Michael Dell started Dell Computer in 1984 out of his dorm room at the University of Texas with $1000. Dell pioneered a direct sales model where it built computers to customer specifications and shipped directly to consumers without retailers. This allowed Dell to eliminate inventory costs and quickly introduce new technologies. By 2001, Dell became the largest PC maker in the world, but has faced challenges recently from the decline in PC sales as tablets and smartphones increased in popularity. In response, Dell went private in a $24 billion deal in 2013 to restructure away from its reliance on PCs.
2. • Started by Michael Dell (19 at that time) in his dorm room at the University of
Texas in 1984 with $1000.
• Company headquartered in Round Rock, Texas, U.S.A.
• Its revenue is around US$ 63.07 billion in 2012.
• In 2001, became the No. 1 computer systems company in the world.
• At present (2013), it is the third largest PC vendor in the world after HP and
Lenovo.
3. • Dell has grown by both increasing its customer base and through acquisitions since
its inception; notable mergers and acquisitions including Alienware (2006) and Perot
Systems (2009).
• Notable Acquisitions: -
2006 – Alienware
2009 - Perot Systems
2010 - KACE Networks
2010 - SaaS
2012 - Sonic Wall
2012 - Wyse
4. PRODUCT LINE
• Desktop computers
• Notebook computers
• Network servers
• Workstations
• Storage products
• Dell offers a total of 1.6 million
different possible product
configurations for all its product lines
SUPPLIERS
• MICROSOFT - for Windows
• INTEL - for micro processors
• NVIDIA - for Graphic chips
• SONY - for monitors
5. Customer places
an Order
(By phone or
through the Internet
on www.dell.com)
Dell
processes
the order
Financial
evaluation
(credit
checking)
Configuration
evaluations
(checking the feasibility
of a specific technical
configuration)
Sends the order
to assembly
plant
(any one in
Austin, or any
other)
Plants
build, test &
package the
product
(about eight
hours)
Dell typically
ship all orders
(no later than five
days after receipt)
2-3
days
SUPPLIERS REVOLVERS
CUSTOMERS
6. Dell’s success is a combination of:
• Direct Sales.
• Inventory Management
• Supplier Integration
Together these allow for maximum effectiveness with minimum cost.
7. • Mass customization (end result: Delivers
exactly what the customer wants)
• Partnerships with suppliers
• Just-in-time components inventories (Quick
Introduction of Latest Technology)
• Direct sales
• Market segmentation
• Customer service
• Extensive data and information sharing with both supply partners and customers.
8. • New Value Chain: Dell had no in-house stock of finished goods inventories unlike
competitors using the traditional value chain model
• Pull Mechanism: It did not have to wait for resellers to clear out their own
inventories before it could push new models into the marketplace (typically operated
with 60-70 days stock)
• Personalization: Customers got the satisfaction of having their computers
customized to their particular liking
11. • Dell Computer’s direct model departed from the industry’s historical rules on several
fronts:
The company outsourced all components but performed assembly.
It eliminated retailers and shipped directly from its factories to end customers.
It took customized orders for hardware and software over the phone or via the
Internet.
It designed an integrated supply chain linking Dell’s suppliers very closely to
its assembly factories and order-intake system
14. • BUILD-TO-ORDER MODEL
• DIRECT TO SELL
• INVENTORYMANAGEMENT is primarily about specifying the size and
placement of stocked goods.
1. Just-in time inventory management - 3 days.
2. Focus on speed of inventory delivery process.
MICHAEL DELL –
“8 days of inventory competitors 40 days, if Intel comes out with a new
chip, I am going to get that to the market 32 days sooner”
17. BUILD TO ORDER
• In contrast to others who produce –to stock, dell first receives the order and
the money and only then starts to build, using that money to purchase from
supplier
• Therefore there is customization of products for each and every customer.
• While other companies had to guess, DELL knew exactly what its customers
wanted before manufacturing the product
• Others had to maintain inventory as there existed middlemen, so to support
reseller and retail channels.
18. Supplier
Manufacturing
(SLC)
Warehouse
Factory / Merge
Center
Material
Transfer
• To compensate for long lead times & buffer against demand variability, Dell
requires its suppliers to keep inventory on hand in the revolvers.
• Revolvers or supplier logistics centers (SLCs) are small warehouses located within
a few miles of Dell’s assembly plants.
• Each of the revolvers is shared by several suppliers who pay rents for using their
revolver.
• Dell does not own the inventory in its revolvers; this inventory is owned by
suppliers & charged to Dell indirectly through component pricing.
19. • Dell has a special vendor-managed-inventory (VMI) arrangement with its suppliers
• Suppliers decide how much inventory to order & when to order while Dell sets target
inventory levels & records suppliers’ deviations from the targets.
• Dell withdraws inventory from the revolvers as needed -- on average every two hours.
• It uses a quarterly supplier scorecard to evaluate how well each supplier does in
maintaining this target inventory in the revolver.
21. • Value Chain is intended to extend Dell’s successful direct-sales approach back into
the supply chain
• The goal of it is increasing the speed and quality of the information flow between
Dell and its supply base
• The portal, valuechain.dell.com acts a secure extranet for Dell suppliers to
collaborate in managing the supply chain
• Dell envisions using this site to exchange with suppliers current data, forecasted
data, new product ideas, and other dynamic information
22. SELECTION
i. Quality
ii. Price
iii.Delivery
iv.Response to feedback.
EVALUATION - to measure performance uses suppliers score
• Cost
• Delivery
• Availability of technology
• Velocity of inventory
• Ways in which they did business with dell over the internet.
23. • Returns grew disproportionately as the carrying costs and obsolete stock is
avoided.
• Saves enormous amounts of money on purchasing components because the
component prices drop by 3 percent per month.
• Reduces handling cost. Common factors that drive up holding costs include
opportunity costs, increased rent required for the space of the inventory,
higher premiums to insure the inventory, and cost of obsolete goods.
24. • Service became a feature of Dell's strategy in 1986
• It provided free on-site service for a year after sale
• Contracted with local service providers to handle customer requests for repairs
• On-site service was provided on a next-day basis
• Technical support via a toll-free number, fax, and e-mail
25. Global PC Market Share by Units, Percent. 2001-2005
Rank 2001 2002 2003 2004 2005
1 Dell 13.3
HP-
Compaq
16.2 Dell 15.0 Dell 16.4 Dell 16.8
2 Compaq 11.1 Dell 15.2 HP 14.3 HP 14.6 HP 14.5
3 HP 7.2 IBM 6.0 IBM 5.1 IBM 5.5 Lenovo 6.9
4 IBM 6.4 NEC 3.4 Fujitsu 3.8 Fujitsu 3.8 Acer 4.6
5 NEC 3.8 Toshiba 3.2
Toshib
a
2.9 Acer 3.4 Fujitsu 3.8
Other
s
58.1 56.0 58.9 56.4 53.3
Global PC Market Share - 2001-2005
26. Global PC Market Share by Units, Percent. 2006-2011.
Rank 2006 2007 2008 2009 2010 2011
1 Dell 15.9 HP 18.2 HP 18.4 HP 19.3 HP 17.9 HP 17.2
2 HP 15.9 Dell 14.3 Dell 14.3 Acer 13.0 Dell 12.9 Lenovo 13.0
3 Lenovo 7.0 Acer 8.9 Acer 11.1 Dell 12.2 Acer 12.0 Dell 12.1
4 Acer 5.8 Lenovo 7.4 Lenovo 7.2 Lenovo 8.1 Lenovo 9.7 Acer 11.2
5 Toshiba 3.8 Toshiba 4.0 Toshiba 4.5 Toshiba 5.1 Toshiba 5.4 ASUS 5.9
Other 51.6 47.1 44.5 42.3 42.1 40.7
27. Limitation of direct sell model in emerging market
Buying habit
Not access to internet
Lack of online payment (i.e. credit card)
28. INTHE PAST TODAY
PC customizability was highly
appreciated by customers
Surplus stock lost value quickly
Demand was typically low for each
product variant
Assembly-to-order more effective
than selling pre-configured PCs in
retail stores
Customers are willing to choose from
a few standardized PCs model.
Inventory of standardized models
moves fast
Demand was relatively high for each
standardized model
PC became a popular commodity,
price has dropped significantly
Direct sell model is less effective in
today’s more standardized market
29. Direct
sell
Retail
stores
Hybrid
business
model
“The direct model has been a revolution, but it’s not a religion.”
- Michael Dell in April, 2007 memo to employee -
In Jun 2007, Dell offered two PC models through Wal-Mart stores sell Inspiron
notebook computers through Wal-Mart’s Sam’s Club outlets.
In Oct 2007 Dell sold its PC through, China’s largest electronics retailer fifty
Gomez Electrical Appliances stores
Later Dell also extended its international retail strategy by opening its first retail
store in Russia
30. Strength:
1. Direct Model Approach, it provides Dell a
way to interact to customers directly
2. Customization of products
3. Reliability, Service and Support
4. Latest Technology
Weakness:
1.Market share growth is slow due to
competition; Fake products/ imitations affect
sales
2. Overdependence on Suppliers.
3. Lack of Dell Stores, can be an issue for some
customers.
Opportunity:
1. With increase in e-commerce the online retail
stores of Dell provide them better framework to
tap new business
2. The Direct approach Model of Dell would
help them there existing to sell the other IT
products, so new product development
opportunity is for Dell
3. Tablet and Smart phone Market.
Threats:
1. With the increase in innovation in the market
the computer systems are becoming outdated, so
Dell should constantly come out with new
products
2. People need the quality products at low price
which was Dell strength due to it’s customize
solution, but now its competitors are coming up
with products in same price range
31. • It’s bad news for a PC manufacturer (Particularly if it don’t also produce tablets or
mobile phones.) A new study predicts that the rise in sales of tablets and cell phones
will directly, and negatively, affect the sales of PCs, which have already been
steadily slowing down.
• Many people attribute the decline of PC sales to various factors, like the growing
popularity of smartphones and tablets.
• Last year, tablet sales totalled around 116 million units; this year it’s expected to
jump up to 197 million, a nearly 70 percent increase. The reason for the increase is
largely due to decreasing prices, love of the cloud, and addiction to apps. On the
other end of the spectrum, while PCs sold 341 million units last year, anticipated
sales will drop to 315 million this year.
32. • DELL, literally has no market share in tablet and smartphone segment. It solely
depends on Laptops and Desktops in consumer market for its revenue.
• Due to decline in PC sales, Dell Profits plunged by 47% in 2012.
• The much hyped Windows 8 didn’t play any part in increasing the PC sales.
33. • Dell in $24 Billion Deal to Go Private in 2013 (biggest by far since the days of the
recession)
• Microsoft helped with up to $3 billion loan as part of the financing. (This is not the
first time for Microsoft. In 1997, It rescued Apple with a $150 million investment
from Bankruptcy)
• Reason - Dell's in the midst of a complex restructuring, realigning its focus to
become more of a full-featured, enterprise-oriented company. (By going private, it
has NO stress from share holders to generate profits)
Editor's Notes
Customers are willing to choose from a few standardized and smaller number of off-the-shelf PCs, and are less concerned with customization.The power of the direct channel to deliver customization is less relevant in today’s more standardized market
