Dell Business Model analysis

Kshitij Gondhalekar

Intrinsic Mission and Strategies Adopted in business

Dell leverages its efficient business processes to directly reach out the customers. It avoids layering of margins by reducing brokerage and reliance on middlemen. Zero inventory costing mechanism No requirements on shelf space It better channelizes resources to optimize procurement, manufacture and distribution, thereby shunting product obsolescence Real time feedback mechanism to augment CRM.

Dells Direct-to-customer approach

Suppliers DELL Consumer

Critical direct path leads to Value for money. Built to order system Mass Customization leading to increased perception of value Better designed tailor made service and support systems Standardized quality metrics with fairly recent technology implemented.

Product Development

Initial Product Development Process: Before The New Prod Dev. Process was implemented Dell followed the ad hoc method. This was characterized by: Lack of predictability in results Teams led and guided by programmers with experience. Loosely defined goals and objectives. Inadequate funds and inconsistent budgeting practices. Lack of focus on quality. New Product Development Process: Clear definition of Product development goals Monetary aspects involving the new project are taken into consideration, unless there is strong reason to believe that a business would create value and pass the profitability test, it is not allowed to commence forward

Product Development ..contd

Adapted from http://www.oocities.org/mileni opro/Dell.htm

Build a sample/ working model of the proposed product and put it through rigorous testing. Prepare manufacture level plans. Document and prepare plans for servicing the same. Test market or Beta testing initiated. Sales employees are educated on the nuances of the same. User feedback is used as one of the yardstick of qualifying the product. Customer experience is gauged and tested. Production is initiated Acceptance report is prepared based on customer satisfaction to give a viability estimate of the product

DELLS Supply Chain

SUPPLIERS REVOLVERS

Order Placed

Order is Processed

Proc time

Sends the order to assembly plant

(any one in Austin, or any other)

Product is test, built from the parts which are manufactured separately, and then is Packaged

through

Checking whether it is possible to assemble the model according to the requirements

Financial legitimacy and credit

Shipping of the orders

(no later than five days after receipt)

Delivery

Follows the FIFO model

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Inventorying Mechanisms
Revolver Build-To-Order Model or SLCs (Supplier Logistics Centers)

Value Chain Program

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Management of Dells inventory

Built to order: Dell follows mass customization, i.e. The customer decides the configuration required, there is no pre-made product. This kind of a model very accurately meets customer expectations Revolving inventory (SLCs): To reduce the effect of variability in demand Dell mandates the suppliers to keep some amount of inventory at their warehouses or supplier logistics centres. Multiple suppliers share a revolver and also pay a small fee for using the same The inventory in these centres is owned by and charged for by the suppliers to Dell, charging it by price. The lean inventory management scenario is shown in the figure that follows

3 days of inventory - Inventory turns of 122 per year Suppliers Revolvers (SLCs) Dell Factory Delivery

Local Suppliers

Supplier Owned

Dell Owned

More about inventory

Dell has vendor managed inventory Suppliers choose the estimated amount they think they would order. Dell sets target inventory levels and notes suppliers deviations from targets Suppliers choose when to restock their revolvers Dell transfers out inventory on a need basis, on an average every two hours. It prepares a scorecard to evaluate the management of inventory by a supplier and reinforces required actions and renews agreements.

Value chain program

Value chain program reintegrates Dells direct to customer approach back into the value chain The primary goal is to increase the speed and information quality back and forth between Dell and the supply base It also has a secure extranet for Dell suppliers to co-ordinate and manage the supply chain.

Supplier metrics

Selection basis: Quality Price On time supply Feedback reported Evaluation: Cost Delivery time and quality Technology available Inventory movement rate Successful use of online and other channels

Distinct Advantages: Dell slashes inventory management overheads Inventory maintenance is reduced to nearly zero Obsolete material is avoided and transportation costs go down with numbers Drop in component prices due to large numbers with discounts Handling cost is slashed down.

References: http://www.osnews.com/story/14763/Apple_and_Dell_Business_Models/ www.hindustantimes.com/news/.../Dells_Business_Model.pdf http://tech.fortune.cnn.com/2011/02/10/how-dell-conquered-india/ http://content.dell.com/in/en/corp/d/corp-comm/cr-ca-business-model http://www.osnews.com/story/14763/Apple_and_Dell_Business_Models/ http://www.dellogistics.com/why_dell.html http://usatoday30.usatoday.com/money/smallbusiness/columnist/abrams/2010-12-10-dell-it_n.htm

http://www.authorstream.com/Presentation/aSGuest66690-519583-reverse-logistics/
http://content.dell.com/uk/en/enterprise/by-service-type-business-consulting-operational-strategy