Case Study

Dell Computer inc., is one of the great success stories of the past decade. The computer
business Michael Dell started while still a student at the University of Texas grew to a
multibillion-dollar enterprise guided by the insight that it could bypass computer dealers and
could sell directly to customers ranging from individuals to large companies buying
thousands of computers. Many of Dell’s large competitors traditionally pre-built PCs using
estimates and distribute to their distributors to be sold to individuals and/or businesses. Thus,
they decide how many computers to assemble based on an estimate, ship them to distributors,
and hoped the computers would be sold before they become outdated. Dell uses a different
approach. It could eliminate mark-up charges by dealers and vastly reduce the risks of
carrying large inventories by taking orders directly from the customers and building
computers only when it had customer orders specifying the options individual customers
wanted. Dell implemented this strategy through a combination of outsourcing and mass
customisation. As this system developed, Dell became more and more efficient in providing a
wide range of options, yet manufacturing the computers efficiently and delivering them
through a delivery service within two weeks. Dell reached the point at which it typically
received payment for the computers before having to pay suppliers for the components. This
means that Dell’s inventory holding cost is negative.

Dell’s approach to mass customisation is to create an efficient order fulfilment process that
provides rapid delivery and low prices while also providing customers important options
related to computer power, storage, the type of monitor, and features. Because many
customers wanted specific software installed on the computers before delivery, Dell created a
network within its factory that made it possible to select one of many possible configurations
and load it efficiently. The internal processes that made this mass customisation approach
possible start with estimates of demand and long-term contracts with over 200 suppliers, 30
of whom account for 78% of Dell’s total purchases. Dell maintains electronic links to its
suppliers that tell them exactly when the parts are needed. These electronic links help make
sure that Dell uses only the most current parts and does not have to store large inventories.
Dell tracks inventory velocity and related measures closely and has reduced its inventory to
11 days, meaning that its risk of holding obsolete inventory is minimal. When its inventory
balance is not quite right, it uses its direct sales model to steer customers toward products that
can be built with the available inventory.

As an aggressive outsourcer, Dell has been a leader in permitting partners and suppliers to do
work that might otherwise be done by company employees. At each stage in its value chain,
Dell asks whether there is any reason to do the work internally. Dell does not manufacture the
semiconductor chips used in its computers and does not attach the chips to the computer
motherboards. Instead, it buys computer motherboards from suppliers with which it has long-
term contracts. Similarly, it does not make monitors, but purchases them from suppliers such
as Sony. Since there is no advantage in receiving a shipment of Sony monitors, and
repackage them, and re-ship them to customers. Dell asks Airbourne Express or UPS to pick
up computers at the Dell plant in Austin, and matched them with monitors from Sony plant in
Texas, and Ship both to the customer at the same time. In a similar fashion, most of the
10,000 technicians who service Dell computers in the field are actually employees of other
firms operating under contract with Dell. Furthermore, since there is no special value in
insisting that only Dell employees have access to Dell’s help desk tools and information,
employees of Dell’s major customers such as MCI can access this information directly
through www.dell.com.
Dell is also an early leader in using the Web for sales and achieved $3 million of sales per
day by 1998. Dell provides a number of ways to buy from them. For example, customers can
order through the Web without talking to anyone, order through a sales representative without
using the Web, or set up a tentative order on the Web and then talk to a sales representative.
About half of Dell’s customers “use Dell’s web pages to configure their orders. And only
15% of customers place the order electronically. The remaining 35% design the order online
and then submit it in some way that requires Dell to take a second step to feed it into the
system, such as via emailing or faxing.

Sales to large companies occur through more traditional industrial sales relationships. This
combination of different sales methods provides a comfortable shopping experience for
different types of customers with different preferences and experience levels.

Questions:

1. In what way(s) is Dell Computer inc. an e-Business?

2. In what way(s) is Dell Computer inc. an e-Commerce?
3. How does Dell differ from its competitors when it comes to marketing and selling of
products over the Internet?
4. In what ways did dell achieved a competitive advantage over rivalry?
5. State and discuss the system(s) used by Dell and MCI to access Dell’s help desk tools
and other information?
6. What type(s) of e-commerce is Dell Computer inc. engaged in? Discuss your answer
7. What was Dell’s Business Model in this case?
8. To what degree of digitization is Dell Computer inc.? Describe all as in this case
study
9. Explain how Dell inc. used the VALUE CHAIN in this case
10. Apply the Michael Porter Forces Model to this case with specific emphasis on the
Forces Dell Computer inc. faced in this case
11. For which strategic objective(s) did Dell inc. set-up its e-Commerce system to
achieve?
12. As a consultant to Dell, advice on how Dell can engage in social e-commerce
13. By what means can Dell assure its customers of their privacy and security? Describe a
technology that Dell can used to give its customers this assurance.
14. Outline and describe 3 electronic payment systems Dell customers can use to make
purchase(s) from Dell.
15. Which of the Porter’s Generic Strategy(s) did Dell Computer inc. adopted?