This case is about how Dell changed the personal computer industry through its business

model. The company’s sales grew at an annual rate of 49%, jumping from $3.5 billion in 1994 to

over $25 billion in 1999, while profits increased at the rate of 62% per year. Dell was able to

grow into a largest player in the personal computer industry due to its innovative distribution

strategy as well as lean supply chain and manufacturing strategy. Dell used Direct Model to sell

its personal computers. Dell Direct Model was so successful to create value for the company and

well as for its customers. Dell was able to analyze the computer industry and made strategic

changes in the personal computer value chain. This enabled the company to cater according to

changing market trend and Dell was able to dominate the PC market in United States and other

markets.

Since Dell was selling directly to customers it offered customers the choice in system

configuration and was offering customized products according to customer choice. It also

established 24-hour hotline support services and also gave guaranteed shipment of replacement

part to customers. It was also possible for the company to sell the personal computers at cheaper

price, as the company was saving the distribution cost by cutting out the retail middleman. This

Direct selling strategy was also giving the company a wealth of market data which it used to

forecast demand trends and allowed it to segment the market according profitability and focus

the efforts on the lucrative segment.

Dell’s success is also a result of the far-reachingmanufacturing and supply chain

strategy. The company adopted virtual integration strategy by developing long-term relationships

with selected component manufacturers and made it mandatory for them to establish inventory

hubs near Dell’s assembly plants. This just-in-time inventory model reduced the time it took for

Dell to bring new PC models to market and resulted in significant first mover advantage as well
as cost advantages over the competitors like Hitachi, Sony and Fujitsu who used traditional

stored-inventory method. Dell was able to use scientific approach into manufacturing and was

able to produce custom-built PCs in a matter of hours. It used information technology to directly

control its value chain, set quality measures and monitor in real time how material is flowing

throughout the chain.

Dell started out selling direct to customers and used mail-order system in the beginning.

With the emergence of internet, the company developed online sales platform which made it

possible for the company to reach wider audience and increase sales volume. The company

developed www.dell.com for its transactional customers and www.premire.dell.com for its

corporate customers. It also developed an extranet, valuechain.dell.com for its suppliers in which

both parties share real-time information about Capacity, quality metrics, costs customer demand,

product quality and technical customer requirements Dell’s direct model, lean manufacturing,

Just-in-time inventory and use of internet was imitated by companies like Compaq, IBM, HP,

NEC etc., but they were overpowered by complexity and conflicts between its traditional indirect

sales channels versus direct sales. Moreover, it was difficult for Dell’s competitors to put

together an entirely new delivery system. This resulted in Dell to have competitive superiority

over its competitors.

Reasons for the failure of Japanese companies in US

The Japanese companies like Hitachi, Sony and Fujitsu saw a rosy picture in the US

market and were confident that they will be able to capture the market due to strong brand name

in consumer electronics. They thought that since they build many of the components used in PC

like monitors, audio equipment, CD-ROM, DRAM etc. themselves, they have tremendous

advantage over American competitors who have to buy everything from outside. But the
Japanese companies learned a hard lesson and were selling far less PCs than they have

anticipated. They spent huge money trying to capture the US PC market but the gain was

marginal. The main reason why Japanese companies failed in US market was due fact that local

competitors like Dell had far superior business model. Moreover Japanese companies failed to

understand the dynamics of the US market.

The Japanese PC manufacturers were selling products were based on proprietary

architectures as they make much of the components themselves. When they develop an architect

they produce it in bulk. But the same types of components were being made by more than 20

companies. The PC industry was moving rapidly with frequent innovations and this made the

product life cycle of personal PC very short. Local competitors like Dell were now using

vertical integration strategy and purchasing best quality components from the new innovator and

were supplying the computers with new technology much faster in the US market. Due to this

fact Japanese companies were stuck with the old technology and were taking more time to

launch new technology in the market. Geographical constraint between the manufacturing plant

and the US market also added to the problem.Local competitors like Dell were using the direct

sales approach and this resulted in minimal cost whereas Japanese companies were using indirect

approach by selling through intermediaries. This gave the local companies cost leadership

advantage and they offered Personal computers at 15% lower price than Japanese brands.

Local Companies were also far superior to Japanesecompanies in terms of business

model and management style. Local companies were competitive due to high-velocity

production, low-cost distribution, direct customer relationships, Just-In-Time manufacturing, and

products and services aimed at specific market segments. Japanese style of management,

production technology, product made for mass simplyetc.couldn’t close the gap.
Spartan Approach of Dell in PC selling

Dell and his company maintained their Spartan approach in doing business. The Spartan

approach is to have simplicity, efficiency and agility in business process and to pursue goals

rigorously but in disciplined manner. Dell had a simple selling function in which customers can

order their PC through the website and can also ask for customization as per their need. The

company also kept 24/7 service stations for the ease of the customers. Dell increased efficiency by

using direct model which made it possible for the company to interact directly with customers to

figure out exactly what they want before the product is made. Listening to the customer at the time

of taking order takes the guesswork and wasted resources out of the equation altogether. It showed

that the company has pragmatic approach and values customer-focused philosophy. It sees every

sales order as a personal quest.

In addition to this of Dell used specific and innovative strategies on improving customer

service, cultivating supplier relationships, and achieving vertical integration. This made the

company more agile as it was able to capitalize the new technology much faster that the

competitors. Similarly the company’s lean manufacturing and Just in time inventory ensured that

the customer orders are met in short time span. Thinking strategically about the business helped the

company cut cost and increase profits, all the while improving on the Spartan approach.

Dell’s Direct Model as an effective approach to gain competitive advantage in distribution

and manufacturing process

Competitive advantage can be gained through two processes a) cost leadership and b)

product differentiation. Dell succeeded in doing the both through its Direct Model. Dell’s Direct

Model was the outcome of the company’s search for a customer centric approach to offer

customers better quality at a bargain price.

 The company focused on cutting operation costs by eliminating the intermediaries allows

the company to sell products at cheaper price than competitors i.e. to have cost leadership and to

provide customers with customized PCs as per their needs. This made Dell competitive than

others with indirect model as they were selling in higher prices than Dell. Dell’s direct model

also ensured that it did not have massive inventory like other competitors, Inventory costs were

kept at a minimum and obsolete products were minimized. They had their supplier open

inventory house close to their factories. Furthermore, Dell also had scientific approach of

manufacturing and was focusing on productivity through space utilization and Just-In-Time

manufacturing. This significantly added to the ability of keeping the costs lower than

competitors.

Direct model also helped the company differentiate its product. Customers were dealing

with the company directly and this instilled the sense of belief to the customers who wouldn’t

have trusted the intermediaries. Customers were also able to customize their order according to

their need. Due to lack of intermediaries, Dell has shorter delivery time. In addition to this the

company was providing 24/7 customer service. This was hugely different for the competitors

who were making the products on bulk and selling for the mass. Dell's adoptation of the direct

model has huge competitive advantage to the company to become successful in both the US and

overseas markets.

Benefits to Dell from the efficiency of internet

Before the emergence of internet Dell was using telephone to receive orders from

customers. This was a tedious job for the call attendant who had to describe the features of the

products and note down the requirements of the customers. It took long time to secure the order

and there was high risk of the call attendant missing out the key requirements of the customers.
 The establishment of www.dell.com opened up the company's product to a greater

number of potential customers. Dell customers could configure and order their PC online, get

technical support, and download updates to their software. Dell’s Direct model had outstanding

success because customers now were able to order the PCS through the website. It reduced

overheads because online shop costs less to set up and run than a physical store. Internet enabled

the company to have automated order and payment processing.

The internet helped the company improve its business cycle and process. Customer can

access troubleshooting information and configuration diagrams customers can configure and

price systems within Dell's entire product line; order systems online; and track orders. The

company’s institutional customers, who are scattered throughout the world, use premier.dell.com

to do business with the company. Furthermore, Dell is also able to share information with its

suppliers for range of topics, including product quality and inventory through its extranet,

valuechain.dell.com. Dell is able control its customer lifecycle, selling life cycle and flow of

information to subsidiaries through the use of Internet.