitive advantagesCost Advantage or Differentiated advantage (Competitive Advantage, 2010).

The Resource Based View analyses the resources and capabilities of a firm to
identify those that assist in creating competitive advantage. For a list of
resources and capabilities identified, please refer to Appendix II
From the value-chain analysis carried out above, the following competitive
advantages have been identified.

New Product Time to market:


Unlike its competitors Dell Inc. does not maintain a large stock of inventory.
They follow a process of 'just in nick of time' delivery of supplies where only
parts required are delivered to them by suppliers. In an ever changing IT
industry this allows them to clear out their existing inventory more quickly
before pushing new models into the market place as compared to their
competitors.

Offer more than products:


Dell Inc. primarily sells directly to its customers. They have various sales and
marketing groups that look into different customer segments and their sub
segments. As a result, they are able to understand their customer's needs more
efficiently and provide effective solutions to meet their needs.

Low Cost:
Their low cost structure allows cost savings to be passed to the customers. Since
its inception, Dell Inc. has delivered low cost effective solutions to meet their
customer's needs.

Customer Service:
Dell Inc. provides support to its customers through its 25 customer service
centres, online diagnostic tool and onsite support via contractors. Their asset
tag service, regional forums to listen to customers and enhanced support for
larger enterprises has further enhanced the relationship with customers. This
also adds to their brand value.

5.0 Conclusion:
In a dynamic ever changing IT industry, Dell Inc. should revisit its strategies in
order to keep up with its competitors. The company has maintained a 6% cost
advantage over the competitors by manufacturing products in-house however,
due to rising costs they have begun outsourcing notebook PC production to
Asian manufacturers. Dell's future strategy to reduce cost and further expand
should not negatively impact their market credibility.

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