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PROJECT REPORT ON DELL’s SUPPLY CHAIN MANAGEMENT PRACTICES

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Dell, Inc. is a multinational technology corporation that develops, manufactures, sells, and supports personal computers and other computer-related products. Based in Round Rock, Texas, Dell employs more than 82,700 people worldwide. Dell grew during the 1980s and 1990s to become (for a time) the largest seller of PCs and servers. As of 2008 it held the second spot in computer-sales within the industry behind HP. The company currently sells personal computers, servers, data storage devices, network switches, software, and computer peripherals. Dell also sells HDTVs that are manufactured by other brands. In 2006, Fortune magazine ranked Dell as the 25th-largest company in the Fortune 500 list, 8th on its annual "Top 20" list of the most-admired companies in the United States. In 2007 Dell ranked 34th and 8th respectively on the equivalent lists for the year. A 2006 publication identified Dell as one of 38 high-performance companies in the S&P 500 which had consistently out-performed the market over the previous 15 years.

Manufacturing In the 1980s Dell became a pioneer in the “configure to order” approach to manufacturing – delivering individual PCs configured to customer specifications. In contrast, most PC manufacturers in those times delivered large orders to intermediaries on a quarterly basis. To minimize the delay between purchase and delivery, Dell has a general policy of manufacturing its products close to its customers. This also allows for implementing a just-in-

2008 that “Dell has approached contract computer manufacturers with offers to sell" their plants. However. The 2006 Annual Report states “we are continuing to expand our use of original design manufacturing partnerships and manufacturing outsourcing relationships. was advertised in computer magazines and sold directly to consumers. which minimizes inventory costs. Throughout most of the company’s history. Each system was assembled according to the preference of customers. THE DIRECT MODEL Dell’s direct selling model traces its origins Michael’s idea of selling computers directly to the consumers eliminating the need for distributors and middlemen. Dell manufactured desktop machines in-house and contracted out manufacturing of base notebooks for configuration in-house. Dell also began employing computer literate sales personnel. and quality control. The first computer that the company introduced in 1985Turbo PC. software installation. the company's approach appears to have started to change. the company would be able to better understand the needs of its customers.bsutra. Dell’s manufacturing process covers assembly. However. This option helped customers to get computers at a price lower than other brands. Low inventory is another signature of the Dell business model – a critical consideration in an industry where components depreciate very rapidly. maintaining a high level of quality was necessary. Michael believed that by selling PCs directly to the consumers.time (JIT) manufacturing approach.” The Wall Street Journal reported in September. The company also realized that in order to be on par with the top PC manufacturers like Compaq and IBM. who guided consumers in their choice of systems. The specific DELL model is called the DIRECT MODEL of DELL.com . functional testing (including "burn-in"). this required www.

Later. This . At the time of starting this process. reduce obsolete inventory by 75 % and reduce the assembly cost by 30 %. The returns grew as Dell was able to eliminate carrying costs and also obsolete stock. Dell decided to produce PCs as per the orders it received and not to hold excess inventory or finished products. on the premise that with more information on the needs and requirements of the target customers. The Heads of the Manufacturing and Marketing departments decided to reduce component inventories. The new supply chain had to manage with low components levels but without increasing the customer lead time. improve the lead time by 50 %. The overall savings Dell derived from managing the inventory encouraged it to try matching supply and demand on monthly. This happened because Dell was aligning inventory and sales. the component lead time improved while the finished product inventory also reduced. their primary focus was to reduce the inventory by 50 %. Another benefit was in terms of returns. the level of inventory could be further reduced. The top executives of the company met and decided to increase their funds in hand by reducing inventory.more cash. The company decided to pass on the information to the suppliers. Dell’s executives observed that as the inventory was reduced. and reap savings due to cheaper components. weekly and daily basis. rather than carrying inventory against projected sales. managing the difference between lead times for components and lead times promised to customers was difficult. In the process of reducing inventory. the component inventory dropped from 70 days to 30-40 days and consequently to 20 days. Dell decided to replace inventory with information. However. With reduction in components inventory having a positive effect on each cash flow. who were provided access to company’s internal data about the demand for specific components. the company decided to bring other tasks related to production in line with the reduced inventory. Initially.

located in Round Rock. China. and improve relationships with customers. Once the corporate customers were convinced that they could order what they needed. it was sent to a specific e-mail box. Once the order was received.5bn. India. The internet proved to be a shot in the arm for Dell’s direct model as it was able to facilitate transactions. Customers were also not sure that Dell would be able to meet its service and delivery deadlines. they moved on to Dell. www. After Dell started fulfilling specific orders. The cash that was freed up due to reduction in inventory levels was used to target corporate customers. several corporate began approaching Dell with their requirements. also served as the regional headquarters for the US. Dell’s direct model was directly supported by the way the company’s activities were organized globally. South America. Within six months Dell’s revenues on the Web stood at US $ 1 million a day. It was ensured that the order was complete and had all the required details and was then sent to the build-toorder system. sales through Internet were at around US $ 1bn. and online sales began in 1996. Texas. and Latin America. By 1997. Online pricing was introduced in 1995. Other regional headquarters at Singapore catered to the Pacific Rim including Japan. Its corporate headquarters. reduce costs. rather than buy what was available with the resellers. customers could log in to check the status of their order.com .reduced the variation in supply and demand and gradually it was no longer necessary for Dell to maintain any component inventory. when the company’s total revenues were US $ 3. Dell established its website in 1994. Dell’s sales through the Internet accounted for more than half of its total sales. By 1998. while maintaining high quality standards. and Dell was the first company to record more than US $1 billion in online sales. Canada. Dell had the hard task of convincing corporate customers that the products it provided were of good quality and was cheaper compared to those of its competitors. The website initially catered to the needs of individual customers. Once the order was placed.bsutra.

but we also ask can they hit the quality requirements? Can they provide continuity of supply for the volumes we’re looking at? Do they have the capability to diagnose a customer-related issue and interact? Do they have capabilities to quickly diagnose it with Dell as we trace it back to a component-level issue? What’s a favorable arrangement for both Dell and the company so that we’re both successful?” Dell separated activities related to contracting like cost negotiation. cost. Dell collaborated closely with its suppliers. Major components were sourced centrally. contract terms. which functioned under the regional headquarters. The company’s procurement decisions were based on four criteria-quality. language specific keyboards and procurement and product development teams were located in Austin. Cost was centrally-managed while delivery was managed regionally. “Features. delivery management and payment. Suppliers were selected on the basis of cost (given a weightage of 30 %) and quality.Australia and New Zealand. while consumables were sourced locally. The company also had regional offices in several countries. service and flexibility (with a weightage of 70%). New product development was undertaken in the US and the products were customized according to the requirements of specific markets. Dell said. . functions and performance level is one piece. source selection from commerce-related activities like purchase order release. Kevin Kettler. delivery and technology. taking into consideration power supplies. Chief Technology Officer. ROLE OF DELLs SUPPLIERS In order to manage its operations with low inventory levels. Commenting on the supplier selection process.

bsutra. Dell agreed to purchase a particular percentage of the components it required. Dell required suppliers to maintain inventory for 8 to 10 days in SLCs. usually replenishing its stocks every two hours. while other components were produced in Asia and shipped in to their own warehouses near Dell’s factories. Dell required all its suppliers to maintain a warehouse close to its factories. Dell had a vendor managed inventory arrangement with its suppliers. The warehouses known as Suppliers Logistics Centers (SLC) were located a few miles away from Dell’s assembly plants. monitors. The suppliers also had to decide on sending the components to SLCs so that Dell could take the components as and when required. The vendor had to decide when to order the inventory and the quantity to order to maintain the levels set by Dell. Software was supplied by standard suppliers like Microsoft or as per the requirements of the corporate customers. Dell set the target inventory levels-typically 10 days.com . who had been with Dell over a long time. Each SLC could be shared by more than one supplier. keyboards and pointing devices were supplies by the offsite suppliers. It was up to the suppliers to decide on maintaining inventory at SLCs. Components and peripherals like CD ROM drivers. With some suppliers. As bringing the components from the suppliers’ factories to Dell took anything between 7 and 30 days depending on the mode of transportation. They could either manufacture the product at the warehouse or produce at another place and ship the finished product to the warehouse. As per the arrangement.Printed circuit board assemblies and sub-assemblies were handled by contract manufacturers or OEMs. Most of Dell’s suppliers were located in Asian countries. Dell took the inventory from SLCs as required. Most suppliers replenished the stocks at SLCs thrice a week. This was to ensure that an adequate supply of products was available even when the demand in the market was higher than the www. Most of Dell’s Asian suppliers produced some components near Dell’s manufacturing facilities. Typically.

and in case there was a problem with the components. The data was generated by the marketing department of the company and took into account various factors like the demand for new products. the engineers from the suppliers were available to rectify it immediately. Due to this close collaboration with suppliers Dell was able to manage with an inventory of just a few hours for some components. Dell constantly passed on data on demand and supply . it could expedite the process of building the products and receiving material from suppliers. and seasonality trends like the demand from the government departments at the end of the year. which was updated every week. This enabled the suppliers to understand Dell’s requirements. The commodity teams made a six-month forecast. Dell shared with its suppliers the data pertaining to sales forecasts once a month. including the long-term planning data. with very few defects. volume expectations. These monitors were not shipped to Dell’s assembly lines. Dell was of the view that if it had more information to share with its suppliers. and replenishment data was shared with them. Some of the partnerships that Dell entered into with its suppliers enabled it to operate with almost zero inventory levels. All the inventory data.supply. It was the responsibility of the commodity teams to break the forecasts down to the component level. and holiday season demand during Christmas. but were shipped directly to Dell’s customers. Some of the engineers from the major suppliers worked in tandem with the new product development teams in Dell. These high quality monitors. which supplied monitors for Dell. demand from school children at the start of the academic year. were not tested by Dell. and minimize its inventory. The availability of the components at the suppliers’ end was checked by the Center of Competence in Dell and sent to commodity teams in the company. A case in point was Sony. Dell believed in maintaining a close relationship with its suppliers.

and details of changes in demand patterns. The company had about 30 suppliers who provided 75 % of the components required by the company and they maintained inventory for an average of 8 to 10 days. Dell worked together with the suppliers to ensure that optimum inventory levels could be maintained by them.bsutra. The company gathered information about inventory levels of the suppliers and the suppliers were required to share information on their capacity to deliver products on time. Dell demanded that its suppliers should be extremely flexible to accommodate shortterm demand fluctuations. and every week. Every quarter. reliability. One of the suppliers was chosen s per its aggregate performance on the four parameters and given ‘the best supplier’ award during the annual supplier conference. etc. and provided them feedback on their performance and its expectations from them.trends to its suppliers. Every day Dell rated vendors on several parameters like cost. technology and service and the scores were posted on a website. Dell’s officials met with the suppliers. Dell provided the details of customer demand to its suppliers. www.com . suppliers were given an order commitment from Dell for the following week. Every supplier was given a supplier report card and their performance was constantly monitored against the metrics set by Dell. quality and on time delivery. Each supplier was given a scorecard comparing it with other suppliers in the industry in terms of cost. new technology drivers. Based on the comparison. the suppliers were awarded a certain percentage of Dell’s purchases in the next quarter. The suppliers needed to send their consent to meet the company’s demands immediately. The company provided suppliers with data on real-time customer demand. If the inventory exceeded 10 days. Dell’s suppliers also maintained low levels of inventory.

Dell used BPI to understand.In mid-1998 Dell launched Valuechain. Electronic Industry Code of Conduct International Organization for Standardization (ISO 14001). In 2004 and 2005. management systems and acknowledged standards. This helped improve vendor management as it led Dell exchange information with its suppliers in real time. All the suppliers were required to comply with ISO 14001 environmental management standards and OHSAS Certification. The team consisting of personnel from Dell and its suppliers used Business Process Improvement (BPI) methods to define and measure improvement in the suppliers’ processes. to hiring about awareness in the areas of working hours. Dell was of the view that it had the responsibility of working with its suppliers to promote sustainable environmental practices. so that they could plan their own production schedule accordingly. The Dell Code of Conduct as well as the benchmark of other corporations and industries across the globe. In 2006. the UN Convention on the Rights of the Child. the health and safety of people and fundamental human rights. With an extensive global supply chain. Valuechain. collaborative projects were carried out with suppliers.com also helped Dell to place orders in real time instead of relying on daily or weekly batch order transfers. a site which let the suppliers know what the company’s components requirements were at any given moment.com. Included among these were the United Nations Declaration of Human Rights. The Soul of Dell. fundamental conventions of the International Labor Organization (ILO). . health & safety and environment. Dell conducted a Supplier Self Assessment. through which suppliers were made aware of its supplier principles and labor management systems. Occupational Health and Safety Assessment Series (OHSAS 18001).dell. Dell’s approach was drawn from a review of global best practices. health and safety and Electronic Industry Code of Conduct (EICC). a standard for workplace health and safety management. analyze and improve its own business processes. product quality and services as well. All the suppliers were also trained in areas like environmental practices.

the procurement of the product was expedited or additional suppliers were brought and the customers were encouraged to buy substitute www. Through its forecasting techniques. They interpreted the demand trends. It also maintained a similar database for individual customers in order to cater to their future requirements for PCs. the department heads arrived at product strategies. The company placed some of its personnel in the factories and offices of major customers like Boeing. As Dell sold directly to the corporate customers. and the supply chain. If it was found that the lead time for a product was increasing.bsutra. competitive factors and constraints. Every week. tried to resolve supply issues and focused on lead times for delivering products to the customers.BALNCING DEMAND AND SUPPLY Dell maintained a database to track the purchasing patterns of corporate customers and their budget cycles. Several customers reported considerable savings through these services Dell provided. it kept track of their purchases and gained knowledge about the PC requirements of the major customers. Dell maintained a sales force in all the regional offices. Dell was able to forecast demand with 75% accuracy. Dell loaded customized software and also placed the asset codes required for some of its corporate customers. the lead time meeting was conducted with personnel from sales and marketing. in order to forecast demand.com . Every month Dell developed a production plan and conducted sales plan meetings. the changing demand patterns were communicated to the major suppliers. These employees were involved in planning the client’s requirement and provide them optimum solutions to meet those requirements. In the meetings. which was directed by the marketing department located at the headquarters. The sales force was primarily responsible for marketing the Pcs to the corporate and public sector customers. In all the countries in which Dell operated it had a direct sales force. Thrice a day.

internet. PRODUCTION PROCESS Dell received orders via the telephone. magazines . the marketing team would create advertisements for computers with components that were in abundant supply. Dell checked with alternative suppliers. Dell created demand for other products by putting them on its own website and also some other popular websites. In case the demand exceeded supply at any given point in time. “If we’re short on Sony 17” monitors. customers were provided incentive to buy those products. The product lead times were updated everyday. etc. The pricing also changed from week to week reflecting the demand management in the company. If any component was found to be accumulating. Customers could use Dell’s website www. we could offer a 19-inch model at a lower price or even at the 17-inch price. Orders were received by business units. catalogs and newspapers. which downloaded the orders every 15minutes. Supply Chain Management .dell. if Dell was in short supply of 60GB hard drives and the demand was more. If the component was generic. e-mail. Dell also used other media including television. to configure their customized computer and place an order for it. With advancement in technologies. the choices available for the consumers also widened. which were in adequate supply. Dell. Supply chain experts call this process of creating demand for products that were adequate in supply ‘demand shaping’. advertisements would immediately he placed on Dell’s website providing an alternative of 80 GB hard drives. For example . Customers . Within hours.com. Vice president. We know if we do this a lot of demand will move. Once all the supplier options were exhausted. Dell had more than one supplier for each of components to expedite supply. Through these advertisements.products. at any particular time. Dell used its marketing team to shift demand. According to Dick L Hunter.

large businesses and public sector customers like government departments. As of 2003 Dell received about 50. home office customers. along with the price.com . At every step. etc. and www. internet. notebooks servers. software and services chosen by the user were displayed. installation. as well as accessories like printers. T. display screen. small businesses. After the customers had selected the options. and this remained on them through the assembly line. the production lines in every factory located across the globe were rescheduled. All orders were sent to Dell’s Legacy order Management System . Dell on its part required 30 minutes to take the material and deliver the components to the assembly line. The orders were processed after checking the credit of the customers and configuration evaluation. video card. a barcode was printed and attached to the components.000 orders per day and around 25.000 orders were received via the internet. The process took two hours. Dell provided choices in terms of batteries and carrying cases. Every two hours. operating system. the website catered to different segments of customers like individuals.could choose from a variety of products ranging from desktops. for products like notebooks. in order to process order. memory hard drive. etc. the customers could get more details on the components they were selecting. which received the inventory status and generated requests for the materials. After the order from the customers was received. At the beginning of the cycle. etc. power options. etc. medium businesses.bsutra. printers.V. The request was then sent to suppliers. accessories. The other services included warranty services. the component providers had 90 minutes to deliver the products for the next schedule of production. audio cars. the website warned that choosing that particular component could delay the shipping date. Customers could customize their computers by selecting processors. If some of the components the customer was opting were in short supply. where the feasibility of the configuration selected by the customer was checked. a summary of all the components. tuner. educational institutions and healthcare institutions.

the unit was placed back on the conveyer belt. however there were around 110 cargo bays . Dell still managed to process orders on time by ordering the components from its suppliers. . The unit thus assembled was cleaned and placed in a box with a barcode on the box. Once all the required components were ready. The next step was loading the software and ensuring that the application run correctly. The technician present there detected any failures that occurred and rectified them immediately from companies like Microsoft and Intel were added. the inventory was registered into Dell’s books. only after the final order was received. and it was the responsibility of the worker to maintain the quality of the product. the customer order was picked up and the barcode was scanned. When the assembly lines signaled requirements of a particular component. there were thin white lines forming a rectangle. At the same time. a barcode scanner recorded the movement and at that point of point. The system was assembled and a quick test was carried out to verify if the order was executed as per the customer specifications. After the verification. For example in Topfer Manufacturing Center in North Austin. Tractor trailers with components from the suppliers were lined up at the bays. Each was scanned to ensure future traceability. the suppliers delivered the required materials at the specified dock door to send them to the assembly line. a message was sent to SLCs. Personnel from the suppliers were present at Dell’s facilities to run the process smoothly. a forklift went on to the trailer containing the component and took the pallet containing the components. Then the parts required were sent on a conveyer. Without maintaining inventory and warehouses for storing finished goods. This process took up to four hours. The schedule for making a product was drawn up and sent to the factory accompanied by a order number. After receiving the information. As the parts went into the assembly. Belt. When the pallet crossed the white line on the floor. The assembling was carried out by a single worker.after this another production cycle began. Dell assumed the ownership of the components only after they had reached its production line.

Dell’s plant in Limerick. Dell procured parts from an alternative supplier. Dell’s facility at Limerick. When the unit failed in problem was related to hardware or software. addressing was done. the boxes were sorted depending on their final destination and were shipped to different distribution hubs. The random audit comprised of two Extended Test – ET1 and ET2. Middle East and the African markets. the hub at Tillberg. where each worker was responsible for a single task. except South Africa. Before the unit was packed. Red and green lights they needed to pick up.com .m. to 4 p. Dell decided to carry out the entire assembly at a single location. Another hub located at Gottenberg in Sweden served the markets in the Nordic countries. thereby reducing the assembly time by 15%. Once the components were picked up from the drawers from the other side they were replenished. The hub at Liverpool served the UK market. 10% of the products were selected and audited to check if the product was according to the customer satisfaction and to ensure theat it was in a proper condition. two lines for notebooks and one line for servers. hard drives were tested. The hub located in Johannesburg catered to the South African market. a meeting was held the supplier to correct the mistakes. and mouse. The factory at Limerick operated in two shifts from 8 a. By reading the barcode. which was supplied by a sub-contractor was added. If it was realised that the problem was due to a part supplied by the supplier. In 1997.m. To replace defective units and to process large orders from corporate customers with certain specifications. The hub at Limerick served Ireland. The lines used for notebooks and servers could also be used for assembling desktops. For example. The PC which was partly assembled was sent to a workstation. In ET1. Ireland had five assembly lines for manufacturing desktop PCs. A chassis with the order containing specifications of the customers was sent across the production floor and the components like drives and chips were installed. Ireland had associated with it. motherboard and extended parts were examined and in ET2. Dell rescheduled its activities. Netherlands catered to the mid-European market. For example. a separate box containing the keyboard. All the Dell factories had flexible assembly lines. Dell operated the assembly line in a traditional manner. www. Using the barcode. which contained steel racks with several drawers full of components. In case the corrective action was not taken by the supplier. Eastern Europe. and it planned production in such a way that all orders were fulfilled within five days from the receipt of the request.Prior to 1997.bsutra. documentation. The barcodes used on the product were used on this box too. At random. and system.

The SLCs were located in the ground floor and teh assembly on the mezzanine floor. According to Charles Wolf.000 sq ft plant to stage the inventory. Needham & Company. In 2004. Dell had set aside 150. The high demand products included motherboards. low capacity hard drives. it did not have to sell technologically obsolete products at a discount. From the new plant. against the trend of starting plants abroad though major competitors like HP were outsourcing assembly of their PCs to third parties based in Asia. As Dell did not hold large inventory of finished products. Dell imported higher value components from outsourced plants in Asia and carried out final assembly in the US. “When everybody is outsourcing. the company aimed to deliver desktop computers within two days on teh US East Coast. etc. Dell improved its plants and introduced new technologies while constructing new plants. This was a deliberate move by Dell. Another unique feature of the Carolina Plant was the placement of inbound small components suppliers within the factory premises. Dell chose North Carolina for establish in a new plant. At the plant.000 sq ft of space in 750. to save floor space associaoted with storing large components. THE BENEFITS Dell maintained nearly zero inventories for some of its components. Analysts were of the view that this decision had more to do with bottom line and costeffectiveness that the company could achieve by manufacturing the computers closer to its customers. The company opted for a plant in the US. which were present in every computer. Dell continues to manufacture in the United States because over two decades of fine-tuning. By placing the small components suppliers within the factory premises. With the value of inventory declining rapidly at an average of 0. they have figured out how to do it cheaper and smarter. Dell was able to bring in new products according to the needs of the customers into the market faster than its . Dell was able to eliminate transportation costs and reduce the supply time from an average of two hours. Analyst. Large components like monitors and speakers were handled at an offsite SLC. and LCD monitors. next to the assembly line.5% a week. holding a significant amount of inventory did not prove to be an advantage. the inventory was divided into three levels based on the demand. the low demand products were products like hard drives with high capacity and specifically requested items like floppy drives.From time to time.

In 2004. It then considered a target price and the expected volume and communicated to the vendors who adjusted their price accordingly. Dell was able to incorporate new technologies quickly into its products and take them to customers almost two months ahead of its competitors. when the ships would be unloaded and when it would be sent to the supply chains of several companies. so that they would be the first ones to be unloaded at US ports. Due to the strike. In Dell’s case. which maintained inventory only for a very short period was expected to be hit hard by the strike. computer manufacturers paid the suppliers 30 days before the PC was skipped to the market. and other cargo carriers. Dell’s freight specialist in all the major ports in Asia ensured that Dell’s cargo was the last to be loaded in the cargo ships. Dell’s production system functioned on negative working capital. it received payment from the customers on order. after which the specified order was carried out. Dell. In the process. Dell was well-prepared to face the situation and had a contingency plan in place. After the strike was called off. The company chartered cargo planes from UPS. Through the Direct Model.competitors.5 times at HP and 17. with more www. Bothe suppliers and customers benefitted from this. Usually. The efficiency of Dell’s supply chain become apparent in October 2002. including Los Angeles.com . The consumers derived benefits also in terms of cost as Dell passed along the material cost savings to them through forward pricing. The suppliers in Asia were ready with the components to be loaded into the planes at Shanghai and Taipei airports and so on time was wasted in loading the components. San Diego and Seattle. During a 10-day labor lockout by dockworker at 29 West coast ports. Dell decided on the optimum price of the PC for achieving a high sales volume. Dell was able to meet the expected price and the vendors also benefitted as they were to sell higher volumes of the components. as it was aware of the impending strike much in advance. several cargo ships with raw materials and finished goods were unable to unload their cargo. much before others could. The suppliers were paid 36 days after Dell received payments from its customers.5 times in IBM. compared to 8. China Airlines. as the suppliers could not use the latest technologies. Dell’s components arrived at the US west coast in 50 ships. the inventory turnover rate in Dell was at 107 times a year. However.bsutra. Dell even had a plan to face the situation after the strike when the ports were filled with thousands of container. as the components would fail to reach the factories on time. but Dell was in a position to assess.

Dell’s share in the corporate market was also in decline. and lost its coveted position as the largest selling PC manufactured to HP. According to a survey by CIO Insight. and reduction in manpower. The customers preferred to know more about the utility and . In 2006. Analysts were of the view that Dell’s strength lay solely in its supply chain. When a company has only one area of strength. This enabled HP to reduce the price of its low-end PCs to match those of Dell. it was found that Dell and HP were losing their market share. At the same time. “Dell’s troubles seem to be bleeding into its corporate business which up till now had been a stronghold. especially those related to holding inventory and in retail channels. Additionally. Dell had to recall several notebook computers due to battery faults. They opined that the supply chain was getting too complicated. While corporate spending was falling. According to the report. any problem in that area would have severe repercussions. These problems were accompanied by problems relating to financial reporting and growing dissatisfaction about Dell’s after sales support. Dell faced several problems. customer preferences were changing with several additional and new features being incorporated in the PCs.than three days of components inventory. In a study by Goldman Sachs. demand from the corporate buyers. who accounted for a major share of Dell’s sales fell. and the company had nothing much to boast of on the product or R&D front. With the prices of components dropping. technology spending among companies with revenues of US$500mn decreased by 1. Dell’s problems included growing complexities in its products line and pricing system. minimising overheads. went through without it missing a single customer order. Dell was able to reduce costs and maintain its price advantage.3% in 2006. By 2006. and so was the product line. THE PROBLEMS In the years 2005 and 2006. competitors like HP made massive changes in their supply chains and were able to close the price gap by achieving cost savings through closure of several assembly plants. HP was able to surge ahead of Dell by procuring components at a cheaper price and improving its supply chain management practices.

At these locations. In the second quarter of 2006.5% in plans to open stores in New York and Austin by the end of 2007. In the case of Dell. test them. etc. most of the time they found PCs from HP prominently displayed. Industry experts felt that Dell was losing the competitive advantage it had gained over the years by using the Direct Model. while the worldwide PC shipments grew by 9. the model could not provide much cost advantage. and Dell could not provide this because its products were not available at the retail stores. after sales service. Analysts were of the view that Dell had ignored the customer and had failed to maintain efficient customer service. Dell faced a lot of problems associated with customer support and had to invest heavily on revamping its support activities and on increasing the number of customer support personnel. Analysts opined that as long as support costs formed a small part of the total cost of a product. right from information requests.bsutra.com . queries.this was one of the reasons why HP had taken over from Dell at the top spot.unique features of PCs from sales people. Though Dell reaped significant cost savings through its direct model on the support side. customers could see the products. While the cost of PCs was falling by the day owing to cheaper components and automated manufacturing. the cost of support activities remained high. discuss them with store personnel and place the order online. HP surpassed Dell by a few units and by the fourth quarter. consumers preferred to take a look at the notebook computer before buying it. In the case of notebook computers. the share of support costs was constantly going up the prices of PCs fell. Dell’s net income fell by 51% as compared to the second quarter of 2005. as the level of automation in support tasks is limited. taking orders. When consumers walked into retail stores to buy PCs. HP opted for a mixed sales channel by selling computers directly as well as through retailers. All the support related activities and costs associated with them had to be borne by Dell. the direct model was viable. customers wanted to see even the desktop PCs and other products before arriving at a purchase decision. www. in developing countries like China. By the third quarter of 2006. HP was leading in the global PC market. According to Gartner. Apart from this.

” . Dell’s desktops would be sold through wal-mart stores in the US. going retail would require Dell to forecast demand. and we are very excited to now bring our customers new access to a product they want. like digital televisions and printer cartridges. in addition to a few desktops and notebooks and sell them through the Dell retail stores. but this was an area in which Dell wasn’t experienced enough. “Dell is a proven electronics brand and adds a new complement to our other high quality desktop selections.the stores Dell had been using to sell some of its outdated components since 2005. Dell would sell its sub-US$700 Pcs through more than 3400 outlets of wal-mart. analysts were of the view that Dell was not attuned to the retail format and it would be very difficult for the company to change. In what was termed Dell’s first step into the global retail segment. wal-mart.” Though Dell had made a foray into retail. Canada and Puerto Rico. NPD group. dell announced that it had entered into an agreement with wal-mart. industry Analysis. with the ability to purchase a Dell right away.Industry experts suggested that Dell could create products with a longer shelf-life. According to Gary Severson. in May 2007. According to the agreement. senior VP. Another step Dell could take was to enter the commercial retail segment and compete with the likes of HP and Acer. but traditional retail would be hard. They just don’t know it. According to Steve Baker. Home Entertainment. VP. In case Dell developed a retail footprint. build inventory and deal with retailers. it would also be able to address some of the customer service issues and improve its support system. Dell could also consider partnering with stores like Costco. “A Dell store might work.

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