Case study on

Dells working
capital
Team 5

Introduction
Dell -1984 by Michael Dell
Initially the company purchased IBMs

Compatible PCs ,upgraded them and sold

through mail order.
On-site technical support & toll free telephone
The company's operating profit hit $3.2 billion
in Dell's 2015 fiscal year
Customization, direct selling and build to
order are its core strategy.

Low prices:
Commoditizeeconomical, affordable
& indistinguishable
from competitors
price.
Low cost manufacturer:
Efficiency- Direct
modelprofitableStagin
lower price

g&
Pacing

Small
business in the
,
US
Regional manufacturing
facility- E.g. Coimbatore
in TN.
Investing-Data transfer
(LAN cable) and
storage(hard disk & pen
drive)

Arena

Economi
c logic

Differen
tiator

Products: Desktop,
laptop, notebooks,
workstations & storage
devices.
Services: Consulting,
installation & webhosting.
Market segments: Business
segments-education, health
care, enterprise etc..
Geographic areas:170
countries through offices
in 34 countries.
Technology: Internet
Vehicl Value creation: Direct
e
Mode: direct model
model

B2C.
Alliances: Intel
processor
Suppliers: JIT inventory
Acquisitions: Wave
Customer service.
max audio
Customizes products
,
On-line technical
support.
Direct customer
feedback

Case summary
Sep 1990-Aug 1993
1990 1% of PC Market share
Decided to expand so they broke their direct model to

Superstore(CompUSA)
In the next 2 years they went to retailing(Staples Inc.)
Annual sales increased by 268%
Attained the top 5 world wide market share.

**Dell computer corporation fiscal 1993-95 annual report ,Exhibit 1 (case let)

Conti
First loss$76 million dollar loss in the year 1993
Profit margin fell to 2%
Dell was not concerned about its profit and loss

statement.
Sep 1993-Jan 1996
Shifted its focus from growth to detailed P&L
statement
Started concentrating on ROI, inventory control,
reporting and forecasting
Vendor certification Program

Objective of the case

Working capital management of DELL
Inventory policies of Dell and its competitors
Effective use of working capital as source of

internal funding for growth

How was Dells Working Capital

policy a competitive advantage?

Working capital of DELL

Competitive Advantage of Dell

Direct selling Model

Build to order
Working with low stock
Dell had 10 % - 20% stock while
competitors(Compaq, Apple and IBM)
had 50% - 70%

Conti..
Days supply of Inventory
DSI, is a financial measure of a company's
performance that gives how long it takes a
company to turn its inventory into sales.
Lower the DSI better for the company
Dells DSI 32 days in (1995)
1993

1994

1995

DELL

55

33

32

APPLE

52

85

54

COMPAQ

72

60

73

IBM

64

57

48

** Table A DSI from Dell computer corporation fiscal 1993-95

Huge Competitive Advantage

due to WIP of DELL
High inventory turnover and low inventory

days. This resulted in low cash conversion

cycle (CCC)
No stagnation of goods as stock
Ability to adopt to change

How did Dell fund its 52%

growth in 1996?

Reasons for Dells growth

Dells re-entry into notebook market
Introduction of computer systems based on

Intels Pentium microprocessor chip.

Demand increased and beat the competition
in the market place.
Converted its entire product line to Pentium
technology.

Internal Funding
1995

1996

Sales

$3475

$5296

Total Asset

1594

2148

Short term investment

484

591

Asset contribution to
revenue

(1594-484)/3475
=31.9%

(2148-591)/5296
=29.40%

Decrease in Asset contribution =(31.9-29.40) 2.54%

Amount saved =(5296*2.54%) 134.5 Million

Assuming Dell sales will grow 50% in

1997, how might the company fund this
growth internally? How much would
working capital need to be reduced
and/or profit margin increased? What
steps do you recommend the company
to take?

Operating Asset= Total asset- Short-term

Investment
Profit Margin= Net Profit / Sales
Asset Turn over ratio= Sales/ Total Assets
DSI=Net inventory/(quarterly COGS/90)
DSO=Net accounts Receivables/(quarterly
sales/90)
DPO=Accounts Payable/(quarterly COGS/90)
CCC=DSI+DSO-DPO

1996

1997

34.5

34.5

DSO

47

47

DPO

40.25

40.25

CCC

41.25

41.25

DSI

Inventory

2431

A/c Receivables

4148

A/c Payables

2837

Profit margin required for net profit

$4085.135%

How would you answers to the question

3 change if Dell also repurchase $ 500
million of common stock in 1997 and
repaid its long-term debt.

Dells investment requirement increased by:

$500+$

Conclusion
Thus Dell by its efficient working capital

Management and build to order strategy

differentiated itself from many of its
competitors and obtained a huge market
share in the market.

Thank
you!