Presented by group 9

Asha Nachi 08PG222

Kritika Prabhakar 08PG234
Nitesh Kumar 08PG246
Dell’s Strategy
Inventory Concerns
Inventory Models
Direct Sales
Sales
Customer
Concluding comments
Resources
Disdain inventory
Never sell indirect
Always listen to the customer
Bad Spell in 1994 left Dell with
 2nd quarter operating loss of $76 million
 55 days of inventory
 $154 million deficit in cash from business
operations

Dell execs swore at that time that changes would

be made and they would never put the
company in that position again.
Supply Chain had to be revamped
Dell had made promise to ship customer their
order within 5 days of order being received
BUT
There was a 45 day average lead time
necessary for purchasing parts.
SO
Dell developed valuechain.Dell.Com
A novel idea
Use the Internet in a B2B format to control
inventory levels at suppliers businesses
Basically, it was a you do this or else

This proved to be very effective

WHY?
Suppliers were truly world-wide (26B/yr)
By becoming a mandatory member of
valuechain.dell.com, they exhibited something
to other computer manufacturers, that being
that they were serious about being a leader in
their respective area of expertise.
Initially run by Dell but in time is was turned
over to the suppliers to run
This targeted the supply issue of the
partnering companies
Within 1 year the Inventory was 4 days of
sales in amount, of course which is less than
the guarantee that the order will be shipped
within 5 days of receiving
This was 1999
Daily sales averaged approximately
$15,000,000.00 (70% in direct materials)
Gross profit margin of 21% = $3,000,000
Making the daily cost of sales $12,000,000
The difference in days of inventory 55 – 4
= 51
Lets say that money is worth 6%
This equates to a savings of $720,000 per
day
Or $36,720,000 for the 51 day change in
inventory
Daily sales in 1999 around 15,000,000
Daily sales in 2001 in excess of 50,000,000
(more than 3 times the amount from 2 years
prior)
By 2001, the inventory carry was under 1
day
Think about those savings based on
reworking the value chain
In order to handle
 $ 1,000,000 per day in sales in 1996
 $15,000,000 per day in sales in 1999
 $50,000,000 per day in sales in 2001
 $31 billion annual sales in 2002 (82M/day)
It takes speed. Something that cannot be
attained without direct control over the
marketing and sales function
Michael Dell designed the company business
model to be a build-to-order business
It would survive if it was built on speed, speed
to change based on industry demands.
Demands had to be constantly gathered and
measured
With sales of over 7 billion per quarter in
2001, there was a lot of data to synthesize
Dell works on the slimmest margin in the
industry (21% in 1999) and becoming smaller
all the time
They are the price leader
This could not be accomplished if they were
selling at wholesale prices to retailers
Top PC Makers –1999
Compaq 16.10%
Dell14.80%
Gateway 9.30%
Hewlett-Packard 8.60%
IBM 8.00%
Others 43.20%
Sales by Price
 1998 – Actual 2003 –
Projected
$0 to $599 3.00% 27.00%
$600 to $999 31.00% 38.00%
$1,000 to $1,999 51.00% 34.00%
$2,000 and over 15.00% 1.00%
Sales of this magnitude are made possible
with the supply chain that runs the Inventory
control area,
AND
Running their business in Real Time
They understand on Monday afternoon if PC
sales are slowing down, and they can adjust
prices accordingly
Direct Sale – Made to order
40% buy non name brand computers
Dell owns $3 billion dollars of these sales as of
now
Taking away market from Foreign companies
that have long had the “white box” market
niche
Dell has the lowest transaction costs in the
market
What does this mean???
As a stockholder?
As an employee??
As a Customer??
Proof of transaction costs
 Figure 4Profit Margins for Dell and major competitors
 Company Gross Margin % Operating Margin %Profit
Margin %
 Dell 20.62 8.97
7.46
 IBM 36.38 12.39
8.64
 Hewlett-Packard 28.53 7.97
7.30
 Compaq 23.18 5.50
3.86
 Gateway 22.81 7.97
5.67
Dell has two main philosophies

 Supply and Demand are never in balance,

company strategy is to manage when they
deviate

 “Always have enough, and have nothing left

over.”
Executing those philosophies takes

Huge dollars invested in training employees

Huge dollars invested in technology to enable

the processes to work
Michael Dell agrees that the Internet gives
customers unprecedented power to seek out
the lowest prices, but he argues that it can
also be used to deepen relationships and
ultimately build far greater customer loyalty
than before.
 Shah, J. (October 2001), Dell Makes Good on Inventory Vow: Creation of three SCM
Organizations has helped boost efficiency. EBN. 1286,PG52
 Shah, J. (December, 2001), Dell writes the book on efficiency: Processes focus on
understanding where supply, demand diverge. EBN. 1293, PG32
 Anonymous, (June 1999), Survey: Business and the Internet: You’ll never walk alone.
The Economist. 351, B11-B21
 Shah, J & Serant, C. (August 2002), IS supply chain prowess enough?: Dell confident
time is right to enter white-box market. EBN. 1327, 3
 Souza, C. (November 2001), Real-Time business may be the real ticket: Technology
enablers seen as a good investment. EBN. 1289, PG4
 Sabatini, J. (August 2000) Direct to Dell: I hunt for Michaels supply chain secrets.
Automotive Manufacturing and Production. 112, 74-76
 Lewis, N. (February 2001), Dell Portal Adds ‘Value’” Valuechain.dell.com provides
pipeline to info exchange. EBN. 1251, PG62
 Teresko, J. (October, 2001), The value of velocity. Industry Week. 250, 43-44