Dell Computers Essay

Dell Computer pioneered a new way of making and selling personal computers. Its customers â€Å"custom-design† their computer over the Internet or phone. Dell reengineered its â€Å"supply chain† as it coordinated its efforts with its suppliers and streamlined its order-taking and production process. It can ship a computer within two days of taking an order. Personal computers lose 1 percent of their value every week they sit on a shelf. Thus, having virtually no inventory is a great advantage to Dell. Compaq tried to adopt Dell’s approach, but with limited success. Dell’s CEO Michael Dell understood that kind of execution. His direct-sales and build-to-order approach was not just a marketing tactic to bypass retailers; it was the core of his business strategy. Execution is the reason Dell passed Compaq in market value years ago, despite Compaq’s vastly greater size and scope, and it’s the reason Dell passed Compaq in 2001 as the world’s biggest maker of PCs. As of November 2001, Dell was shooting to double its market share, from approximately 20 to 40 percent. Dell turns its inventory over eighty times a year, compared with about ten to twenty times for its rivals, and its working capital is negative. As a result, it generates an enormous amount of cash. In the fourth quarter of fiscal 2002, with revenues of $8. 1 billion and an operating margin of 7. 4 percent, Dell had cash flow of $1 billion from operations. Its return on invested capital for fiscal 2001 was 355 percent—an incredible rate for a company with its sales volume. Its high velocity also allows it to give customers the latest technological improvements ahead of other makers, and to take advantage of falling component costs—either to improve margins or to cut prices. These are the reasons Dell’s strategy became deadly for its competitors once PC growth slowed. Dell capitalized on their misery and cut prices in a bid for market share, increasing the distance between it and the rest of the industry. Because of its high velocity, Dell could show high return on capital and positive cash flow, even with margins depressed. Its competition couldn’t. The system works only because Dell executes meticulously at every stage. The electronic linkages among suppliers and manufacturing create a seamless extended enterprise. A manufacturing executive we know who worked at Dell for a time calls its system â€Å"the best manufacturing operation I’ve ever seen. In 1998, Dell Computers launched its first global brand advertising campaign, beginning in the United States and Canada, to further highlight the advantages of its direct business model. The brand advertising campaign carries the theme â€Å"Be Direct. † The campaign highlights Dell’s unique business model, which helps to eliminate barriers between customers and the manufacturer, providing Dell with the means to enhance the overall customer experience. Dell’s advertising has focused primarily on its products and has been targeted largely at computer-enthusiast and industry trade publications, cable and local television and a few national newspapers. The â€Å"Be Direct† campaign will be in addition to the company’s ongoing product-oriented advertising. The new brand campaign emphasizes the strengths and advantages of Dell’s direct-to-customer business philosophy. The direct model, pioneered by Dell in the computer industry, enables Dell customers to have computer systems built to their specifications; a single point of accountability; award-winning service and support; and fast access to the latest relevant technology. Presently, the growing number of orders comes in over the Internet. The order-taking system interfaces with Dell’s own supply chain control system, which ensures that inventory is where it needs to be for the computer to be manufactured quickly. In addition, Dell stores very little inventory. Instead, Dell’s suppliers have built warehouses close to Dell’s facilities, and Dell orders parts on a just-in-time basis. By implementing these strategies, Dell has been able to provide customers with exactly what they want very quickly. In addition, inventory costs are low, and Dell minimizes the danger of parts obsolescence in the rapidly changing computer industry. In this way, Dell has become a dominant player in the desktop PC market and is well on its way to doing so in the laptop and server markets. References Cravens, D. W. & Piercy, N. (2003). Chapter 1: Strategic Planning and Decision Making. NJ: McGraw-Hill Companies. http://www.dell.com