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Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
Dell Direct Case Study
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Dell Direct Case Study

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Dell Direct Case Study for Supply Chain Management Course, KAIST 2013

Dell Direct Case Study for Supply Chain Management Course, KAIST 2013

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  • Dell entering retail to acquire small biz & individual customer (preferred face to face,physical access sales); Cooperation with compusa,bestbuy,costco etc. The usage of indirect channel meshing with Dell’s direct channel In 1994, Dell decide to pull out from indirect channel
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    • 1. Supply Chain Management12013.4.18SusieRiriDell Inc. Case Study : Dell Direct
    • 2. 2Table of ContentsStorytelling- History of Dell- Case QuestionsAnalysis- Who is Dell?- External Analysis- Internal AnalysisConclusion- Summary- Implications
    • 3. 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 whileApple’s share was driven down to 20% Structure of the computer industryVertically-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 ComputerStorytellingQuestionsConclusionsAnalysis
    • 4. Dell History$25265M$25265MBirth &ChildhoodProfitlessGrowthExplosiveGrowth4‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99$69.5M$69.5M $546M$546M$3,475M$3,475M‘83StorytellingQuestionsConclusionsAnalysisNet Revenue(in Million $)
    • 5. Birth &ChildhoodProfitlessGrowthExplosiveGrowth5‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99‘83StorytellingQuestionsConclusionsAnalysisNet Income(in Million $) Dell Corp. 1983, Founded by 19-year-oldMichael Dell in a dorm University of Texas at Austin Upgraded IBM-compatible PCs Then he assembled entire PC with15% discount to established brandsDell : Birth & Childhood (1983 – 1990)
    • 6. Birth &ChildhoodProfitlessGrowthExplosiveGrowth6‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99‘83StorytellingQuestionsConclusionsAnalysisNet Income(in Million $)Dell : Birth & Childhood (1983 – 1990) Support services such as 24-hourhotline and guaranteed shipmentof replacement part Quality at a reasonable price Dell grew from nothing to $500Msales in 1990 Michael Dell became the richestperson in Texas International Expansion to serve toEuropean, middle eastern andAfrican marketsSimplicityEfficiencyAgilitySimplicityEfficiencyAgility
    • 7. Birth &ChildhoodProfitlessGrowthExplosiveGrowth7‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99‘83StorytellingQuestionsConclusionsAnalysisNet Income(in Million $) Dell’s model beingimitated by other Entering Retail Booked their firstloss in 93’Dell : Profitless Growth (1990 – 1994)
    • 8. Dell HistoryBirth &ChildhoodProfitlessGrowthExplosiveGrowth8‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99‘83StorytellingQuestionsConclusionsAnalysisNet Income(in Million $) Launching www.dell.com“We think about internet commerce as alogical extensions of our directmodel…..Because we’re all aboutshrinking the time and the resources itneeds to meet customer’s need….”“We think about internet commerce as alogical extensions of our directmodel…..Because we’re all aboutshrinking the time and the resources itneeds to meet customer’s need….” Internet increased efficiencyof sales process and service Extranet to let supplier shareinformation with Dell
    • 9. 9Case Questions What does Dell do well and where does it struggle? What contributed to Dell’s success and rapid growth in thelate 1990’s? What is Dell? A computer manufacturer? A consumerelectronics company? An IT service partner? What is theirfocus? What did Dell do to set itself apart from the competition inthe highly competitive and rapidly evolving personalcomputer industry? How did Dell segment its customers? What types ofcustomers? What were they like? What are the advantages of this direct marketing anddirect manufacturing model?StorytellingQuestionsConclusionsAnalysis
    • 10. 10Analysis : Who? & What problems? Who is Dell? Computer Manufacturer (Assembler) + IT service partner High technology, Short life cycle Fast FollowerStorytellingQuestionsConclusionsAnalysis Build trust with suppliers… Maintain latest technology Secure customers (quality, price, service,…)What’s the issue?
    • 11. 11Analysis (MECE)StorytellingQuestionsConclusionsAnalysisExternalEnvironmentWhen?Where?Why?How?InternalCompetence
    • 12. 12Analysis (MECE)StorytellingQuestionsConclusionsAnalysisWhen?Where?Why?How?SWOT Analysis
    • 13. 13External Analysis (PEST) When & Where : 1980s~1990s, in U.S.Category Issue Threats/OpportunitiesPolitical E-government (90s)Opportunity – Increase in Govt.spending on IT infraEconomicU.S. Economic Recovery (80s)U.S. Economic Boom (90s)Opportunity – companies andindividuals spend more on ITSocialRising incomes and demand forIT in Asia, Europe, Middle EastOpportunity - ½ of world’spopulation, new marketChange from Industrial Societyto Information SocietyOpportunity – increasingdemand for servers and networkgearTechnologicalExplosion in data informationand content (1PC/1Person) Opportunity – increasingdemandWWW era openedStorytellingQuestionsConclusionsAnalysisLot’s ofOpportunities!!Lot’s ofOpportunities!!
    • 14. 14External Analysis (Porter’s 5 Forces)StorytellingQuestionsConclusionsAnalysis Computer Industry
    • 15. 15Analysis (MECE)StorytellingQuestionsConclusionsAnalysisWhen?Where?Why?How?SWOT Analysis
    • 16. 16Analysis : Internal Analysis (AHP)ReduceChannelCostsWhy?How?MinimizeInventorySpeed ofExecution(JIT)DirectCustomerRelationCloseRelationw.SuppliersInitiatives1)Direct Model2)Customers &Segmentation3) WWWSimplicity, Efficiency, AgilityStorytellingQuestionsConclusionsAnalysisNew SalesSecureCustomersIncreaseEfficiencyBuild TightRelations
    • 17. 17Initiative 1. Dell Direct Model Indirect Channels Reseller Customized the PC to customerrequirements, installed components and providedadditional service and supportFig. Corporate PC Sales through Indirect ChannelsBased on ForecastingStorytellingQuestionsConclusionsAnalysis
    • 18. 18Initiative 1. Dell Direct Model Direct Model Bypassing the dealer channel, selling directly toconsumer 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% ofproduction revenue Direct customer relationship Latest tech. introduced faster than indirect channels Use IT to control value chain and achieve a high deg. ofcoordination Build-to-orderBuild-to-OrderStorytellingQuestionsConclusionsAnalysis
    • 19. 19Initiative 1. Dell Direct ModelStorytellingQuestionsConclusionsAnalysisDays of supply in Dell’s Inventory
    • 20. 20Initiative 1. Dell Direct Model Manufacturing Process No Warehouse Space No inventory other than work in process (WIP) Components arrive from suppliers just in time formanufacturing through the factory’s cargo doors Manufacturing is synchronized to avoid storing parts orfinished 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 timeSS CCMMStorytellingQuestionsConclusionsAnalysis
    • 21. 21Initiative 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 likeJust one large company In Computerworld’s 1998 survey Dell ranked first in usersatisfaction followed by GatewaySS CCMMStorytellingQuestionsConclusionsAnalysis
    • 22. 22Initiative 1. Dell Direct Model Build-to-Order : Pros & ConsAdvantages DisadvantagesSelling direct to customers cuts outthe middleman, which increasesDell’s margins.Customers not able to touch andfeel the product, which is a largeticket purchaseMass customization usingstandard parts allows Dell tocontrol their costs and enables themto pass savings to customer.Build to order requires innovationand investment in manufacturingtechnologies and facilities.Build to order allows for JIT,reducing costly inventories ofcomponents, which may quicklybecome obsolete.Competitors are able to outsourceto third party manufactures,pushing the burden of componentinventory costs onto suppliers.This strategy can be applied to other competitors?Does it still work well NOW?StorytellingQuestionsConclusionsAnalysis
    • 23. 23Build-to-Order (Now and Then)StorytellingQuestionsConclusionsAnalysis
    • 24. 24Analysis : Internal Analysis (AHP)ReduceChannelCostsWhy?How?MinimizeInventorySpeed ofExecution(JIT)DirectCustomerRelationCloseRelationw.SuppliersInitiatives1)Direct Model2)Customers &Segmentation3) WWWSimplicity, Efficiency, AgilityStorytellingQuestionsConclusionsAnalysisNew SalesSecureCustomersIncreaseEfficiencyBuild TightRelations
    • 25. 25Initiative2 : Customer SegmentationStorytellingQuestionsConclusionsAnalysis
    • 26. 26Initiative2 : Customer SegmentationStorytellingQuestionsConclusionsAnalysis• Dell Focuses on Computer-literate customers• Targeted segments where revenues could grow fasterthan expenseWe figured they (competitors) could be the ones to teachconsumers about PCs,while we focused our efforts on moreprofitable segmentsWe figured they (competitors) could be the ones to teachconsumers about PCs,while we focused our efforts on moreprofitable segments• Gold Accounts (sales of $5-$10million) ; Platinum accounts(sales >$10million)• Platinum Councils to listen theircustomer opinions
    • 27. 27Initiative3 : WWWStorytellingQuestionsConclusionsAnalysisIncreased Efficiency of Customer ServiceBuild Relationship with Supplier (Extranet)“We think about internet commerce as a logicalextensions of our direct model…..Because we’re allabout shrinking the time and the resources it needs tomeet customer’s need….”“We think about internet commerce as a logicalextensions of our direct model…..Because we’re allabout shrinking the time and the resources it needs tomeet customer’s need….”The real potential of internet is its ability to transformrelationships within traditional supply chain and to createvalue that can be shared…..The real potential of internet is its ability to transformrelationships within traditional supply chain and to createvalue that can be shared…..It’s more valuable to be in front withimperfect internet implementationrather than to be a late comer withthe perfect website..It’s more valuable to be in front withimperfect internet implementationrather than to be a late comer withthe perfect website..
    • 28. 28Analysis (MECE)StorytellingQuestionsConclusionsAnalysisWhen?Where?Why?How?SWOT Analysis
    • 29. 29
    • 30. 30Summary : Core CompetenceCompetency DescriptionBuild to order• Allows for JIT, keeping inventory costs down• Keeping manufacturing in-house enables controlof quality and faster new product releasesDirect to Sales• Cuts out retail markup• Maintain higher profit margins and lower priceValue addedservices• Do not just sell product, sell values• Proactive in solving clients pain• Customer services like software downloadingdifferentiate Dell from competitors in B2B marketInternet CoupledBiz. Model• Sell directly to end customers• Dell was much less mature compare to IBM/HPwhen Internal took off, less efforts to adapt systemStorytellingQuestionsConclusionsAnalysis IBM and HP’s: product innovation & development Dell’s: expertise in assembling and catering business needs•Yellow: Possible for competitors•Green: Very difficult
    • 31. 31ConclusionStorytellingQuestionsConclusionsAnalysis• Dell’s Focus on Customer Segmentation“Behind the simple proposition of direct selling is a complexinfrastructure that dell has developed over 15 years”“Dell’s service advantage may be a greater differentiator than its10-15% cost advantage, Dell has everything we want in a techcompany, especially Focus, Dell does nothing but PCs“Behind the simple proposition of direct selling is a complexinfrastructure that dell has developed over 15 years”“Dell’s service advantage may be a greater differentiator than its10-15% cost advantage, Dell has everything we want in a techcompany, especially Focus, Dell does nothing but PCs“DELL eliminated the need for inventory or middlemen and gaveitself a built-in price advantage, which it in part keeps asprofit and in part passes on to customers.”Fortune 2005“DELL eliminated the need for inventory or middlemen and gaveitself a built-in price advantage, which it in part keeps asprofit and in part passes on to customers.”Fortune 2005• Perfected the credo— “Cut out the middleman.”• Internet as Natural Extension of Business Model
    • 32. 32Thank 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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