Pgbarranca's Blog

May 23, 2010

DELL business model and distribution network

Filed under: Uncategorized — by pgbarranca @ 3:28 pm

DELL business model and distribution network

In the following video we can see Dell´s global network.

Introduction

–        Dell was founded in Texas by Michael Dell in 1984

–        Revenue of $52.9 billion in 2009

–        Net operating income of $ 2.1 billion in 2009

–        Had 96.000 employees in 2009

–        Operates in 34 countries

–        Slogan: “Uniquely You”

–        Products: desktops, servers, notebooks, netbooks, peripherals, printers, televisions, scanners, storage, smart phones

History

–        Dell grew through the 1980s and 1990s to become at one stage the largest seller of PCs and servers

–        In 1992 Dell entered into the Fotune 500 list

–        In 1996 Dell began selling computers via its weg site

–        In 1999 Dell overtook Compaq to become the largest seller of personal computers in US

–        In 2006  Dell was 25th in Fortune 500 list

–        It currently holds the second spot in the hardware computer industry behind HP

Traditional business model

Dell sold its product to End user customer or corporate customers using direct sales model via Internet and Telephone network

Manufacturing

From its early beginnings, Dell operated as 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-time (JIT) manufacturing approach, which minimizes inventory costs. Low inventory is another signature of the Dell business model — a critical consideration in an industry where components depreciate very rapidly.

Dell’s manufacturing process covers assembly, software installation, functional testing (including “burn-in”), and quality control. Throughout most of the company’s history, Dell manufactured desktop machines in-house and contracted out manufacturing of base notebooks for configuration in-house. However, the company’s approach has changed. The 2006 Annual Report states “we are continuing to expand our use of original design manufacturing partnerships and manufacturing outsourcing relationships.” The Wall Street Journal reported in September, 2008 that “Dell has approached contract computer manufacturers with offers to sell” their plants.

Dell on line

–        Dell online started in 1996 in its website www.dell.com

–        Dell online is a high success story – industry analyst

–        Millions of people visit the website each week and generate millions of dollars revenue

–        Dell´s business model is to let the customer configure the product on the web and fulfill within 36 hours.

–        Customers can check the order status and also get the technical help online

Component supplier

–        The high-tech components, such as microprocessors and software are provided by firms as Intel and Microsoft, they rely on big players.

–        The low-tech components are provided by small multiple players who compete on prices and availability

Original Equipment Manufacturer (OEM)

The OEMs traditionally would receive all the parts from their suppliers, assemble the computers in their production lines and ship them over to their distributors, or Corporate resellers.

For example, Company “XYZ” receives parts from Intel (processor), Microsoft (software), then this company assemble the computer to Santech computer

Distributors

–        They generally supply to corporate resellers and other distributors

–        They carry large quantities of different products to increase their leverage when dealing with their customers

–        They also provide specific software, peripherals, furniture, etc, as well as service

–        For example: Ingram Micro, Tech Data, Computer 2000, and Santech.

Corporate resellers / System integrators

–        The corporate resellers or system integrators buy systems directly from manufacturers and install these systems at their corporate clients

–        These are firms whose main purpose is to provide customization to their clients

Dell´s model looks surprisingly simple, but behind this simple model it is the complex and hard to imitate core capabilities developed over 15 years.

Benefits to company by such distribution

–        Cash: Dell maintains a negative cash conversion cycle, that means the payment receive for the product before it has to pay for the material

–        Cost: Dell´s direct sales and build-to-order model has achieved superior performance in the PC industry in terms of inventory turnover, reduced overhead, cash conversion, and return on ivestment. Bypassing the reseller channel that causes further cost reduction to the company

–        CRM: Direct customer relationship is the key to Dell´s business model, and provides distinct advantages over the indirect sales model

–        Demand forecast: Dell has additional advantages over PC vendors who must try to forecast demand and ship products based on those forecasts

Benefits to customer by such distribution

–        Tailored offerings from Dell in terms of add-on products and services

–        Very customizable systems at an affordable rate, since Dell manufacturing builds specifically for each customer

Executive summary:

What is corporate responsibility at Dell? It’s about being a trustworthy partner for our stakeholders, our customers, our employees and the world at large. We’re focusing on three key areas — environmental responsibility, corporate accountability and social responsibility. The World Business Council for Sustainable Development calls this the “triple bottom line.“

Those three key areas, combined with our overall commitment to employees, are our FY09 Corporate Responsibility priorities and are shown here:

Dell´s Corporate responsibility priorities in 2009:

* Aspiring to be the Greenest Technology Company on the Planet

* Making a Meaningful Difference Today – Inspiring a Better, Connected Tomorrow

* Acting with integrity, Inspiring trust

Sources:

Dell webpage

Dell slide share

Wikipedia

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