Dell Case
Introduction
In 2001, Dell Computer became the world’s largest personal computer vendor, continuing to gain market share and post profits in an industry struggling with slumping sales and billions of dollars in losses. Dell sells 90% of its PCs directly to the final customer, largely bypassing there seller channel that accounts for most of the world’s PC sales. This direct customer relationship is the key to Dell’s business model, and provides distinct advantages over the indirect sales model. Dell’s direct relationship with the customer allows it to tailor its offerings to customer needs, offer add-on products and services, and use the Internet to offer a variety of customer services. Dell’s direct sales and build-to-order model has achieved superior performance in the PC industry in terms of inventory turnover, reduced overhead, cash conversion, and return on investment.
Dell’s business model is simple in concept, but very complex in execution. Building PCs to order means that Dell must have parts and components on hand to build a wide array of possible configurations with little advance notice. In order to fill orders quickly, Dell must have excellent manufacturing and logistics capabilities supported by information systems that enable it to substitute information for inventory.
Dell’s corporate philosophy and contribute to its early success
Dell’s corporate strategy is to provide products directly to customers. To provide high technology quality products and services through customization.
Eliminating middlemen in distribution resulted in the following savings: * No buyback or price protection since Dell was not dealing with resellers and distributors 2.5 cents on every dollar of revenue, savings of $0.5bn * Total addition to gross margin in 1994 is 12%. When Dell tried to sell through retailers, price in the retail channel was 88% of the price in the Direct Model. * No advertising to resellers and distributors, funding the market
In 2001, Dell Computer became the world’s largest personal computer vendor, continuing to gain market share and post profits in an industry struggling with slumping sales and billions of dollars in losses. Dell sells 90% of its PCs directly to the final customer, largely bypassing there seller channel that accounts for most of the world’s PC sales. This direct customer relationship is the key to Dell’s business model, and provides distinct advantages over the indirect sales model. Dell’s direct relationship with the customer allows it to tailor its offerings to customer needs, offer add-on products and services, and use the Internet to offer a variety of customer services. Dell’s direct sales and build-to-order model has achieved superior performance in the PC industry in terms of inventory turnover, reduced overhead, cash conversion, and return on investment.
Dell’s business model is simple in concept, but very complex in execution. Building PCs to order means that Dell must have parts and components on hand to build a wide array of possible configurations with little advance notice. In order to fill orders quickly, Dell must have excellent manufacturing and logistics capabilities supported by information systems that enable it to substitute information for inventory.
Dell’s corporate philosophy and contribute to its early success
Dell’s corporate strategy is to provide products directly to customers. To provide high technology quality products and services through customization.
Eliminating middlemen in distribution resulted in the following savings: * No buyback or price protection since Dell was not dealing with resellers and distributors 2.5 cents on every dollar of revenue, savings of $0.5bn * Total addition to gross margin in 1994 is 12%. When Dell tried to sell through retailers, price in the retail channel was 88% of the price in the Direct Model. * No advertising to resellers and distributors, funding the market
References: * www.google.co.in * www.wekipedia.com * www.dell.com * Dell Annual Report, 2000&2001 * Frances. X. Frei., Amy. C. Edmondson, “Dell Computers(A): Field Service for Corporate Clients”, Harvard Business School, Case No: 9-603-067.