dell direct case study
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Supply Chain Management1
2013.4.18
Susie
Riri
Dell Inc. Case Study : Dell Direct
2
Table of Contents
Storytelling- History of Dell- Case Questions
Analysis- Who is Dell?- External Analysis- Internal Analysis
Conclusion- Summary- Implications
3
1976, Stephen Wozniak & Steve Jobs, Apple computer
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 Apple’s 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.
Personal Computer
Storytelling
Questions
Conclusions
Analysis
Dell History
$25265$25265MM
Birth &Childhood
Profitless Growth
ExplosiveGrowth
4
‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99
$69.5M$69.5M $546M$546M
$3,475M$3,475M
‘83
Storytelling
Questions
Conclusions
Analysis
Net Revenue(in Million $)
Birth &Childhood
Profitless Growth
ExplosiveGrowth
5
‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99‘83
Storytelling
Questions
Conclusions
Analysis
Net Income(in Million $)
Dell Corp. 1983, Founded by 19-year-old
Michael Dell in a dorm University of Texas at Austin Upgraded IBM-compatible PCs Then he assembled entire PC with
15% discount to established brands
Dell : Birth & Childhood (1983 – 1990)
Birth &Childhood
Profitless Growth
ExplosiveGrowth
6
‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99‘83
Storytelling
Questions
Conclusions
Analysis
Net Income(in Million $)
Dell : Birth & Childhood (1983 – 1990)
Support services such as 24-hour hotline and guaranteed shipment of replacement part
Quality at a reasonable price
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
Simplicity EfficiencyAgility
Simplicity EfficiencyAgility
Birth &Childhood
Profitless Growth
ExplosiveGrowth
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‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99‘83
Storytelling
Questions
Conclusions
Analysis
Net Income(in Million $)
Dell Pulled out of retail channel in mid-1994
“the benefit of exiting retail was not just the change in our financial condition, the real value was that forced all of our people to focus 100% on the direct model, the single-mindedness was a powerful unifying force”, Michael Dell, Direct from Dell
Dell Pulled out of retail channel in mid-1994
“the benefit of exiting retail was not just the change in our financial condition, the real value was that forced all of our people to focus 100% on the direct model, the single-mindedness was a powerful unifying force”, Michael Dell, Direct from Dell
Dell’s model being imitated by other
Entering Retail
Booked their first loss in 93’
Dell : Profitless Growth (1990 – 1994)
Dell History
Birth &Childhood
Profitless Growth
ExplosiveGrowth
8
‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99‘83
Storytelling
Questions
Conclusions
Analysis
Net Income(in Million $)
Launching www.dell.com
“We think about internet commerce as a logical extensions of our direct model…..Because we’re all about shrinking the time and the resources it needs to meet customer’s need….”
“We think about internet commerce as a logical extensions of our direct model…..Because we’re all about shrinking the time and the resources it needs to meet customer’s need….”
Internet increased efficiency of sales process and service
Extranet to let supplier share information with Dell
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Case Questions
What does Dell do well and where does it struggle? What contributed to Dell’s success and rapid growth in the
late 1990’s? 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?
Storytelling
Questions
Conclusions
Analysis
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Analysis : Who? & What problems?
Who is Dell? Computer Manufacturer (Assembler) + IT service partner
High technology, Short life cycle
Fast Follower
Storytelling
Questions
Conclusions
Analysis
Build trust with suppliers…
Maintain latest technology
Secure customers (quality, price, service,…)
What’s the issue?
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Analysis (MECE)
Storytelling
Questions
Conclusions
Analysis
ExternalEnvironment
When?Where?
Why?How?
InternalCompetence
12
Analysis (MECE)
Storytelling
Questions
Conclusions
Analysis
When?Where?
Why?How?
SWOT Analysis
13
External Analysis (PEST)
When & Where : 1980s~1990s, in U.S.
Category Issue Threats/Opportunities
Political E-government (90s)Opportunity – Increase in Govt.
spending on IT infra
EconomicU.S. Economic Recovery (80s)
U.S. Economic Boom (90s)Opportunity – companies and individuals spend more on IT
Social
Rising incomes and demand for IT in Asia, Europe, Middle East
Opportunity - ½ of world’s population, new market
Change from Industrial Societyto Information Society
Opportunity – increasing demand for servers and network
gear
Technological
Explosion in data information and content (1PC/1Person) Opportunity – increasing
demandWWW era opened
Storytelling
Questions
Conclusions
Analysis
Lot’s ofOpportunities!!Lot’s ofOpportunities!!
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External Analysis (Porter’s 5 Forces)
Storytelling
Questions
Conclusions
Analysis
Computer Industry
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Analysis (MECE)
Storytelling
Questions
Conclusions
Analysis
When?Where?
Why?How?
SWOT Analysis
16
Analysis : Internal Analysis (AHP)
ReduceChannel
Costs
Why?
How?
MinimizeInventory
Speed ofExecution
(JIT)
DirectCustomerRelation
CloseRelation
w.Suppliers
Initiatives
1)Direct Model2)Customers & Segmentation3) WWW
Simplicity, Efficiency, Agility
Storytelling
Questions
Conclusions
Analysis
New Sales
SecureCustomer
s
IncreaseEfficiency
Build Tight
Relations
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Initiative 1. Dell Direct Model
Indirect Channels
Reseller Customized the PC to customer requirements, installed components and provided additional service and support
Fig. Corporate PC Sales through Indirect Channels
Based on Forecasting
Storytelling
Questions
Conclusions
Analysis
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Initiative 1. Dell Direct Model
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
Storytelling
Questions
Conclusions
Analysis
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Initiative 1. Dell Direct Model
Storytelling
Questions
Conclusions
Analysis
Days of supply in Dell’s Inventory
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Initiative 1. Dell Direct Model
Manufacturing Process No Warehouse Space No inventory other than work in process (WIP) Components arrive from suppliers just in time for
manufacturing through the factory’s 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
SS CCMMStorytelling
Questions
Conclusions
Analysis
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Initiative 1. Dell Direct Model
Customer Service First on-site service for PC’s “We’ll 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 Computerworld’s 1998 survey Dell ranked first in user satisfaction followed by Gateway
SS CCMMStorytelling
Questions
Conclusions
Analysis
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Initiative 1. Dell Direct Model
Build-to-Order : Pros & Cons
Advantages Disadvantages
Selling direct to customers cuts out the middleman, which increases Dell’s 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?
Storytelling
Questions
Conclusions
Analysis
23
Build-to-Order (Now and Then)
Storytelling
Questions
Conclusions
Analysis
24
Analysis : Internal Analysis (AHP)
ReduceChannel
Costs
Why?
How?
MinimizeInventory
Speed ofExecution
(JIT)
DirectCustomerRelation
CloseRelation
w.Suppliers
Initiatives
1)Direct Model2)Customers & Segmentation3) WWW
Simplicity, Efficiency, Agility
Storytelling
Questions
Conclusions
Analysis
New Sales
SecureCustomer
s
IncreaseEfficiency
Build Tight
Relations
25
Initiative2 : Customer Segmentation
Storytelling
Questions
Conclusions
Analysis
26
Initiative2 : Customer Segmentation
Storytelling
Questions
Conclusions
Analysis
• Dell Focuses on Computer-literate customers• Targeted segments where revenues could grow faster
than expense
We figured they (competitors) could be the ones to teach consumers about PCs,while we focused our efforts on more profitable segments
We figured they (competitors) could be the ones to teach consumers about PCs,while we focused our efforts on more profitable segments
• Gold Accounts (sales of $5-$10million) ; Platinum accounts (sales >$10million)
• Platinum Councils to listen their customer opinions
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Initiative3 : WWW
Storytelling
Questions
Conclusions
Analysis
Increased Efficiency of Customer Service
Build Relationship with Supplier (Extranet)
“We think about internet commerce as a logical extensions of our direct model…..Because we’re all about shrinking the time and the resources it needs to meet customer’s need….”
“We think about internet commerce as a logical extensions of our direct model…..Because we’re all about shrinking the time and the resources it needs to meet customer’s need….”
The real potential of internet is its ability to transform relationships within traditional supply chain and to create value that can be shared…..
The real potential of internet is its ability to transform relationships within traditional supply chain and to create value that can be shared…..
It’s more valuable to be in front with imperfect internet implementation rather than to be a late comer with the perfect website..
It’s more valuable to be in front with imperfect internet implementation rather than to be a late comer with the perfect website..
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Analysis (MECE)
Storytelling
Questions
Conclusions
Analysis
When?Where?
Why?How?
SWOT Analysis
29
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Summary : Core Competence
Competency Description
Build to order• Allows for JIT, keeping inventory costs down• Keeping manufacturing in-house enables control
of quality and faster new product releases
Direct to Sales• Cuts out retail markup• Maintain higher profit margins and lower price
Value added services
• Do not just sell product, sell values• Proactive in solving clients pain• Customer services like software downloading
differentiate Dell from competitors in B2B market
Internet Coupled Biz. Model
• Sell directly to end customers• Dell was much less mature compare to IBM/HP
when Internal took off, less efforts to adapt system
Storytelling
Questions
Conclusions
Analysis
IBM and HP’s: product innovation & development Dell’s: expertise in assembling and catering business needs
•Yellow: Possible for competitors•Green: Very difficult
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Conclusion
Storytelling
Questions
Conclusions
Analysis
• Dell’s Focus on Customer Segmentation
“Behind the simple proposition of direct selling is a complex infrastructure that dell has developed over 15 years”
“Dell’s 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
“Behind the simple proposition of direct selling is a complex infrastructure that dell has developed over 15 years”
“Dell’s 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
“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
“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
• Perfected the credo— “Cut out the middleman.”
• 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 andnot let it take advantage of us.”
-Michael Dell-
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