Dell's Supply Chain Management Practices

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Case Details:

Case Code : OPER063
Case Length : 26 Pages
Period : 1991-2007
Organization : Dell Inc.
Pub Date : 2007
Teaching Note :Not Available
Countries : US
Industry : Hardware

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction Contd...

Dell had pioneered a unique direct model of selling PCs bypassing the conventional model of selling them through the reseller channel. In the conventional model, resellers purchased PCs from manufacturers and distributed them to the customers.

Using the direct model, Dell provided consumers with tailor-made products, built only after procuring the order from them. In the process, it was able to reduce inventory costs and overheads as it didn't need any intermediaries. Through this model, Dell was able to provide its customers the latest available technologies, performance, and superior value at competitive price.

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Industry experts were of the view that with Dell's competitors also improving their supply chains to match Dell's direct model, the company had been losing its competitive advantage.

Another point they made was that the company was not focusing enough on R&D, innovation and customer experience - which consumers were beginning to value more and more.

Analysts said it was time for Dell to move into PC retailing by establishing exclusive stores and selling PCs through retailers.

Sam Bhavnani, Research Director, Current Analysis⁸, said, "We believe there is a high-level belief at Dell that customers in the consumer market need to experience (i.e. touch and feel) the products more than in the business segment. Retail is the next logical step."⁹

Background Note

In 1983, Michael was a freshman at the University of Texas, Austin. He used to upgrade IBM compatible PCs in his spare time. It was not long before he realized that by buying and assembling components, he could make cost effective PCs. This led to the establishment of PC's Ltd.¹⁰ and its incorporation on May 03, 1984. The firm sold computers based on the direct marketing business model, eliminating retailers. It offered customers, systems that were built to order, and priced competitively. In its first full year of operations, Dell's sales reached US$ 6 million.

Excerpts >>

8] Washington DC based Current Analysis provides tactical competitive analysis, comprising of quantitative, product and market information that enables companies to assess competitive threats.

9] Tom Sanders, "Dell Urged to Abandon Direct Sales Model," www.vunet.com, February 06, 2007.

10] In 1998, the company changed its name to Dell Computer Corporation.