dell - direct business model

Direct BusinessModel

Dulan Mahendra

HOW IT ALL STARTED

• 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.

DELL SUPPLIERS AND PRODUCTS 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

SUPPLY CHAIN CHART

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

HOW DO THEY DO IT?Dell’s success is a combination of:

• Direct Sales.• Inventory Management • Supplier Integration

Together these allow for maximum effectiveness with minimum cost.

CORE ELEMENTS OF STRATEGY

• 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.

DELL DIRECT SELLING• 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

Traditional “build to stock value chain”

ComponentManuf.

PCManufactu

rer

Distributor /Reseller

Order

Product Product

Forecast

Component

Components

MicroAge,CompuCom

Corporate customer

DELL DIRECT MODEL

Component manufacturer

DELL CompCorp

Distributor

Final customer

Components

Order

Product

DELL DIRECT MODEL Continued……• 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

KEY TO SUCESSES ... MINIMUM INVENTORY• 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.

INVENTORY MANAGEMENT

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.

DELL INVENTORY MANAGEMENT

ADVANTAGES OF THIS MODEL • Returns grew disproportionately as the carrying costs and

obsolete stock is avoided.

• Reduces handling cost. Common factors that drive up holding costs include opportunity costs, increased rent required for the space of the inventory, and cost of obsolete goods.

CUSTOMER SERVICE• 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

• Technical support via a toll-free number, fax, and e-mail

Disadvantage• High Risk• Cost of development & the ownership of assets in a

volatile industry

Limitation of direct sell model in emerging market

Buying habit

Not access to internet

Lack of online payment (i.e. credit card)

SWOT ANALYSISStrength:1. Direct Model Approach, it provides Dell a way to interact to customers directly2. Customization of products3. Reliability, Service and Support4. Latest Technology

Weakness:1.Market share growth is slow due to competition; Fake products/ imitations affect sales2. 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 business2. The Direct approach Model of Dell would help them there existing to sell the other IT products, so new product development opportunity is for Dell3. 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 products2. 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

THANK YOU