Table of contents

I. Business model definition.................................................................................2 1. Definition......................................................................................................2 2. Classification of business models.................................................................2 II. Pull based business model...............................................................................3 1. Definition......................................................................................................3 2. Pull based business process..........................................................................3 3. Pros and cons of pull business model...........................................................4 4. Condition to apply........................................................................................5 III. Pull based business model in Dell..................................................................6 1. Introduction about Dell.................................................................................6 2. Dells pull based business model..................................................................7 3. The role of IT in pull based business model.................................................8 4. IT Architecture supporting business model................................................11 5. Competitive advantage achieving through IT support................................12 6. The contribution of IT to financial performance........................................14

Report
I. Business model definition
1. Definition Business model describes the rationale of how an organization creates, delivers, and captures value (economic, social, or other forms of value). The process of business model construction is part of business strategy. Business models are used to describe and classify businesses (especially in an entrepreneurial setting), but they are also used by managers inside companies to explore possibilities for future development. Also, well known business models operate as recipes for creative managers. Business models are also referred to in some instances within the context of accounting for purposes of public reporting. 2. Classification of business models Generally, on the basis of the two variables; direct commercial added value and added value influencing end user, business models can be divided into 7 types The low cost model The push or distribution service model The pull or innovation/ communication model The push pull or symmetrical attack model The pull push or user encirclement model The service model The disruptive model

Model 1.1: seven business model for growth

II. Pull based business model

1. Definition Pull-based business model is the system that company provides the information and solution in generally accessible format and allowing the customer to determine what best suits their needs. In this model customers request the product and pull it through the delivery channel. 2. Pull based business process

The model here is the demand pull business model. The model illustrates a complete and seamless process from customer order to shipment. The models is broken in to three segments: Sales and Order entry Product definition and design Product manufacture Customer orders initiate the process at the first step sales and order entry which represents the seamless link for processing and tracking customer orders. Customer orders through companys interactive customer interface such as website, an internal sale person. However, during customization process, as there is a gap between what customers want and what the organization needs to build the products, a dynamic product configurator is used to bridge the gap, effectively translating the product design intent (fit, form, function) into a customer driven format. After customer orders are fully defined, the orders are sent to manufacturing execution system to production and then ship directly to customers Model 2.1: pull business model 3. Pros and cons of pull business model Advantages Cost reduction:

+ Inventory reduction: There will be no excess of inventory that needs to be stored, thus reducing inventory levels and the cost of carrying and storing goods. + Material cost, cost of quality reduces: The company only produces products that the customers need or want. Save time:

+ The model substantially reduces the cycle time required to meet customers needs or configurable product, typically from weeks to hours. + The company can save more time by shipping directly products to customers and dont need to spend time on marketing and sale. This leads to on-time performance.

+ In order to pull a customized order through the system from order entry to shipment, there must be a customer interface that allows the customers to quickly and accurately define the product that they require. + Dynamic Sourcing, Dynamic Targeting - if one source isn't available, the metadata layer and engine can determine the "next source in line" and fire the query just the same. Therefore, the company dont waste time on seeking other sourcing if shortage. Customization :

+ The company can meet individual customer needs by producing products the customer order. Therefore, this business model makes customer satisfaction. Predictive:

+ The company can predict a number of suppliers based on a number of customers orders, predict failure as well as. Disadvantages:

- Idle time:
+ There is free time while waiting the customers order. People are not always busy producing inventory and may be idle at times. They are temporarily not producing. Complexity:

+ Massive sets of processing power (for large data) + Strict adherence and agreement by the enterprise to metadata management, and development

- Risk of missing customer demands:

It is highly possible to run into ordering dilemmas, such as a supplier not being able to get a shipment out on time. This leaves the company unable to fulfill the order and contributes to customer dissatisfaction 4. Condition to apply Professor David Simchi of the Institute of Massachusetts Technology (Massachusetts state, USA), made a diagram to help businesses determine which strategy they should implement. The decision is based on the characteristics of the products. There are two factors which is the basic for determinant: the first one is the demand uncertainty and another is economies of scale Demand uncertainty

When the uncertainty of customers demand is high, business should use pull-based business model. The pull-based strategy is the way of producing products basing on the requirement of customer, only after customers require, do the businesses produce these goods. It means that businesses are not be effected by demand even when the demand decrease suddenly. Hence, this method helps company overcome the risk of demand uncertainty Economies of scale

Economies of scale mean that an increase in the amount of product on a manufacturing process will reduce the average cost per unit of production. In the case of business whose economies of scale is low, apply pull-based model is a good choice. The reason is resulted from the drawback of this strategy. When companies apply this model, they cannot produce a large amount of product at one time, it means that this method restrict manufactures from taking advantages of economies of scale. In addition to the theory of David Simchi, there are some characteristics for whom pull-based business model is more suitable. With the products which require the innovation for development or whose length of products life is short; business should apply pull-based. Since if the company does not use pull-model strategy, the quantity of goods left in the inventory will be very high; as a consequence, company will lost a large amount of money for inventory cost. The problem is not stop this point, when the quantity of products in inventory is high, it will take more time to sell; However, because of short-life, innovation, the old products will be rejected soon, as a result, business who manufacture these goods should limit the number of surplus products

III.

Pull based business model in Dell

1. Introduction about Dell Dell Inc. is an American multinational computer technology corporation based in 1 Dell Way, Round Rock, Texas, United State. It was founded in 1984 by Michael Dell with a simple business insight: he could pass the dealer channel through which personal computers are being sold. This insight has been kept over the years and led o great success of Dell Inc. in its industry. Long the world's largest direct-sale computer vendor, Dell Inc. is also the leading seller of computer systems in the world, capturing a global market share of more than 15 percent in 2004. Dell markets desktop personal computers, notebook computers, network servers, workstations, handheld computers, monitors, printers, high-end storage products, and a variety of computer peripherals and software. The firm also has moved into the consumer electronics arena, offering LCD televisions, projectors, and other products. Dell manufactures most of the products it sells, maintaining six production facilities worldwide, located in Austin, Texas; Nashville, Tennessee; Eldorado do Sul, Brazil; Limerick, Ireland; Penang, Malaysia; and Xiamen, China. About two-thirds of revenues are

generated in the Americas, with 22 percent originating in Europe, the Middle East, and Africa and with the Asia-Pacific region accounting for the remaining 11 percent. Dell sells its equipment directly to consumers, small to large businesses, government agencies, and healthcare and educational institutions through dedicated sales representatives, telephone-based sales, and online via the company web site. 2. Dells pull based business model

Model 3.1: Dell business model

Dell utilizes the pull business model effectively and efficiently. In this model, orders for computers are placed with Dell by telephone or through the companys website. This website allows customers to design the exact product they need and in pricing it out. The orders, then is routed directly to the manufacturing floor. Through the process just in time manufacturing, the order is built, tested and shipped to the customer who received it 5 7 days after placing the orders. Besides that, regarding business customers, non Dell components shipped directly to customers. Features of Dell business model

As the pull business model possesses its own advantages and disadvantages, Dell has utilized this business model in a creative way. Besides, employing key feature of pull business model, customer driven production and direct sales and contribution, it has built a good relationship with suppliers and customers to minimize the risk of pull business model. Build to order production

The cornerstone of Dells business model is the build - to order production. Dells production applies just in time manufacturing and just in time production. These principles aim to minimize parts inventories by requiring suppliers to restock parts only as they are needed and often maintain ownership of parts until they are used. However, build

to order production of Dell goes even farther than lean production, it help Dell to achieve mass customization through well coordination with suppliers. Dell and its suppliers have some specific component in available as they are needed to fill an incoming orders. Direct sales and distributors

Instead of using distributors, Dell employs direct sales force to serve customer orders and then ship to them directly. Customers are initially divided into three categories: large businesses, small to medium businesses, and personal customers. Each group is supported in a consistent manner consistent with their requirements. Large businesses are a served by sales people who manage their order. Small and medium businesses share sale staffs who insure that the needs of these businesses are met. Individual customers interested in Dells products are served by either telephone based inside sales people or by sales system on the Internet. The orders of customers are then transferred to the manufacturer and directly ship to customers (as the model below).

Model 3.2 : Dells direct sales model Supplier integration

One of the disadvantage of pull business model is the possibility of mass customization. Therefore, to minimize its negative effects, Dell has been well - coordinated with its suppliers to ensure the seamless flows of materials and components. To meet the incoming order of customers, Dell has maintained a close relationship with a limited number of suppliers and used Information technology to facilitate communication within and outside the company. Dell recently has 95 suppliers all around the world. Customer integration

Additionally, to ensure meet the demand of customers, Dell keeps information about customer orders, needs. Thus, it can identify customer trends easily so it can respond with the desired products before competitors can. Furthermore, through direct sales, it can build a good relationship with customers, which makes it quickly and easily for customers to do businesses with Dell. 3. The role of IT in pull based business model Information technology plays a critical role in the success of Dell. It supports all the process in the business model. Strategy Direct sale Information links Customer orders are IT applications Call center automation

transmitted directly to Dell where program does second check for technical and financial feasibility Build-to-order Order information travels with products through the build process, enabling the inventory control, the meeting of special requirement, download of custom software Information sharing notifies suppliers to ship monitors to arrive PCs Aggregation of information includes orders, inventory, turnovers Daily and long term forecast of demand Real time information about buying patterns Customize direct order, service, and support Direct order, service, and support

Premier Pages, Dell online, Dell Product Service DPS

Dell Order Management System DOMS, Email

Direct distribution

Dell logistic system, Lotus note, Email.. Information to run the Business

Integrate with suppliers Integrate with customers

Dell Integrated Logistics i2 technologies rhythm forecasting Dell Configurator DellPlus Premier Pages Dell online, Internet Same as above

Reach new geographic markets and customer segments

Table 3.1: Information technology application Direct sale

Through Dell online and Dell Product Service (DPS), the customer orders are transmitted direct to Dell. After being checking secondly for technical and financial feasibility, the order will be accepted and product will be shipped to customers. Dell also uses information to manage relationships with customers. It outsources customer service but operates as broker between the customer and the third-party maintainers (TPMs) that actually provide service. Dells call center service people trouble-shoot the customers problem and trigger one electronic message to ship the needed parts and another to dispatch a TPM to the customer. As a result, Dell knows the kinds of problems customer face, the parts causing the problems, and the performance of its TPMs. Dell uses this information to develop

computerized sets of frequently asked questions (F AQs) and problem solutions, to train service representatives, to identify problematic suppliers, and to identify problematic TPMs

Build-to-order production
Orders are entered by sales representatives or directly by the customer online into the Dell Order Management System (DOMS). In the DOMS, the order is first routed to the finance department, where the customers means of payment is checked. If approved, the order then goes to engineering, which reviews it to be sure that the desired configuration is technically feasible. Then it goes to the plant, where a worker receives a print-out of the order, with complete information on hardware and software configuration and any special requirements. The order is then checked against inventory to ensure that the required parts are available in the build area. After the PC is assembled and tested, an Ethernet cable is attached to download software from a bank of servers in a nearby room. Corporate customers can have software preloaded, including their own proprietary software, and can have startup screens and various interfaces configured so that the machine is ready to use out of the box. Finally, the PC is ready to be shipped to the customer, complete with shipping label and bar code for the customer. As each build stage is completed, the original order is updated by bar-code scanning of information, which facilitates tracking the performance of components, suppliers, and manufacturing and test cells. Each PC is shipped with a service tag number on it. The customer can type that number into Dells Web site and get a customized Web page that has all the support information for that PC. This includes documents with help tree files, diagrams and graphics of the machine so that customers can solve many of their own problems Direct distribution

Suppliers now have real-time windows into Dells information systems and can track sales of products or components they provide. This enables suppliers to build and ship inventory in response to changes in demand faster than if they had to wait to receive a purchase order from Dell. Access to Dells order information helps the supplier to better manage its own inventory and helps both Dell and suppliers to avoid missing out on sales opportunities because of inventory limitations Integrate with suppliers

Dell uses Dell Integrated Logistics, i2 Technologies Rhythm forecasting and Dell Order Management System ( DOMS ) . Under i2 SCM S/W package, every 20 seconds, it aggregate Dells orders, analyzing the material requirements. I2 SCM compare Dells on hand inventory with its suppliers inventory, then creates a supplier bill of material to meet its order needs. Dells suppliers have 90 minutes to pull the needed materials and drive them to Dells factory. Dell then takes 30 minutes to unload the truck and place the materials in the precise order in which they will be manufactured onto the assembly line.

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In the DOMS, the order is first routed to the finance department. Order then goes to engineering. Then it goes to the plan where workers receive orders to make devices. With the IT applications, suppliers have real time windows into Dell information systems and can track sales of products or components they provide. This enables suppliers to build and ship inventory in response to changes in demand faster than if they had to wait to receive a purchase order from Dell. Integrate with customers.

To support integration with customers, Dell employs Dell Configurator DellPlus ; Premier Pages; Dell Online; Internet. Internet has its function as a sales channel through its completely automated Dell Online service. Customers go to the Dell web page, order directly from a menu of configurations preapproved by the company without going through normal purchasing channels or paperwork. Customers can try out and price various configurations, and then call in the order or even place the order directly over the Internet. With the help of the Internet applications, Dell can develop tools to help customers set up their own customized versions of dell.com. Moreover, Internet not only enables Dell to reach new customers, but also provides a new means of providing service and support to existing customers. The Premier Pages contained all of the elements of Dell's relationship with the customer who the Dell sales and support contacts were in every country where the customer had operations, detailed product descriptions, what software Dell loaded on each of the various types of PCs the customer purchased, service and warranty records, pricing, and the available technical support. Reach new geographic markets and customer segments.

In order to extend business to reach new customers, reach new geographic markets and to offer new products and services geared to those markets, Dell uses the same IT applications as above: Dell Configurator DellPlus ; Premier Pages; Dell Online; Internet. 4. IT Architecture supporting business model As Dell has a unique business model with direct sales, mass customization, build to order production, direct distribution ..., it has implemented the G2 IT architecture that is flexible, easy to use and manage. The G2 architecture is layered, consisting of four components: a web browser user interface sitting in the top of of an application layer, a message brokers, and a database.

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Model 3.2: Dells G2 architecture The key to this structure is the message broker layer, which is based on the an IBM MQ series application integration system. It serve as an information bus, linking all application and database together. It allows new data engines or application to be added to the system without having to make changes throughout the system. . For instance, a new database on customers (e.g., how much they have spent on various products in the past) can be added at the data engine level and be linked via the message broker to Dells customer service representatives order managementsystem. This information can be made available as an extra button on the Web browser interface without needing to change the users applications or retrain the users. This architecture is very flexible. It allows changes without having to shut down whole systems or retrain workers. As the message broker layer allows these different systems talk to each other, it extends the life of Dells legacy applications such as DOMS and Dell Product Services ( DPS) which are written for Tanderm hardwares. Such flexibility Such exibility enables Dell to expand the capabilities of its information systems to meet the demands of rapid growth without major disruption to the businesss functioning. Creating and maintaining all of the linkages and interfaces required for this exibility is reported to be complex and costly, and problems sometimes result, but Dells IT people seem to have made application integration work to serve the companys needs. 5. Competitive advantage achieving through IT support Low cost

Information system enables Dell to reduce cost. Firstly, by using direct sales approach, it reduces the cost for supporting a network of wholesalers and retail dealers. It also cut inventory costs which are associated with the wholesale/ retail distribution channels. Besides that, it minimizes the cost of manufacturing cost by practicing just in time production As Dell factories receive orders and schedule assemblies, a "pull" signal to the supplier triggers

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the shipment of only the materials required to build current orders, and suppliers deliver the orders directly to the appropriate Dell assembly lines. The factory schedule is refreshed every two hours. As a result, when actual demand varies from forecasted demand, all suppliers, factories and logistics providers are quickly and concurrently notified and can adjust their own inventory allocations and production accordingly. Dell's inbound inventory is kept to a minimum, its non-ordered finished goods inventory is kept at zero, customer orders are immediately sent upon completion and customers receive what they ordered on the promised date. Additionally, by using customization in Dells website, this feature eliminates paper invoices, cut ordering time, and reduced the internal labor needed to staff corporate purchasing functions Differentiation

While other PC suppliers find it difficult to offer mass customization because they are depending on the retail chain to sell their products, Dell is able to offer high degree of customization to its customers on their PCs. By using Dells direct-sales model, the specifications are decided by the customers. Also, Dell can offer the customers more flexibility in terms of computer components and price through its website. Customer can configure the products as they wants and calculate the price of final products immediately. Growth

By using this strategy, the companys profit, revenue and are improved and inventory conversion period is reduced. Dells factories have only 7 hour worth of inventory for most items whereas regarding, industry average it is around 10 days. At the end of fiscal year ended in 2000, it is the worlds largest direct computer systems company with revenues of $25.3 billion. It also occupies the second market leader worldwide regarding market share and consistently the leader in liquidity, profitability and growth among all the major computer systems companies. Innovation

By using build to order production systems, it not only enables Dell to reduce cost but also achieve high level of innovation. Through, just in time inventory, it can offer the last PC component to customers. Alliance

As for alliance, Dell maintains a good relationship with all of its hardware suppliers. Through a suite of web-based applications, Dell is now linked with its core suppliers. This new system automatically converts Dell's sales orders into materials requirements. These requirements are then instantly communicated to suppliers, whose stocking locations are situated no more than thirty minutes from the Dell factory. Those suppliers use an Internet portal to view the requirements and confirm their ability to commit their own inventory to Dell as the orders are placed. Thus Dell can ensure the supplies come on time and at right quantity and quality.

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6. The contribution of IT to financial performance The contributions of Dells IT investments to the firms performance are difficult to disentangle systematically from the other inputs to production and from the many process innovations continually made at all stages of the value chain. However, it is clear that IT and the information it provides, along with process improvement, have contributed to Dells exceptional performance. The contribution of IT to operational efficiency is reflected in measures related to procurement and inventory, manufacturing production, cash management, and administrative overhead. The overall effectiveness of Dells IT-supported direct model is indicated by the companys growth in sales and market share. Over the last 10 years, Dell sales have increased from a mere $389 million in fiscal year 1990 to $18.2 billion in fiscal year 1999(Figure 5).

Figure 3.1.: Sales revenue ( in million)

Figure 3.2: Net income ( in million)

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Net income increased from just $5 million in fiscal year 1990 to over $1,460 million in fiscal year 1999 (Figure 6). Shareholder Value

Dell has been doing very well in increasing shareholder value, whether measured by return on invested capital, earnings per share, or share price growth. Dell has grown rapidly to become one of the top three vendors in the PC industry, and has seen an extraordinary increase in share price and market valuation. While many other PC companies have been unable to handle the demands of time-based competition, Dell has continued to thrive in such an environment.

References:
Demand pull the competitive strategy, the Aquila group

Competitive advantages and strategic information systems, International Journal of

Business and Management, www.ccsenet.org//ijbm Refining and extending the business model with information technology: Dell computer corporation, University of California, California, USA B2B business models, Research Starters, Academic Topic Overview

Website: www.dell.com Website: http://www.fundinguniverse.com/company-histories/dell-inc-history/ 15

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