Dell Computer, Class presentation , alliance business school

Presented by group 9Asha Nachi 08PG222

Kritika Prabhakar 08PG234

Nitesh Kumar 08PG246

Dell’s StrategyInventory ConcernsInventory ModelsDirect SalesSalesCustomerConcluding commentsResources

Disdain inventoryNever sell indirectAlways listen to the customer

Bad Spell in 1994 left Dell with2nd quarter operating loss of $76 million55 days of inventory$154 million deficit in cash from business

operations

Dell execs swore at that time that changes would be made and they would never put the company in that position again.

Supply Chain had to be revampedDell had made promise to ship customer their

order within 5 days of order being receivedBUTThere was a 45 day average lead time

necessary for purchasing parts.SO

Dell developed valuechain.Dell.ComA novel ideaUse the Internet in a B2B format to control

inventory levels at suppliers businessesBasically, it was a you do this or else

This proved to be very effectiveWHY?

Suppliers were truly world-wide (26B/yr)By becoming a mandatory member of

valuechain.dell.com, they exhibited something to other computer manufacturers, that being that they were serious about being a leader in their respective area of expertise.

Initially run by Dell but in time is was turned over to the suppliers to run

This targeted the supply issue of the partnering companies

Within 1 year the Inventory was 4 days of sales in amount, of course which is less than the guarantee that the order will be shipped within 5 days of receiving

This was 1999Daily sales averaged approximately

$15,000,000.00 (70% in direct materials)Gross profit margin of 21% = $3,000,000Making the daily cost of sales $12,000,000The difference in days of inventory 55 – 4

= 51Lets say that money is worth 6%This equates to a savings of $720,000 per

dayOr $36,720,000 for the 51 day change in

inventory

Daily sales in 1999 around 15,000,000Daily sales in 2001 in excess of 50,000,000

(more than 3 times the amount from 2 years prior)

By 2001, the inventory carry was under 1 day

Think about those savings based on reworking the value chain

In order to handle$ 1,000,000 per day in sales in 1996$15,000,000 per day in sales in 1999$50,000,000 per day in sales in 2001$31 billion annual sales in 2002 (82M/day)It takes speed. Something that cannot be

attained without direct control over the marketing and sales function

Michael Dell designed the company business model to be a build-to-order business

It would survive if it was built on speed, speed to change based on industry demands.

Demands had to be constantly gathered and measured

With sales of over 7 billion per quarter in 2001, there was a lot of data to synthesize

Dell works on the slimmest margin in the industry (21% in 1999) and becoming smaller all the time

They are the price leaderThis could not be accomplished if they were

selling at wholesale prices to retailers

Top PC Makers –1999Compaq 16.10%Dell14.80%Gateway 9.30%Hewlett-Packard 8.60%IBM 8.00%Others 43.20%

Sales by Price 1998 – Actual 2003 –

Projected$0 to $599 3.00% 27.00%$600 to $999 31.00% 38.00%$1,000 to $1,999 51.00% 34.00%$2,000 and over 15.00% 1.00%

Sales of this magnitude are made possible with the supply chain that runs the Inventory control area,

ANDRunning their business in Real TimeThey understand on Monday afternoon if PC

sales are slowing down, and they can adjust prices accordingly

Direct Sale – Made to order40% buy non name brand computersDell owns $3 billion dollars of these sales as

of nowTaking away market from Foreign companies

that have long had the “white box” market niche

Dell has the lowest transaction costs in the market

What does this mean???As a stockholder?As an employee??As a Customer??

Proof of transaction costs Figure 4Profit Margins for Dell and major competitors Company Gross Margin % Operating Margin %Profit

Margin % Dell 20.62 8.97 7.46 IBM 36.38 12.39 8.64 Hewlett-Packard 28.53 7.97 7.30 Compaq 23.18 5.50 3.86 Gateway 22.81 7.97 5.67

Dell has two main philosophies

Supply and Demand are never in balance, company strategy is to manage when they deviate

“Always have enough, and have nothing left over.”

Executing those philosophies takes

Huge dollars invested in training employees

Huge dollars invested in technology to enable the processes to work

Michael Dell agrees that the Internet gives customers unprecedented power to seek out the lowest prices, but he argues that it can also be used to deepen relationships and ultimately build far greater customer loyalty than before.

Shah, J. (October 2001), Dell Makes Good on Inventory Vow: Creation of three SCM Organizations has helped boost efficiency. EBN. 1286,PG52

Shah, J. (December, 2001), Dell writes the book on efficiency: Processes focus on understanding where supply, demand diverge. EBN. 1293, PG32

Anonymous, (June 1999), Survey: Business and the Internet: You’ll never walk alone. The Economist. 351, B11-B21

Shah, J & Serant, C. (August 2002), IS supply chain prowess enough?: Dell confident time is right to enter white-box market. EBN. 1327, 3

Souza, C. (November 2001), Real-Time business may be the real ticket: Technology enablers seen as a good investment. EBN. 1289, PG4

Sabatini, J. (August 2000) Direct to Dell: I hunt for Michaels supply chain secrets. Automotive Manufacturing and Production. 112, 74-76

Lewis, N. (February 2001), Dell Portal Adds ‘Value’” Valuechain.dell.com provides pipeline to info exchange. EBN. 1251, PG62

Teresko, J. (October, 2001), The value of velocity. Industry Week. 250, 43-44