Dell’s Value Chain Analysis

Individual Assignment to study the value chain analysis of

Dell

Anirudha Sharma
Student Id: 030109010
Faculty: - Mr. Ashwani Goel

Dell at a Glance:
 Dell deals in computer products and services directly to the customers
worldwide. Dell has been accepted as the most admired company in America by Fortune
magazine. Dell is pioneer in designing; delivering & building innovative customized system
that offers customers true value for their money with exceptional value in such a way that
fully satisfy them. It followed a unique strategy of building computers so that consumers can
order them as per the requirement. Dell USP of Direct Selling has made it the most sought
after IT company globally. By getting rid of middleman from their value chain, Dell was able
to build a direct relationship with the end customers; this also helped in increased profit
margin for the company and in establishing its image has the lowest price PC provider in the
IT industry. They constantly worked upon improving their quality and innovating new
methods for cost reduction which gave them a competitive edge.

Dell Supply Chain Model:

Order processing (one day)

The Customer
Sales
Forecasting Weekly
ordering
from
suppliers
Production based on
Control forecast

Distribution Checking
(5 days) Suppliers
on parts
availability

Assembly
(one day)
2 Weeks worth
of component
stock

Dell has designed their own model different from what its competitors were following that
time as the market was fragmented, as it wanted to place their brand image in the hearts of
the customer and to be perceived company with exceptional values. For Dell selling
computers was never an issue of concern but rather they always focused on wants of the
customers and connecting directly with them.

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The core values of the Dell’s Direct Model are: “1. Know your customer. 2. Know what they
want and don’t want, what they like and what they value the most. 3. Know what you can do
to make them more efficient in their work. (Dell, 1999)”

For Dell the inventory remained with the suppliers as they had adopted the just-in-time policy
and build on order policy. And the success of which was solely dependent of effectiveness of
lead-time management.

Demand
Management

Supply Chain Modularity of Postponement

Partnerships Product

Vendor Managed
Inventoy

Techniques used by Dell in its Supply Chain

The partnership of supply chain enables Dell for vendor managed inventory. Through use of
its demand management techniques coalesce with modularity of the computers and vendor
managed inventory, facilitate for high degree of postponement. The combination of these
attributes is what enables Dell to enjoy a competitive advantage over others through its
supply chain management.
Large

Dell’s
R
a
Direct
n Model
ge
of
C
us
to
m Mobility Barriers
iz -Economies of Scale
e Other
-Technology
d Retail
P
-Technology/innovation
Sellers
ro
d

Small
Customer Base Large
Small

Competitive Advantage for Dell

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Dell’s Value Chain Model:

As stated by Michael Dell, the founder of Dell computers that the

focus should be on finding ways to get close to your customers is critical to your success
(Dell 1999, p.157). The mantra of treating the customers as assets and happy to help attitude
made Dell the most adorable company in the market. The Being Direct ideology. Proper
connectivity between the suppliers and their customers through internet was facilitated. Also
the demand supply gap was taken care with the help of efficient inventory management. Thus
Dell was successful to attract more and more people in their value chain model.

Customers DELL Suppliers

Cooperative R&D Mass Customization Customer Relations Expert Services

 Cooperative R&D: Being a low cost service provider Dell had to sustain its core
pedagogy. But it was hard for them to spend too much on the R&D as compared to
others. So Dell underwent a track change from R&D to joint cooperative programs
with their suppliers. This helped them to come up with the best innovations in the
technology and better enhancements in the product they supply with customized
products to be offered to their customers which none of their competitors was able to
accomplish.

 Mass Customization: When other contenders followed the mass customization

approach to increase monetary benefits Dell followed the wait and watch approach.
Waiting for the customer to approach and then responding to their request in early
possible manner was their goal. So as a result customers got exactly what they wanted
and a sense of feeling that they are a part of the brand. Dell accomplished this cost
effectively and efficiently.

 Customer Relations: Dell always believed in a direct relation with the customer and
never felt it necessary to involve a third party in their communication. Tailor made
.products along with 24 Hour support and quality assurance helped Dell expand its
business. The interactive web services made them the most trusted brand among the
customers. Thus now Dell has a huge customer base.

 Expert Services: In this fast paced world Dell decided to reduce its lead time. Dell
also understood the fact that producing and selling was not their ultimate goal. Thus
they realized it was about creating values for their customers. This gave them a
cutting edge over their competitors. The best instance for their efficient time utility
would be replacement lead time of any malfunctioned part and faster execution of the
order placed by the customers.

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 Large Business/ IBM Dell
Government (42.3%) 9.1% 15.1
%
Small Business
(23.7%) Gate
Compaq way
16.6% 9.1%
HP
Educational (5.4%)
7.9%

A large number of smaller assemblers

Individuals (28.7%)

Markets Served
Distribution Channels

The company was based on a simple concept: that Dell could best understand consumer
needs and efficiently provide the most effective computing solutions to meet those needs by
selling computer systems directly to customers. This direct business model eliminated
retailers, who added unnecessary time and cost, and also allowed the company to build every
system to order, offering customers powerful, richly configured systems at competitive
prices. Dell brought forward the introduced the latest relevant technology much more quickly
than companies with slow-moving, indirect distribution channels, turning over inventory an
average of every four days. In less than two decades, Dell became the number-one retailer of
personal computers (2002).The creation of the model was the major reconfiguration of the
traditional personal computer value chain, which computer manufacturers and Dell
competitor are using. The company successfully outsourcing the components it continued its
assembly line without the need of retailers and supplying directly to the end customers from
the factories directly. This provided Dell with the Cost leadership among the other contenders
in the industry. By eliminating the retailers, consumers were buying consumers from Dell
without paying the margin money to the retailers which provided them the cost benefit and
advantage. This in turn leads to cheaper computers from Dell compared to its competitors
(Forbes, 2010).

Primary Activities

Inbound Logistics
The company’s suppliers provide the goods. Unless the production/assembly line requires
them they are stored. Goods move in the entire organization. Dell streamlines its entire
operation, for which it relies on its highly reliable supplier’s. The computer monitor supplier
is used to ship goods to the customers. Thus reliability is assured. Dell would like to
collaborate to achieve mutual success, as long as its supplier retains its leadership position.

Operations
Manufacturing and assembling of goods happens here. The Dell systems are built as per the
orders thus it facilitates the customer to get exactly what they want. Knowledge gained from
direct customer contact before and after the sale is very useful to Dell as it helps to provide
high reliability and tailored customer service (Johnson, Scholes, Whittington, 2010).

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Outbound Logistics
Initially when Dell’s competitors were selling computers to end consumers via distributors
Dell came up with the direct model. It directly sells the products to the consumers and is in
continuous touch with them. It also emphasises on two areas-seeing sales trends and fulfilling
the unmet demands of the customer. The direct business model is driven also by the
knowledge from the customer’s of what they want and when they want to complete the
transaction. Dell leverages this knowledge to make it possible for the customer to place the
customized order electronically.

Marketing and Sales

Additional capital investment for marketing and sales is not required in the customer driven
model. The retailers are also eliminated. Thus most important significance of such a model is
that the direct customer contact helps to observe the sales trend and fulfil the unmet customer
demands.

Service
The well-qualified managers in Dell were provided essential training to provide a state-of-
the-art advice to customers and invested dollars for the same. A customer-solution team was
also found to meet the customer needs. The Dell employees are kept abreast with all the latest
happenings in the technology so as to alter according to the future prospects.
 
 Support Activities

Procurement
Dell do not enjoy protected trademark or patent or copyright technology. The technology
being used in the industry is shared by all industry players (Dell, 2010).

Technology Development
Dell enjoys better access to technology thus making it easier to cope up with the everyday
changing technology. It introduces latest relevant technology faster than its competitors who
use indirect distribution model.

Human Resource Management (HRM)

Dell’s mission statement is “to be the most successful computer company in the world at
delivering the best customer experience in markets we serve”. Dell was able to attract the
most knowledgeable and people who were self motivated and customer oriented, it continued
its growth story.

Firm Infrastructure
The direct model approach by Dell bought a huge revolution to the traditional value of chain
of computer production. To evaluate the business performance Dell setup a global business
consultancy.

Vertical Linkages
It generally means the linkage between the upstream suppliers and downstream distributors
both. Dell took the help of vertical integration of IBM. The brand loyalty and the image that
Dell has successfully portrayed in the mind sets of its end customers helped in strengthening
their relationship with the stakeholders. This is what Dell actually achieved through its
"virtual integration of the value chain" approach. “Virtual integration" for Dell means

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 defining new dimensions and values and creating a linkage between suppliers, manufacturers
and end users. Michael Dell has defined "virtual integration" as "the idea of interweaving
distinct businesses so that our partners are treated as if they're inside our company". As stated
by Michael Dell, their value chain model resulted in increasing productivity and improved
efficiency and greater return to their investors (Yilmaz & Yavuzcan, 2009). Michael Dell
states, “The whole idea behind virtual integration is that it lets you meet customers’ needs
faster and more efficiently than any other model. With vertical integration, you can be an
efficient producer – as long as the world isn’t changing very much. But virtual integration
lets you be efficient and responsive to change at the same time – at least that is what we are
trying to do.”

Firm Infrastructure
Support Human Resource Management
Activities
Technology Development
Margin
Procurement
PP

- Just-in-time Inbound Operations Outbound Marketi After

Logistics (Manufacturi Logistics Sales
Inventory ng &
ng) Service
- Valuechain.dell.com Sales

Primary
- Cell System- Activities
Operational
Efficiency - Shipping Contracts Mass - 24*7 Online
- Low Lead Time with suppliers Support
Customization
- Direct Supply - Outsourced Onsite
Facilities Customers Service

(Source: www.google.com)
Dell Value Chain

Dell’s Competitive Advantages

Primary activities in value chain were responsible for Dell’s competitive advantage. The
result was reduction in production cost and differentiating themselves from their competitors.

Cost Leadership
Dell’s just in time manufacturing technique helped in reducing the storing cost since the
finished goods inventory was reduced. The online mechanism helped them to identify the real
time demand of the goods. The wastage cost was reduced by introducing cell system wherein
five workers worked in one cell involved in assembly of one computer. This helped to reduce
the number of defects. Dell distribution channel don’t include re sellers and retail stores

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.They sell products directly to the customers by using third party shippers helping them save
the dealers margin (Scannell, 2006).

Product Differentiation

Dell stood different in the market as it gave its buyers the independence to customize their
product according to their needs. They could customize hardware as well as software. Dell
also provides 24 hour customer support for solving any kind of problems related to their
product. It also facilitates on-site services. Because of freedom to customize and continuous
customer support the customers are willing to pay for their product. Thus by reducing the cost
Dell had space to adjust their prices according to its competitors in the highly competitive
industry.

Conclusion

The study of value chain of Dell provides us the insightful information of the Dell’s huge
success surpassing other big competitors in the industry. Their ability to continuously
innovate their products and redeploying their existence policy and making them unique by
providing high class customer services and after sales services and making use of internet in
the most efficient way to reach to their end customers made them apart.

As stated by Michael Dell the main reason for the success of the Dell was competitions from
other players like IBM & HP because they always pushed them to think differently and work
smartly then what these companies were following that time. The just-in-time, modern
assembly line, outsourcing from the suppliers helped them to be the low cost producer and
pursue a low cost leadership strategy and becoming the first company to record $1 million in
daily online sales. Today the Dell held’s record for most number of users visiting their webpage and
most successful website. Dell is the best example to show case what a company can achieve just by
adding values to their offerings and understanding their end customers. The inventory less retailing
became the winning formula for the success of DELL.

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 References and Bibliography

1) Ahmed, S., Dell Online(Case Study)

[Available at: http://ezinearticles.com/?Dell-Online-(Case-Study)&id=1371240]

[Accessed on: 30th September, 2010]

2) Dell, M. 1999, Direct from Dell – Strategies that revolutionized an Industry,

HarperCollins Inc., New York.

Available at: www.google.com]

[Accessed: 28th September, 2010]

3) Porter, M. (1985) Competitive Advantage: Creating and Sustaining superior

Performance,  N.Y. Free Press

4) Value- Chain (Dell Computers Inc.)

[Available at: http://ivythesis.typepad.com/term_paper_topics/2009/06/value-chain-

dell-computers-inc-1.html]

[Accessed: 25th September, 2010]

5) www.dell.com

6) http://www.forbes.com/2008/03/31/dell-turnaround-research-tech-
cx_bc_0331techdell.html

7) “Michael Dell”; March 1999

http://www.bcs.org.uk/publicat/ebull/mar99/intervie.htm

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