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CASE STUDY

HOW IT ALL STARTED



Started by Michael Dell (19 at that time i! hi" d#rm r##m at the U!i$er"ity #% Te&a" i! 19'( )ith *1+++, C#m-a!y head./artered i! R#/!d R#c01 Te&a"1 U,S,A, It" re$e!/e i" ar#/!d US* 23,+4 billi#! i! 5+15, I! 5++11 became the 6#, 1 c#m-/ter "y"tem" c#m-a!y i! the )#rld, At -re"e!t (5+13 1 it i" the third lar7e"t 8C $e!d#r i! the )#rld a%ter H8 a!d Le!#$#,

AC9UISTIO6S

Dell ha" 7r#)! by b#th i!crea"i!7 it" c/"t#mer ba"e a!d thr#/7h ac./i"iti#!" "i!ce it" i!ce-ti#!: !#table mer7er" a!d ac./i"iti#!" i!cl/di!7 Alie!)are (5++2 a!d 8er#t Sy"tem" (5++9 , 6#table Ac./i"iti#!"; < 5++2 = Alie!)are 5++9 < 8er#t Sy"tem" 5+1+ < >ACE 6et)#r0" 5+1+ < SaaS 5+15 < S#!ic Wall 5+15 < Wy"e

DELL SU88LIERS A6D 8RODUCTS


SU88LIERS
8RODUCTLI6E De"0t#- c#m-/ter"
6#teb##0 c#m-/ter" 6et)#r0 "er$er" W#r0"tati#!" St#ra7e -r#d/ct" Dell #%%er" a t#tal #% 1,2 milli#! di%%ere!t -#""ible -r#d/ct c#!%i7/rati#!" %#r all it" -r#d/ct li!e"

MICROSO?T < %#r Wi!d#)" I6TEL < %#r micr# -r#ce""#r" 6@IDIA < %#r Ara-hic chi-" < %#r m#!it#r" SO6Y

SU88LY CHAI6 CHART


!&$$'I()! )(*O'*()!

Customer places an Order


(By phone or through the Internet on www.dell.com)

Dell processes the order

2-3 days

!ends the order to assem ly plant


(any one in "ustin# or any other)

$lants uild# test % package the product


(a out eight hours)

Configuration evaluations
(checking the feasi ility of a specific technical configuration)

Dell typically ship all orders Financial evaluation


(credit checking) (no later than five days after receipt)

C&!+O,()!

HOW DO THEY DO ITB


DellC" "/cce"" i" a c#mbi!ati#! #%;

Direct Sale", I!$e!t#ry Ma!a7eme!t S/--lier I!te7rati#!

T#7ether the"e all#) %#r ma&im/m e%%ecti$e!e"" )ith mi!im/m c#"t,

CORE ELEME6TS O? STRATEAY



Ma"" c/"t#miDati#! (e!d re"/lt; Deli$er" e&actly )hat the c/"t#mer )a!t" 8art!er"hi-" )ith "/--lier" E/"t<i!<time c#m-#!e!t" i!$e!t#rie" (9/ic0 I!tr#d/cti#! #% Late"t Tech!#l#7y Direct "ale" Mar0et "e7me!tati#! C/"t#mer "er$ice E&te!"i$e data a!d i!%#rmati#! "hari!7 )ith b#th "/--ly -art!er" a!d c/"t#mer",

DELL DIRECT SELLI6A



New Value Chain: Dell had !# i!<h#/"e "t#c0 #% %i!i"hed 7##d" i!$e!t#rie" /!li0e c#m-etit#r" /"i!7 the traditi#!al $al/e chai! m#del Pull Mechanism; It did !#t ha$e t# )ait %#r re"eller" t# clear #/t their #)! i!$e!t#rie" be%#re it c#/ld -/"h !e) m#del" i!t# the mar0et-lace (ty-ically #-erated )ith 2+<4+ day" "t#c0 Personalization: C/"t#mer" 7#t the "ati"%acti#! #% ha$i!7 their c#m-/ter" c/"t#miDed t# their -artic/lar li0i!7

Traditi#!al Fb/ild t# "t#c0 $al/e chai!G

Componen t ,anuf.

Componen t

$C ,anufactu rer

$roduct
Distri utor -)eseller

$roduct
Corporate customer

Forecast

Order

Components

,icro"ge# CompuCom

DELL DIRECT MODEL


Component s

Component manufacturer

D('' Comp Corp

Product

Final customer
Order

Distri utor

DELL DIRECT MODEL C#!ti!/edHH

Dell C#m-/terC" direct m#del de-arted %r#m the i!d/"tryC" hi"t#rical r/le" #! "e$eral %r#!t"; The company outsourced all components b/t -er%#rmed a""embly, It eliminated retailers a!d "hi--ed directly %r#m it" %act#rie" t# e!d c/"t#mer", It took customized orders %#r hard)are a!d "#%t)are #$er the -h#!e #r $ia the I!ter!et, It de"i7!ed an integrated supply chain li!0i!7 DellC" "/--lier" $ery cl#"ely t# it" a""embly %act#rie" a!d #rder<i!ta0e "y"tem

THREE AOLDE6 RULES O? DELL


" l w a y . D es iv s e d rl ai is n !t ee il n n l vt e Io n

I6@E6TORY MODEL

/(0 +O !&C(!!(! ... ,I.I,&, I.*(.+O)0

BUIL !"#!#$ %$ M# %L I$%C" "# &%LL INV%N"#$'M(N()%M%N" i" -rimarily ab#/t "-eci%yi!7 the "iDe a!d -laceme!t #% "t#c0ed 7##d",

1, E/"t<i! time i!$e!t#ry ma!a7eme!t < 3 day", 5, ?#c/" #! "-eed #% i!$e!t#ry deli$ery -r#ce"", MICHAEL DELL = F' day" #% i!$e!t#ry c#m-etit#r" (+ day"1 i% I!tel c#me" #/t )ith a !e) chi-1 I am 7#i!7 t# 7et that t# the mar0et 35 day" "##!erG

I.*(.+O)0 ,"."1(,(.+

I.!+)&,(.+! FO) I.*(.+O)0 ,OD('

Build-To-Order Model Value Chain Program

Revolver or SLCs (Supplier Logistics Centers)

DELL I6@E6TORY MA6AAEME6T


IUILD TO ORDER

I! c#!tra"t t# #ther" )h# -r#d/ce =t# "t#c01 dell %ir"t recei$e" the #rder a!d the
m#!ey a!d #!ly the! "tart" t# b/ild1 /"i!7 that m#!ey t# -/rcha"e %r#m "/--lier

There%#re there i" c/"t#miDati#! #% -r#d/ct" %#r each a!d e$ery c/"t#mer, While #ther c#m-a!ie" had t# 7/e""1 DELL 0!e) e&actly )hat it" c/"t#mer" )a!ted
be%#re ma!/%act/ri!7 the -r#d/ct

Other" had t# mai!tai! i!$e!t#ry a" there e&i"ted middleme!1 "# t# "/--#rt a!d retail cha!!el",

re"eller

RE@OL@ERS
Supplier Manufacturing
(SLC) arehouse

Material Transfer

Factory / Merge Center

T# c#m-e!"ate %#r l#!7 lead time" J b/%%er a7ai!"t dema!d $ariability1 Dell re./ire" it" "/--lier" t# 0ee- i!$e!t#ry #! ha!d i! the re$#l$er", $e*ol*ers #r "/--lier l#7i"tic" ce!ter" (SLC" are "mall )areh#/"e" l#cated )ithi! a %e) mile" #% DellC" a""embly -la!t", Each #% the re$#l$er" i" "hared by "e$eral "/--lier" )h# -ay re!t" %#r /"i!7 their re$#l$er, Dell d#e" !#t #)! the i!$e!t#ry i! it" re$#l$er": thi" i!$e!t#ry i" #)!ed by "/--lier" J char7ed t# Dell i!directly thr#/7h c#m-#!e!t -rici!7,

I6@E6TORY MODEL

Dell ha" a "-ecial $e!d#r<ma!a7ed<i!$e!t#ry (@MI arra!7eme!t )ith it" "/--lier" S/--lier" decide h#) m/ch i!$e!t#ry t# #rder J )he! t# #rder )hile Dell "et" tar7et i!$e!t#ry le$el" J rec#rd" "/--lier"C de$iati#!" %r#m the tar7et", Dell )ithdra)" i!$e!t#ry %r#m the re$#l$er" a" !eeded << #! a$era7e e$ery t)# h#/r", It /"e" a ./arterly "/--lier "c#recard t# e$al/ate h#) )ell each "/--lier d#e" i! mai!tai!i!7 thi" tar7et i!$e!t#ry i! the re$#l$er,

LEA6 I6@E6TORY MODEL


+ days o, in*entory ! In*entory turns o, -.. per year
Suppliers Revolvers (SLCs) !ell "actor# !eliver#

Local Suppliers

Supplier O$ned

!ell O$ned

Customer

@ALUE CHAI6 8ROARAM



@al/e Chai! i" i!te!ded t# e&te!d DellC" "/cce""%/l direct<"ale" a--r#ach bac0 i!t# the "/--ly chai! The 7#al #% it i" i!crea"i!7 the "-eed a!d ./ality #% the i!%#rmati#! %l#) bet)ee! Dell a!d it" "/--ly ba"e The -#rtal1 $al/echai!,dell,c#m act" a "ec/re e&tra!et %#r Dell "/--lier" t# c#llab#rate i! ma!a7i!7 the "/--ly chai! Dell e!$i"i#!" /"i!7 thi" "ite t# e&cha!7e )ith "/--lier" c/rre!t data1 %#reca"ted data1 !e) -r#d/ct idea"1 a!d #ther dy!amic i!%#rmati#!

SU88LIERS SELECTIO6 A6D @ALUATIO6

SELECTIO6 9/ality

8rice Deli$ery

Re"-#!"e t# %eedbac0, E@ALUATIO6 < t# mea"/re -er%#rma!ce /"e" "/--lier" "c#re C#"t

Deli$ery A$ailability #% tech!#l#7y @el#city #% i!$e!t#ry Way" i! )hich they did b/"i!e"" )ith dell #$er the i!ter!et,

AD@A6TAAES O? THIS MODEL


Ret/r!" 7re) di"-r#-#rti#!ately a" the carryi!7 c#"t" a!d #b"#lete "t#c0 i"
a$#ided,

Sa$e" e!#rm#/" am#/!t" #% m#!ey #! -/rcha"i!7 c#m-#!e!t" beca/"e the


c#m-#!e!t -rice" dr#- by 3 -erce!t -er m#!th,

Red/ce" ha!dli!7 c#"t, C#mm#! %act#r" that dri$e /- h#ldi!7 c#"t" i!cl/de
#--#rt/!ity c#"t"1 i!crea"ed re!t re./ired %#r the "-ace #% the i!$e!t#ry1 hi7her -remi/m" t# i!"/re the i!$e!t#ry1 a!d c#"t #% #b"#lete 7##d",

CUSTOMER SER@ICE

Ser$ice became a %eat/re #% DellK" "trate7y i! 19'2 It -r#$ided %ree #!<"ite "er$ice %#r a year a%ter "ale C#!tracted )ith l#cal "er$ice -r#$ider" t# ha!dle c/"t#mer re./e"t" %#r re-air" O!<"ite "er$ice )a" -r#$ided #! a !e&t<day ba"i" Tech!ical "/--#rt $ia a t#ll<%ree !/mber1 %a&1 a!d e<mail

Al#bal 8C Mar0et Share < 5++1<5++L


Global PC Market Share by Units, Percent. 2001-2005 Rank 2001 2002 2003 200 2005

!ell

13.3

"PCo#$a%

1&.2

!ell

15.0 !ell

1&.

!ell

1&.'

2 3

Co#$a% "P )*M

11.1 !ell (.2 &. 3.' 5'.1 )*M ./C 4oshiba

15.2 &.0 3. 3.2 5&.0

"P )*M 012its1 4oshib a

1 .3 "P 5.1 3.' 2.5'.)*M 012its1 3cer

1 .& 5.5 3.' 3. 5&.

"P +eno,o 3cer 012its1

1 .5 &..& 3.' 53.3

5 5ther s

./C

Al#bal 8C Mar0et Share < 5++2<5+11


Global PC Market Share by Units, Percent. 200&-2011. Rank 1 2 !ell "P 200& 15.15."P !ell 200( 1'.2 "P 1 .3 !ell 200' 1'. "P 2001-.3 "P 13.0 !ell 2010 1(.- "P 2011 1(.2

1 .3 3cer

12.- +eno,o 13.0

+eno,o

(.0

3cer

'.-

3cer

11.1 !ell

12.2 3cer

12.0 !ell

12.1

3cer

5.'

+eno,o

(.

+eno,o

(.2 +eno,o

'.1 +eno,o

-.( 3cer

11.2

4oshiba

3.'

4oshiba

.0

4oshiba

.5 4oshiba

5.1 4oshiba

5.

3SUS

5.-

5ther

51.&

(.1

.5

2.3

2.1

0.(

DellC" m#ti$ati#! %#r rethi!0i!7 direct "ell b/"i!e"" m#del


Limitati#! #% direct "ell m#del i! emer7i!7 mar0et I/yi!7 habit 6#t acce"" t# i!ter!et Lac0 #% #!li!e -ayme!t (i,e, credit card

C#!ti!/edHH,,
IN THE PAST TODAY Customers are willing to choose $C customi2a ility was highly appreciated y customers !urplus stock lost value 3uickly Demand was typically low for each product variant "ssem ly4to4order more effective than selling pre4configured $Cs in retail stores from a few standardi2ed $Cs model. Inventory of standardi2ed models moves fast Demand was relatively high for each standardi2ed model $C ecame a popular commodity# price has dropped significantly Direct sell model is less effective in today5s more standardi2ed market

DELLCS HYIRID MODEL

FThe direct m#del ha" bee! a re$#l/ti#!1 b/t itC" !#t a reli7i#!,G - Michael Dell in April, 2007 memo to employee I! E/! 5++41 Dell #%%ered t)# 8C m#del" thr#/7h Wal<Mart "t#re" "ell I!"-ir#! !#teb##0 c#m-/ter" thr#/7h Wal<MartC" SamC" Cl/b #/tlet", I! Oct 5++4 Dell "#ld it" 8C thr#/7h1 Chi!aC" lar7e"t electr#!ic" retailer %i%ty A#meD Electrical A--lia!ce" "t#re" Later Dell al"# e&te!ded it" i!ter!ati#!al retail "trate7y by #-e!i!7 it" %ir"t retail "t#re i! R/""ia

SWOT A6ALYSIS
&trength:
1, Direct M#del A--r#ach1 it -r#$ide" Dell a )ay t# i!teract t# c/"t#mer" directly 5, C/"t#miDati#! #% -r#d/ct" 3, Reliability1 Ser$ice a!d S/--#rt (, Late"t Tech!#l#7y

/eakness:

1,Mar0et "hare 7r#)th i" "l#) d/e t# c#m-etiti#!: ?a0e -r#d/ct"M imitati#!" a%%ect "ale" 5, O$erde-e!de!ce #! S/--lier", 3. Lac0 #% Dell St#re"1 ca! be a! i""/e %#r "#me c/"t#mer".

#pportunity:

1, With i!crea"e i! e<c#mmerce the #!li!e retail "t#re" #% Dell -r#$ide them better %rame)#r0 t# ta- !e) b/"i!e"" 5, The Direct a--r#ach M#del #% Dell )#/ld hel- them there e&i"ti!7 t# "ell the #ther IT -r#d/ct"1 "# !e) -r#d/ct de$el#-me!t #--#rt/!ity i" %#r Dell 3, Tablet a!d Smart -h#!e Mar0et,

"hreats:

1, With the i!crea"e i! i!!#$ati#! i! the mar0et the c#m-/ter "y"tem" are bec#mi!7 #/tdated1 "# Dell "h#/ld c#!"ta!tly c#me #/t )ith !e) -r#d/ct" 5, 8e#-le !eed the ./ality -r#d/ct" at l#) -rice )hich )a" Dell "tre!7th d/e t# itC" c/"t#miDe "#l/ti#!1 b/t !#) it" c#m-etit#r" are c#mi!7 /)ith -r#d/ct" i! "ame -rice ra!7e

AT 8RESE6T

ItC" bad !e)" %#r a 8C ma!/%act/rer (8artic/larly i% it d#!Ct al"# -r#d/ce tablet" #r m#bile -h#!e", A !e) "t/dy -redict" that the ri"e i! "ale" #% tablet" a!d cell -h#!e" )ill directly1 a!d !e7ati$ely1 a%%ect the "ale" #% 8C"1 )hich ha$e already bee! "teadily "l#)i!7 d#)!, Ma!y -e#-le attrib/te the decli!e #% 8C "ale" t# $ari#/" %act#r"1 li0e the 7r#)i!7 -#-/larity #% "mart-h#!e" a!d tablet", La"t year1 tablet "ale" t#talled ar#/!d 112 milli#! /!it": thi" year itC" e&-ected t# N/m- /- t# 194 milli#!1 a !early 4+ -erce!t i!crea"e, The rea"#! %#r the i!crea"e i" lar7ely d/e t# decrea"i!7 -rice"1 l#$e #% the cl#/d1 a!d addicti#! t# a--", O! the #ther e!d #% the "-ectr/m1 )hile 8C" "#ld 3(1 milli#! /!it" la"t year1 a!tici-ated "ale" )ill dr#- t# 31L milli#! thi" year,

HOW IT E??ECTS DELL



DELL1 literally ha" !# mar0et "hare i! tablet a!d "mart-h#!e "e7me!t, It "#lely de-e!d" #! La-t#-" a!d De"0t#-" i! c#!"/mer mar0et %#r it" re$e!/e, D/e t# decli!e i! 8C "ale"1 Dell 8r#%it" -l/!7ed by (4O i! 5+15, The m/ch hy-ed Wi!d#)" ' did!Ct -lay a!y -art i! i!crea"i!7 the 8C "ale",

DELLCS ?UTURE

Dell i! *5( Iilli#! Deal t# A# 8ri$ate i! 5+13 (bi77e"t by %ar "i!ce the day" #% the rece""i#! Micr#"#%t hel-ed )ith /- t# *3 billi#! l#a! a" -art #% the %i!a!ci!7, (Thi" i" !#t the %ir"t time %#r Micr#"#%t, I! 19941 It re"c/ed A--le )ith a *1L+ milli#! i!$e"tme!t %r#m Ia!0r/-tcy Rea"#! < DellK" i! the mid"t #% a c#m-le& re"tr/ct/ri!71 reali7!i!7 it" %#c/" t# bec#me m#re #% a %/ll<%eat/red1 e!ter-ri"e<#rie!ted c#m-a!y, (Iy 7#i!7 -ri$ate1 it ha" 6O "tre"" %r#m "hare h#lder" t# 7e!erate -r#%it"

THA6> YOU