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

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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

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Initiative 1. Dell Direct Model

Storytelling
Questions
Analysis
Conclusions

Days of supply in Dells Inventory

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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
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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

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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
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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

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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-

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