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Dells supply chain

Page history last edited by PBworks 11 years, 8 months ago

 

"Pretty much, Apple and Dell are the only ones in this industry making money. They make it by being Wal-Mart. We make it by innovation". - Steve Jobs, Apple

 

 

Dells Supply Chain - a competitive advantage

 

 

Dell Inc. pioneered the Direct Model of selling PCs directly to the consumers. How it enabled Dell to manage its supply chain efficiently is discussed here.

 

Dell Computer Corporation a leading direct computer systems company was founded in 1984. Dell sells its computer systems directly to end customers, bypassing distributors and retailers (resellers). Dell's supply chain consists of only three stages— the suppliers, the manufacturer (Dell), and end users.

 

Dell’s direct contact with customers allows it to:

 

  • properly identify market segments,
  • analyze the requirements and profitability of each segment, and
  • develop more accurate demand forecasts.

 

Dell matches supply and demand because its customers order computer configurations over the phone or online (Internet). These computer configurations are built up from components that are available. Dell’s strategy is to provide customised, low cost, and quality computers that are delivered on time. Dell successfully implemented this strategy through its efficient manufacturing operations, better supply chain management and direct sales model. Dell takes orders directly from its customers; either on phone or online. Thus, Dell reduces the cost of intermediaries that would otherwise add up to the total cost of PC for the customer. Dell also saves time on processing orders that other companies normally incur in their sales and distribution system. Moreover, by directly dealing with the customer Dell gets a clearer indication of market trends. This helps Dell to plan for future besides better managing its supply chain.

 

Another advantage Dell gets by directly dealing with the customer is that it is able to get the customers requirements regarding software to be loaded. Dell loads the ordered software in its plant itself before dispatching it. By eliminating the need of a PC support engineer to load software, the customers gain both in time and cost. They can use the PC’s the moment they arrive.

 

 

Will the Competitve advantage last?

 

Dell stumbles as rivals copy its supply chain tricks

15 May 2006 

 

The world's biggest PC maker is losing market share as HP and others do a better job of reaching consumers

 

Dell remains the largest PC vendor in the world, shipping 37 million machines worldwide last year and commanding nearly 20 per cent of the market (32 per cent in America). Yet the firm, with a business model that was once the envy of the industry, has found that its chief advantages - the lack of a physical sales channel and the ability to squeeze suppliers - have become the chief sources of its woe.

 

This is because the market for computer equipment has radically changed, but Dell's business model has not adapted in response.  In the past Dell used its extremely efficient supply chain, lack of sales staff, paltry inventory and direct link to customers to offer low prices that rivals could not seem to match. But that tactic no longer works. Over the past year, as Dell slashed prices, it failed to gain market share as it had hoped.

 

The first is the resurgence of rivals, which have caught up with Dell's low- price model. By driving prices down, Dell has unintentionally cut costs for its rivals too. The supply chain has become as standardised as the components - the money has been wrung out, explains Nicholas Carr, the author of Does IT Matter?: Information Technology and the Corrosion of Competitive Advantage. Dell, by not working through retail outlets, is still more efficient, but the cost benefits that this once brought have been whittled away.

 

The second factor hurting Dell is that growth in the computer business is coming from the consumer market and emerging countries rather than the corporate market, in which Dell sells around 85 per cent of its machines. Increasing sales to consumers is difficult for Dell because individuals tend to want to see and touch computers before buying them. They also like to be able to return the machine easily if it breaks. Dell's lack of retail presence, once ballyhooed as a benefit, has turned into a grave disadvantage. Likewise, sales in countries outside America are often based on the advice of sales staff, which places Dell's direct-only business model at a disadvantage.

 

The absence of physical stores has also stymied Dell's attempts to expand beyond PCs, which account for more than 60 per cent of its sales, into consumer electronics products such as televisions. And large companies are increasingly buying their computer equipment as part of a package of services from consultancies to address specific business problems, says Matt Eastwood of IDC, a research firm. Dell has tried to develop a services division to remedy this, but it has nothing like the clout of rivals such as HP and IBM.

 

A third problem facing Dell is its exclusive use of Intel chips rather than lower-priced (and in some cases better- performing) ones made by Intel's sworn rival, AMD. This arrangement lets Dell buy chips inexpensively and benefit from Intel's generous co-marketing programmes. But it has started to harm Dell's sales for higher-margin computer servers. In March Dell acquired Alienware, a maker of high-end gaming PCs based on AMD chips. That could represent a long-awaited first step away from its Intel-only strategy.

 

Taken together, the changes in how computers are made and sold no longer favour Dell's business model, explains Ben Reitzes, an analyst at UBS, an investment bank. As a result, he believes Dell's best days are behind it. The commercial environment now benefits HP, with its established sales channel, large and well regarded services division and efficient supply chain - a dramatic reversal of fortune, since the firm's dependence on sales teams and retail outlets had only recently seemed hopelessly anachronistic. In the past year HP's market share increased from 13.8 per cent to 14.9 per cent according to Gartner, a research firm, while Dell's shrank slightly, the first time this has happened since it became one of the chief PC vendors a decade ago. But in the cut-throat computer business, success never lasts too long

 

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