DISSERTATION REPORT

ON
SUCCESS OF DELL
&
SUPPLY CHAIN MANAGEMENT

SUBMITTED TO:
SKYLINE BUSINESS SCHOOL,
GURGAON

SESSION 2007-2009

UNDERGUIDENCE OF: SUBMITTED

BY: Dr. PARUL
AMANPREET SINGH
MBA
L2S2 (510728606)

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 ACKNOWLEDGEMT

I would like to express my gratitude to all those who gave me

the possibility to complete this project. I want to thank Mr
Parvin Puri for giving me us project for our deesertation. I
have furthermore to thank Dr. Parul for guiding at various
stages on project. I am also thankful to Mr Varun Thakur
(Engineer in Dell) for proving very useful information and
helping to complete this report. I am thankful to my class
mates for helping me many times in my report.

Thank you
Amanpreet Singh

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EXECUTIVE SUMMARY
As one of the world's leading direct computer systems companies and a premier
supplier of technology for the Internet infrastructure, Dell's competitive
advantage is its direct customer focus. Constant interaction with its customers
online and via the telephone gives Dell the ability to understand unique
computing needs that drive individual and enterprise productivity. Even though
growth rates for the computer industry are expected to be less than previous
years, Dell can still successfully operate, enjoying healthy sustainable profits. A
main problem is a sagging US economy which Dell has no control over and a
saturated PC market with lower profit margins from industry price wars. Dell
should focus on being a “market taker”, instead of trying to be a market maker
and capitalize on its ability to enter new markets and quickly dominate, as it did
in the low-end server and workstation markets. It should pursue a multi-
continental expansion of its middle and high end server products. Dell should
also pursue the external data storage market through acquiring a leading
company like the EMC Corporation. Having already captured a large share of
the US market, Dell should try and increase its server, storage, and service
segment penetration overseas to gain more international market share,
particularly in China and Latin America. Studies might also be done on African
and Russian markets as Dell has no physical presence in these regions. The only
viable strategy in order to achieve Michael Dell’s goal to double Dell
Computers’ current revenue to $60 billion by 2007 is to work on methods to
improve sales in these 3 new areas. A combination of service, storage and
server product growth across newly established international markets will help
achieve this ambitious goal. While the US economy is in a recession, there is
still plenty of room to grow outside its borders.

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 CONTENTS

• INTRODUCTION........................................................................4

• DELL’S COMPETITIVE ATVANTAGE...................................5

• DELL’S IT TOOLS......................................................................8

• DELL’S BUSINESS MODEL...................................................13

• DELL’S IT INFRASTRUCTURE.............................................17

• DELL’S SUCCESS FACTORS.................................................21

• SUPPLY CHAIN MANAGEMENT OF DELL........................22

• SWOT ANALYSIS....................................................................34

• STRATEGIC OPTIONS............................................................37

• RECOMMENDATIONS & IMPLEMENTATION .................39

• REFERENCES...........................................................................44

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INTRODUCTION
Dell was founded in 1983 by Michael Dell, an 18 year old college freshman
from Texas who started out upgrading hard drives for IBM compatibles on
nights and weekends. Within a year, his service business had grown to an
incredible $6 million from performing computer upgrades for local area
businesses and he dropped out of school to concentrate on the business. When
Dell changed his strategy and started offering custom built-to-order machines,
the business exploded, with $70 million in sales by the end of 1985. Evolving
into an assembler company, Dell was able to exploit certain events occurring in
the industry and swiftly adapted to meet market conditions. Five years later,
total sales had grown to an unbelievable $500 million and Dell became
nationally known as a supplier of state-of-the art desktop and portable
computers. Dell continually achieved phenomenal records in sales and profit
growth, eventually making it the most successful company ever in the PC
industry, surpassing $25 billion in 2000. As one of the world's premier
providers of computer products and services, Dell was the US market leader in
its core products, the desktop and laptop markets by 2001.

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Analysis of Dell’s Competitive Advantage:
Dell is officially the No. 1 computer systems company in the world. Dell is
able to sustain a competitive advantage over competitors in the computer
industry because of an extremely efficient supply chain/distribution system.
Dell is able to achieve superior profits in the industry because they are a
knowledgeable user of information, communication, e-commerce, e-business,
internet, and web technologies.

Michael Dell states that Dell is so successful because of “Knowledge

Management”. Mr. Dell defines that term by saying “physical assets are being
replaced by intellectual assets.” This relates to Dell’s inventory system. Dell
implements a Just-In-Time inventory system which operates on only 6 days of
inventory. Dell is able to achieve greater profit margins and increased profits
because of their inventory system. Inventory and labour are the highest
liabilities of a firm. Since Dell only operates with 6 days worth of inventory,
they are able to cut costs on warehousing, hiring people to track and maintain
inventory, and avoid holding on to obsolete technology. This allows Dell to
free up cash flow to invest in other value adding activities.

Dell uses a JIT inventory system because Dell’s customers can only order
computers directly through Dell itself. Dell uses their website www.Dell.com
to take customer’s orders. Dell focuses on direct sales, cutting out other
distribution channels entirely. This allows for a deeper relationship with the
customers whereby Dell can offer their customer’s better service, savings,
convenience, and efficiency. A customer can order their own custom computer,
have it built by Dell in three days and have it delivered to the customer’s
doorstep within one week.

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Dell’s use of the internet has revolutionized the company. Dell makes their
website extremely consumer friendly to offer an easy order process to the
customers. Dell has also created their “Premier Page”. This page was made for
Dell’s larger accounts including corporations, the Government, and educational
institutions (i.e. Syracuse University). This webpage includes dynamic price
upgrades, easier navigability, and a greater range of available upgrades/options.
Customer relationship management software keeps close tabs on the types of
computers that customers are buying (Pizinger).

Not only does Dell use the internet to make the customer ordering process
easier. They also use the internet to build better relationships with their
suppliers. In order for Dell to work off of 6 days of inventory, their suppliers
have to be very involved in the company to make sure superior service is met.
Dell uses state of the art production planning programs that forecast the
quantities of components needed to build the computers. After those forecasts
are made, supply chain systems pass those forecasts to suppliers, who respond
with cost estimates and plan their production as a result (Solis).

To achieve their supply chain superiority, Dell uses solutions from i2 Supply
Chain Management. “i2 streamlines the supply chain by providing component
suppliers and Dell planners with global views of product demand and material
requirements. It also provides real-time factory scheduling and inventory
management, so employees can generate key reports based on accurate and
timely data, pinpoint inventory on the factory floor, and receive supplier
deliveries on a true just-in-time basis (i2 supply chain management systems).”

This allows Dell to change their manufacturing schedule every two hours to
keep up with customer orders. Dell’s suppliers have access to this accurate,
timely information. Since the suppliers work with facts instead of forecasts, this

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allows them to reduce waste and improve efficiency. Once suppliers receive
this information, they are directed to deliver needed materials to a specific dock
door for assembly for specific product manufacturing. Dell uses the Windows
NT operating system and Intel-based servers for all of the i2 applications.

Dell’s e-commerce is a huge part of their competitive advantage. Their e-

commerce internet infrastructure is so advanced and knowledgeable that by
using it to determine trends and demands of their products, they have gained
superiority over their competitors.

Dell has set up strategic alliances with other companies to have their products
sold on Dell’s direct selling distribution channel. Back in 2000, Palm, Inc.
made an agreement with Dell to offer an expanded line of handheld Palm
products and accessories. This agreement allowed Dell to drive momentum for
the Palm operating system market (Dell: 2000, April 17). Along with Palm,
Xerox also partnered with Dell to take advantage of Dell’s e-commerce.
Advantages to Xerox were increased profits by offering the printers with the
Dell computers. Advantages to Dell include selling high quality printers along
with their computers, but more importantly, it allowed Dell to be involved in the
customer buying process for printers. Being involved in the decision making
process is key to Dell’s success because they see directly what the customers
want and determine their production schedule from that information.

Dell achieves its competitive advantage over other firms in the industry by
having superior supply chain management. Dell utilizes technology to interpret
information. By being involved in the customer buying process they are able to
determine their customers’ needs. This allows Dell to streamline production
and have close relationships with their suppliers which results in getting timely
deliveries in order to mass customize customer’s computers.

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Analysis of Dell’s IT Tools:
Dell’s supply chain management success can be summed up in one idea.
“Supply chain management shortens the cycle between the component, the
manufacturer and the end customer. We are allowing them to almost touch each
other, (E-commerce)” according to Michael Chong, e-business Technology
Manager of Dell Computer Corporation. Supply chain management is the
effective and efficient movement of materials from suppliers, through a
company and into products, which eventually is received by consumers.
An important goal for Dell is to enable customers to process their own
transactions. Dell is known for their efficient and effective build-to-order
business model. This model allows customers around the globe to order
customized systems from the dell.com website. Dell’s online supply
management allows Dell, suppliers and customers to work together. As
Michael Chong states, “Because we work directly with customers, we have the
ability to connect and understand what products will be required and when (E-
Commerce).” This helps Dell to inform their suppliers what supplies are needed
based solely on customer demand. As a result, there is not an excess of supplies
in warehouses that will decrease Dell’s efficiency. As Dell is known for their
exceptional service, ease in ordering and responsiveness to customers needs,
their competitive advantage is easily distinguished.

Dell’s internet presence through Dell.com is an important factor in Dell’s

success. By involving the customer from the beginning of the ordering process,
Dell.com makes it easier to do business for both parties and initiates customer
relationships while providing a means for ongoing customer service. With a
number of links focused primarily on certain groups and customers, purchases
can be made easily and efficiently. No matter what you are purchasing,
Dell.com can assist the customer in customizing and evaluating Dell’s offerings.
Dell.com can help an individual consumer purchase a single notebook or can

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help larger companies purchase or lease products that will help them lower their
costs. A new service, launched in the year 2000, made it possible for customers
to purchase refurbished Dell PCs, notebook computers, digital cameras,
scanners, printers and speakers online. “The returned equipment comes from
companies upgrading systems but wishing to continue using Dell gear, or from
cancelled order (Kelsey, 2000).”

Specifically, Dell has enhanced its supply chain by using i2 Supply Chain
Management to plan orders and communicate with suppliers every two hours.
This results in Dell’s efficiency in manufacturing and delivering exactly what
its customers want. Time to deployment and overall cost of ownership can be
achieved if i2 Pronto and/or i2 Solutions for Value Chain Management are
utilized, along with Dell servers and storage. i2 Pronto is a rapidly deployed
solution for factory planning and collaboration. Dell possesses a competitive
advantage in that they are currently the only hardware platform certified for
rapid deployment of i2 Pronto solutions. i2 Solutions enable Dell to reduce
costs, lower total cost of ownership and establish a reliable, stable operating
environment. Dell’s own implementation of i2 SCM solutions is known as the
“DSi2 system”. DSi2 runs on 120 Dell servers and manages more than 250
suppliers delivering more than 3500 parts. As a result, Dell can deliver
customized, replicable configurations, reducing time to deploy and cost of
ownership. i2 solutions also enable customers to put Dell’s value chain to work
in meeting company goals and attaining value (Jacobs, 2003). “i2 SCM
streamlines the supply chain by providing component suppliers and Dell
planners with global views of product demand and material requirements. It
also provides real-time factory scheduling and inventory management so
employees can generate key reports based on accurate and timely data, pinpoint-
inventory on the factory floor and receive supplier deliveries on a true just-in-
time basis (Harrington, 2002).” This system allows Dell to achieve a new

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manufacturing schedule every two hours which shows the latest customer
orders, backlog numbers, stock status and supplier commitments. Today, the
supply chain of Dell not only runs on 120 Intel-based Dell servers running
Microsoft Windows NT, but it also has four primary i2 software modules: i2
Collaboration Planner Demand Fulfilment, Global Supply Planning, Factory
Planner and Supply Chain Planner (Harrington, 2002). This success proves that
Dell has the best of both worlds. They achieve state-of-the-art performance at
an economically attractive price.

A competitive advantage is seen when a company, such as Dell, links supply

chain management with customer relationship management and supplier
relationship management. This link is known as DVCM (Dynamic Value Chain
Management). “DVCM requires synchronized, multi-enterprise collaboration
based on streamlined decision-making workflows across companies. It requires
companies to push planning and execution toward real-time or near-real time.
DVCM's net result is a fundamental change in the relationship between
companies and their trading partners--a change that creates tremendous value
for companies, their trading partners and their customers (Harrington, 2002).”
When Dell utilizes its i2 SCM strategy, Dell “can model and monitor their
business in real-time, and analyze issues such as sourcing, distribution, resource
and capacity constraints (Harrington, 2002).” Some of the capabilities of
DVCM are collaborative demand planning with customers and suppliers, auto-
replenishment of inventories, design information sharing with strategic partners,
content management and distribution with management. After these are
implemented, organizations are able to make decisions in a timely manner and
implement those decisions for completion of the products.

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Another important role for Dell is the use of the Internet. The Internet helps
Dell to establish good relations with both their suppliers and their customers.
Not only does Dell’s use of the Internet allows customers to customize and
purchase Dell products online, the Internet also helps suppliers and Dell
communicate and focus on improving their efficiency. This method began in
mid-1999 when Dell introduced valuechain.dell.com. This website allows
suppliers to follow their material as it as used throughout Dell’s operations.
Suppliers can log-on, drop off invoices, check engineering change orders;
review negotiated and forecasted cost reports, and track their overall
performances and progress. As a result of their successful Internet system, Dell
purchases almost 90 percent of its direct material supplies online. Supplier hubs
located near their manufacturing plants are used to deliver supplies to the Dell
plants when they are only a few hours old. As said by Michael Chong, “We are
trying to draw more value out of our supplier relationship. That’s why the name
‘value chain.’ The applications themselves are not replacing the business
processes. The business processes are already defined and well ingrained. It is
just making the business processes more efficient (E-Commerce).” By focusing
on inventory control with their suppliers, Dell is able to use industry price
declines to their advantage and deliver those savings on to the customers. This
also gives Dell a competitive advantage. According to Michael Chong, “Our
competition has a hard time trying to manage that type of model because their
inventory turns are fewer. They have more latent costs built into the
components in terms of their inventory (E-Commerce).” An efficient supplier
network is important to Dell. In order to increase efficiency between Dell and
their suppliers, Dell has reduced the number of suppliers they do business with.
Three years ago, Dell worked with more than 1,000 suppliers, but today they
only work with 100 suppliers. Dell also uses supply chain management
software to reduce inventories, improve material management and enhance
relationships with suppliers. This also helps Dell and their suppliers connect to

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share information about inventory and improve efficiency, which gives Dell an
additional competitive advantage.

As a result of an alliance, Gen3 Partners and Arthur Andersen decided to work

with Dell in April, 2000. “Gen3 Partners will provide strategic business
development and technology consulting services to help Dell’s largest corporate
customers with headquarters in the United States leverage their existing assets
to create, architect and launch Internet-enabled enterprises (2000).” According
to Jim Sims, CEO of Gen3 Partners, “The next wave of Internet infrastructure
will focus on `brick-to-click' opportunities, as established companies integrate
the Internet into their businesses. Gen3 Partners will provide a valuable service
to Dell customers by helping them use the Internet to improve their business-to-
business (B2B) capabilities and supply-chain processes." Dell has recently
introduced services to help customers conduct business over the Internet more
efficiently, including a Web hosting initiative called DellHost
(www.dellhost.com) and the upcoming introduction of a small and medium-
sized B2B marketplace in conjunction with Ariba (2000).” Ariba, Inc. provides
solutions that allow enterprises to manage efficiently the purchasing of all non-
payroll goods and services required to run their business. Ariba’s solutions,
which include software applications, services and network access, are designed
to provide corporations with technology and business process improvements to
better manage their corporate spending and, in turn, save money.

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Analysis of Dell’s Business Model:
The four markets within an industry are defined as Business to Business,
Business to Consumer, Consumer to Business, and Consumer to Consumer.
Dell focuses on Business to Business and Business to Consumer commerce to
satisfy their business and individual customers. Dell differentiates between
classes of customers because the needs of their business customers, who buy
large quantities of computers, are different than the individuals who want to
configure a single unit. “Dell's business model is no secret, of course, and it's
been emulated with considerably less success by many of its competitors
(Henricks, 2003).”

Dell’s initial success was due to its early use of the internet. “Dell's direct-to-
the-customer strategy presents a highly attractive cost advantage that's tough to
ignore (Banham, 2003).” Their direct interaction with their customers
continues to be “a key driver in sales for the quarter (2000).” Dell’s early work
with using the internet helped them get a jump on their competition while their
competition was finding it difficult to conduct successful Business to Business
operations online since “exchanges are still in their infancy and many haven't
even gone live yet (Memishi, 2001).” Matching customer ease of ordering and
direct interaction through the internet proved successful because Dell believes
that it is the customer that drives the business model.

Dell recognized the challenge of dealing with the business and individual
customers as two distinct groups with different needs. Dell has done a
phenomenal job managing these two different types of consumers thus far. In
the last couple of years, Dell decided to split their operations into two different
websites with separate B2B sites. With separate sites, Dell planned to
“simplify the Internet procurement process for businesses and institutions of all
sizes, generating savings that can range to millions of dollars annually for large

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customers (1999).” However, this idea failed, and “Dell had to shut down its
B2B site, four months after it launched. Dell said the site failed to attract more
than three suppliers (Schick, 2001).”

Dell controls its inventory and costs by being a demand-pull company, whereas
one of its top competitors, IBM, is strictly a supply-push company and operates
in a more traditional manner. IBM has to be good at forecasting what the
customers will need, while Dell makes the computers to order. Dell is more
efficient and therefore more profitable because it can buy its component parts
based on the customer’s demand and not have to worry about building up its
supply of inventory that may or may not be used. “The result was that the
company wound up with essentially no carrying costs for inventory while
maintaining excellent turnaround on orders, because it sold what it had on hand,
collected from customers in an average of a few days, and didn't have to pay
suppliers for several weeks (Henricks, 2003).” Dell continues to use this
successful formula to keep its competitive edge over its customers.

Although Dell has been successfully operating according to its business plan,
there are some parts of IBM’s traditional business plan that has also proved
successful. In fact, “industry officials say that Dell could benefit from hiring
IBM to support Dell's customers with computer services (Auerbach, 1999).”
Successful businesses continue to monitor their industry and look for ways to
improve to maintain or gain a competitive advantage. This advantage is
especially important in the economy today, although Dell has “cited recent
gains in customer requests for price quotes and larger order sizes and expects a
steady year of sales (McWilliams, 2004).” “Dell is one of few firms left
standing tall after the tech crash of the last two years…[and its] growth comes
as it has won over the consumer market, [but] Dell's performance would be
impressive in any year, but is even more so now (Wasserman, 2002).” Dell’s

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success extends throughout the entire industry and causes companies like
“Compaq, IBM, Gateway, and Hewlett-Packard to grapple with a lose-lose
dilemma: concede market share to Dell or lower prices at the expense of
already-flagging profitability (Pellet, 2001).” Other companies have tried
unsuccessfully to try these similar tactics.

With the spread of retail sales on the internet, “e-tailers” have fallen into two
basic groups; pure play or bricks and clicks. Pure play companies use only the
internet to sell its products and do not have a physical store. Bricks-and clicks
companies use their internet site in addition to maintaining one or more physical
stores to sell their products. Dell is a pure play internet company and does not
have any physical stores to sell its computers. “For Dell, however, the Web is
more than a sales vehicle (Thurm, 1998),” because customers can access the
website for all types of purchasing, service and support answers. Individuals
and businesses can check orders and obtain information, while businesses can
make use of special offerings and services through password-secured locations.
Dell is also “offering several flexible payment options to help make it easier to
buy personal computers online” (Pellet, 2001). Dell’s initial success as a pure
play company was evidenced by the fact that it “does more than $10 million
daily in Internet sales (1998).”

Another advantage to being an e-tailor is the reduced time it takes to adjust your
prices or modify your inventory. One of the most difficult tasks for retailers is
managing your inventory based on your customer demand. Dell has minimized
this problem by matching finished products to orders received. Recently
Michael Dell was faced with a related question, “Do you consider yourself more
of a manufacturer or a retailer?” Dell’s innovative business plan left Dell to
state, “That's a great question. We often have that debate in-house. And frankly,

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there are those who will always consider us a manufacturer, and those who will
always think of us as a retailer."

While Dell claims “it is people who produce results (Cone, 2000),” it is also the
strategies, organizational techniques, and the teaming up with outside suppliers
that produce mutually beneficial results. It was also extremely helpful for Dell
when “AOL announced an agreement to have its Internet access and
communications software distributed on Dell Computer Corp.'s personal
computers (Weiner, 1998),” because AOL is a leading pure play company. The
pure play also allows Dell to expand its product line more easily because of the
ability to adjust the site and add new products. This year, “the company is
bringing to the market printers that can be more easily configured to work with
its build-to-order PCs (Babcock, 2004).” As a pure play company, Dell will
find it much simpler and less costly to adjust their website for products and
services in the future.

Dell Computer Corporation is the world's leading direct computer systems

company, and grows larger everyday. The success of its business plan has
resulted in "An increasing number of customers that have asked Dell to share its
e-business expertise with them (Felice, 2000).” Felice continued to say that
Dell's services portfolio now spans from e-support to e-consulting, serving
medium-sized companies to some of the world's largest enterprises. Three years
ago Dell launched its “direct-sales model into India.” Founder Michael Dell
stated, “This is our 13th direct sales launch in Asia and we continue to grow at
more than 30 percent globally (Lallpai, 2000).” Constantly growing here in the
US and continuing to grow all over the world it is no surprise that Dell reported
revenues of $41.4 billion in 2003.

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Analysis of IT Infrastructure:
IT infrastructure and business-driven technology are extremely important to
Dell. IT infrastructure provides, through the use of technology, the underlying
foundation to support the organization's operations and future growth. This
principal is profoundly important within the computer industry.

One main goal of any successful company is maintaining employee

productivity. A major concern for companies relying heavily on a productive
workforce that makes extensive use of digital data, is the threat of a system
failure. Since computer based companies do a majority of their internal and
external business through the use of computers, a system failure would result in
a loss of valuable human resources and could decrease employee productivity.
For instance, Michael Lambert said recently of Dell’s new business workgroup
server, “With the PowerEdge 1300, Dell has introduced a highly reliable and
manageable system that redefines server value” (New Servers, 2004). The
PowerEdge 1300 has the ability to run dedicated server applications such as file
and print, Internet/Intranet and e-mail, therefore safely increasing employee
productivity through the use of secure workforce systems. Dell and IBM both
protect themselves from this potential problem with the use of specific intranets
and backup/recovery systems. Recently Altiris Recovery Solution has been
selected by Dell for integrated delivery of backup and disaster recovery. Altiris
along with Dell OpenManage Client Administrator (OMCA) will provide
“Direct integration of Altiris backup and recovery technology with Dell OMCA
[which] helps ensure business continuity and helps provide additional cost
savings for Dell customers through proactive IT management” (Dell selects
Altiris, 2004). These factors implemented into a concrete disaster recovery plan
provide Dell and IBM with the confidence to scale and complex IT network.
Another way Dell and IBM protect themselves from a potential system crash is
through the use of the internet. Dell specifically does the majority of its

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business through the use of the internet. This allows customers and suppliers to
have a very intimate relationship from anywhere in the world. This concept,
known as global reach, is one of the major competitive advantages that Dell has
created. Through the use of the internet, the customer has a much greater say in
what decisions the supplier makes. Dell announced a new Web-hosting
initiative and alliance. DellHost was designed for small and medium sized
businesses to increase their internet presence. Through DellHost, Dell has
increased its customer base, “forty percent of which are new to Dell” (Dell
speeds web site hosting setup, 2004). By allowing businesses to use their
software they are also expanding their global reach by having their customers
increase their reliance on Dell products.

Dell and IBM both have managed to maintain high employee productivity
consistently. One of the main ways in which they have managed to do this is to
provide near unlimited availability to their IT infrastructure. Dell and IBM both
keep consumer information lines open 24 hours a day, 7 days a week. They
also all have an easily accessible online help services. For example, the site's
"Ask Dudley" feature “allows users to pose natural-language questions. Created
for Dell by the firm that developed the popular "Ask Jeeves" Internet search
engine, the application now handles more than 150,000 questions a week” (Dell
courts customers online, 2004). Full time access is crucial to the support of the
IT infrastructure by allowing knowledge workers ease in admission to the
source regardless of varied schedule.
The majority of Dell's business is done through the internet. As was previously
stated, this allows the customer to customize his/her product directly for their
purposes. These factors give Dell a competitive advantage in its high scalability
and flexibility. Through a menu of many different system component options,
the customer defines how their company is going to grow, which makes
scalability a non-issue. “By the end of 1999 Dell was chalking up $40 million a

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day in online sales-- accounting for 43% of the company's total revenue. Today
Internet sales alone would rank it among the 125 largest companies in the U.S”
(Dell courts customers online, 2004).

In addition, the reliance on the internet for its business practices allows Dell the
luxury, to easily redefine its image by nearly dismissing the time necessary to
change the system (image, function, etc). This design saves untold amounts of
money because it is ready to adapt to nearly any market, business, or economic
change. Dell and IBM also implement a great deal of capacity planning when
determining what technology will be needed in future markets to stay
competitive. Manish Mehta, director of online support has said, “The paradigm
shift we'd like to see is fewer tech support phone calls, allowing our technicians
to spend more time solving the more complex problems” (Dell courts customers
online, 2004). This displays Dell’s intense dedication to capacity planning and
adaptation, even in the field of technical support.

Enhancing decision making is also a critical factor in the sustained life of a

computer company because technology is constantly changing. With today's
fast-paced computer market, innovation through customer feedback is key to the
success of its products. Dell and IBM both have a high degree of integration
when it comes to transferring data files from system to system effectively. It
has been Dell’s vertical integration model that, “has kept the company afloat
despite the industry downturn” (Schick, 2002). To stay competitive in today's
computer market, the ease of integration would have to efficiently match the
degree of demand as to manage its resources properly. Also Dell's flatter
organizational structure heightens the ability for many sources to have input
into the future of the company as it deals with the evolving vision of what the
market will call for. Economic problems of late have spurred IBM to begin to
adapt this organizational structure and lessen time needed to change direction.

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Dell and IBM both maintain very competitive business partnerships and
alliances through the use of electronic catalogs. Dell does nearly all of its
business through the use of electronic catalog and IBM continues to
increasingly rely on the business generated through them. The use of electronic
catalogs gives a specific competitive advantage because it presents products to
customers or partners all over the world. This is also a factor in Dell's and
IBM's global reach enhancement. Perhaps the biggest advantage of the
electronic catalog is the search functionality. The customer has a much more
powerful search capability, making it easier for them to find the proper product.
Another major advantage of online shopping is the speed in which customers
can purchase their final product. A recent Dell customer reiterates this concept,
“Its information hierarchy is so clean that you can purchase an entire unit in 10
minutes” (Dell.com, 2004).

Increasing employee productivity, creating business partnerships and alliances,

enhancing decision-making, and enabling global reach are vital to the continued
success of Dell and IBM in today's fast-paced technology driven environment.

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Critical Success Factors

• Supply Chain - A key component of Dell's supply chain management

was having materials in close proximity to Dell factories; therefore
suppliers are required to have inventory hubs near the manufacturing
plants. A huge benefit of this supply chain solution is communicating
with these hubs in real time to deliver the required materials. Dell had
reduced its inventory to an all-time low of a 5 day supply, which
comparatively was 20 to 70 days for its major competitors, thereby
creating a competitive advantage. By operating on a just-in-time basis,
Dell was able to provide better service with a faster turnaround time.
Also by reducing the total vendor pool and choosing suppliers
physically close to Dell’s factories, supplier loyalty was increased,
leading to further economies of scale.

• Customer Efficiency – Dell constantly monitored the customer’s

shifting preferences, which helped in pricing, inventory management,
and cost accounting. Also, Dell’s factory assembly process was highly
organized (i.e. bar codes), efficient (i.e. systems were “burned in”) and
extremely fast (i.e. 36 hour turnaround) and its customer service was
exemplary for the industry. Dell also had a superior ability to execute
its plans and objectives, which were always proactive and forward
thinking.

• Market Sensing - Dell consistently sensed market changes before

they happened and was able to anticipate and identify product areas to
maximize sustainable profits using its Direct Model. As a result of this
ability, Dell could pick and choose which market they entered, making
sure it was a market leader quickly upon entering.

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Dell supply chain management
Dell prides itself on their supply chain management system that enables them to
increase their efficiency and effectiveness and keep their competitive edge in
their industry. With an extensive website, Dell uses advanced information
technology to connect themselves to their customers and increase customer
communication. Dell has created a competitive advantage by using proficient
technological resources that enable Dell to communicate with their customers
who can customize their own pc systems. As one measure of Dell’s success,
they were awarded with the Shoppers' Choice for the Best of 2003 Service and
Support Site in Computer Shopper Magazine in February 2004 (Dell Support).

Dell’s SCM System allows customers to place their own orders. This gets the
customer involved and cuts costs for Dell salesmen salaries at the same time.
Dell’s SCM system also allows customers to configure their own pc systems
with whatever options they want. This again involves the customer and forces
them to look through all the available options where they might add components
that they might not have thought of adding originally. When customers can
review all of the potential options at heir own pace, without direct sales pressure
from a salesperson, Dell’s can benefit from additional component sales.

Dell also works to establish good customer service, communication and

retention. One method Dell uses is to provide easy access to support via their
web site. Their website allows customers to find answers to common problems
without Dell’s “people” assistance and therefore helps to decrease Dells payroll
costs. There are also chat, email and phone opportunities to make it easy for
customers to contact Dell to answer questions they couldn’t answer by the
above means. Keeping customers involved with Dell through chat groups and
users groups, can result in customer retention for future systems or components
sales from satisfied customers.

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Dell has created a web site that provides extensive information choices for its
customers. To make it as easy as possible for its customers, Dell has divided
their home page into a number of major customer groups; 1) Home & Home
Office, 2) Small Business, 3) Medium and Large Business and 4) Government,
Education & Healthcare. (Dell’s Website Flowchart I made illustrates this
perfectly.) Within each group, a customer can find specific products and
services that would apply to their business type. By organizing their site this
way, Dell shows that it understands each customer group’s specialized needs
and saves the customer time by looking only at the products and services that
would interest them. Dell also shows their high priority to customer satisfaction
by devoting a specific section of their home page to “Customer Service &
Support”. Even though there is a separate “Service & Support” group, you will
notice from the flowchart exhibit, that “Service & Support” is repeated in each
of the customer group sites. “Service & Support” can also be found under each
of the specific industry groups in the “Government, Education & Healthcare”
group. By personalizing the customer’s search, Dell makes it possible for the
customer to do a significant amount of research on their own. The website
contains a great deal of information that will address their personal needs and
answer most of their questions. In comparison to other companies, Dell’s
customer support and service area is much more extensive than its competition
(Dell.com).

Although Dell continues to win market share and turn out record quarterly
profits, two recent surveys have shown that they have not been as successful in
the area they pride themselves in the most; customer service. In a report that
rated the satisfaction of PC buyers, Dell's scores have declined in recent months.
Statistically, the results are not catastrophic, but it is still an issue that Dell
needs to address and improve in. The March 2004 issue of Consumer Reports,

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included a survey of 4,100 consumers, who gave Dell 62 points out of a
possible 100 for its support on desktop PCs. Although it still managed to top
competing brands Hewlett-Packard and Compaq, HP scoring 54 and Compaq
51, Dell's rating represented a decline from a score of 64 which was given in the
magazine's last desktop support survey, published in June 2003. A score of 80
would mean that respondents were very satisfied, while 60 is described as fairly
well satisfied. According to the report, differences of more than four points in
the survey were meaningful. Dell's overall tech support scores for desktop PCs
have dropped substantially since 2001, from scoring a 74 in December 2001 and
a 65 in September 2002 (Spooner, 2004).

Industry advisory firm, Technology Business Research (TBR), issued a report

on support satisfaction among corporate buyers and has indicated that Dell's
satisfaction ratings have slipped to 80.98, down from 83.4 in the third quarter of
2003. TBR questions buyers on eight aspects of support, including their overall
satisfaction with a company's support service, and assigns each one a weighted
score for a total of 100 possible points. Although Dell still topped rivals HP and
IBM in the TBR survey, its score was the lowest seen since the research firm
began tracking Dell's satisfaction levels in the first quarter of 2001. According
to the TBR report, IBM outscored Dell in the fourth quarter of 2003 based on
product design/features and long-term durability. From polling customers that
have switched from Dell to IBM, customers stated that their reasons for
changing companies were product performance, pricing and support. Although
Dell has maintained its strong leadership position in the fourth quarter of 2003,
Dell needs to address their customer loyalty and keep customers from changing
companies. As a result of these polls, Dell is working toward reversing the
declining customer satisfaction trend and to return to the industry leader in the
area of customer service. Dell is aware that the PC business is becoming
increasingly commoditized, marked by similarly equipped machines and price

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erosion. By cutting out the middleman, Dell believes it has established a closer
relationship with its customers. One way to stand out from the crowd is to
appeal to existing and new customers by offering better service and support than
competitors (4Q03).

Although Dell is criticized in some fields by US consumers, Dell is excelling in

other countries. TBR has reported on September 17, 2003, that the France
Customer Satisfaction Study determined Dell is the No. 1 ranked desktop and
notebook vendor in France and is tied No. 1 server vendor. Dell’s satisfaction
and loyalty ratings were significantly higher than other vendors across most
categories in the notebook segment. Consumers in France also believe that Dell
offers the best long-term durability of hardware. According to Thierry Labbe,
General Manager of France for Dell, “These results, and recent strong market
share gains in France, show this is starting to pay off. We will however,
constantly drive value up and prices down, and focus on providing a great
customer experience, giving customers plenty of reason to continue choosing
Dell (Customer Satisfaction in France).”

Dell has also done exceptionally well in Germany as indicated by TBR on June
17, 2003. The Germany Customer Satisfaction Study determined that Dell is
the No. 1 ranked vendor in Germany across all three segments of Intel-based
servers, desktops and notebook PCs. Customer service and overall value were
the leading factors that made the Dell the top vendor according to German IT
directors. In the desktop segment, Dell was praised for their areas in pricing
and value, delivery time, ease of set-up, spare parts availability and hardware
reliability and performance. In the notebook PC segment, Dell’s competitive
strengths included delivery time and model availability, pricing and value, ease
of doing business and repair times. This study also illustrated Dell’s ability to
anticipate and meet customer expectations. According to the TBR president,

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Dave Mack, “In Germany, where IT customers tend to purchase from multiple
vendors, TBR finds it all the more impressive that these customers, in drawing
comparisons across several brands, tend to rate Dell on a higher plane than their
other brands (Customer Satisfaction in Germany).”

In the Asian market, Dell ranks highest in customer satisfaction, according to

the J.D. Power Asia Pacific 2002 Japan Server Satisfaction Study. The study
identifies six factors that drive overall customer satisfaction. In order of
importance, these factors are: hardware reliability; ability to solve problems;
usability; the salesperson’s knowledge and skills; performance; and cost. Dell
Computer ranks highest in customer satisfaction and was cited particularly in its
strength in usability, performance and cost. Dell also received a high score for
areas such as frequency of breakdown and problem occurrence, hardware
processing speed, hardware expandability, and introduction/maintenance cost.
This study has shown that the strength of Dell is due to their product
attractiveness and low operating cost. Based on this study, Dell which scored a
score 766 out of a possible 1,000 points, was ranked higher than IBM Japan,
whom received a 739 (J.D. Power).

The Dell SCM system must handle an enormous number of transactions and
pieces of information, and includes multiple core components necessary to keep
operations running smoothly:

• Configuration management: The configuration management component

manages over 1 million Dell part numbers per year across approximately
200 product families, and over 2 million bills of materials (BOMs) per
year. BOMs listing component part numbers are created for
manufacturing facilities to build assemblies and subassemblies for Dell
products.

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 • Procurement: The procurement component manages nearly 1.8 million
purchase order lines per year from more than 5,000 suppliers worldwide.
To streamline the procurement process, Dell uses an automated
application that includes workflow approvals and vendor communication
and enables services such as defective part replacement.
• Cost: The cost component runs mostly in batch mode to calculate the
costs to Dell for all BOMs. These batch jobs run weekly, monthly, and
quarterly, with each job aggregating total material costs.
• Inventory: The inventory component manages more than 3 million
inventory movements daily from stock rooms to factory floors across all
Dell sites, along with the corresponding 3 million messages transmitted to
different systems for reporting, analysis, and factory scheduling.
• Accounts payable: The accounts payable component handles
approximately 15,000 items per day, including payments to Dell
suppliers, invoices, and receipts. Vendor information includes vendor ID
number, location, negotiated terms, and contact information.

In addition to these order-related transactions, the SCM system also runs several
other batch process jobs to aggregate data each week, month, or quarter. In the
North America region, the Oracle Database application for SCM consists of
approximately 3,000 database objects (functions, packages, procedures, triggers,
tables, and views). This SCM system is supported by six PowerEdge 2650
application servers, five internally developed Web-based applications, more
than 50 system-to-system integrations, approximately 125 batch jobs, and
approximately 500 user interfaces.

The Old Solution – Proprietary Unix-based Servers

The previous Dell SCM system used Sun E6000-Class UNIX-based servers
running the Sun Solaris 8 OS and Sun Cluster 2.2 . The primary and secondary

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servers, each with 16 processors at 336 MHz and 11 GB of memory, managed
the production database on Oracle Database 8.0.6. The disaster recovery server
had 12 processors at 336 MHz and 6 GB of memory. Arrays running the EMC®
Symmetrix® platform provided disk storage. To make the system highly
available, Dell IT used Sun Cluster to cluster the primary and secondary servers
in an active/passive configuration connected to shared disk storage, enabling the
database to fail over to the passive node if the active one failed. The failover
was initiated when the passive node no longer detected a heartbeat signal from
the active node. The failover disconnected all users, who would then have to
reconnect to the newly active server.

Current system: Oracle RAC on Dell PowerEdge servers

By 2005, the performance of the proprietary system was becoming a concern,

with many of the batch processes taking a long time to complete—the end-of-
quarter batch process job, for example, could take up to 31 hours. In addition,
the Oracle Database version was outdated and unsupported, and because it did
not support Oracle RAC, Dell IT could not add capacity by horizontal scaling.
To continue using this system would have required a large investment in
upgrading these large, expensive servers. Instead, Dell decided to migrate to a
cost effective, industry standards–based platform, replacing the Sun servers
with Oracle RAC 10g clusters of Dell PowerEdge 6650 servers, each with four
Intel® Xeon® processors. The environment includes a primary cluster and two
disaster recovery clusters. While the previous system could not scale beyond
one physical server, the current system allows Dell IT to easily add servers to
the clusters to handle increased workloads. The multi-node Oracle RAC
architecture can also provide higher I/O throughput than the previous system
because of the increased number of available interfaces. The Oracle RAC 10g
architecture includes built-in high-availability features. All Oracle RAC nodes

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and instances share the same physical database; if any of these experience
problems, the users and connections can fail over to the other nodes or
instances. Because this failover is seamless and transparent to users, users do
not have to reconnect, as they did in the previous system. One of the disaster
recovery clusters uses Oracle Data Guard software, and the other uses EMC
Symmetrix Remote Data Facility (SRDF®) software. The first cluster uses the
Data Guard Broker component to ship logs in real time from the primary site to
the disaster recovery site and apply them, which allows the database to stay in
sync and helps prevent physical corruptions from being copied to the disaster
recovery database. The second cluster uses SRDF to ship changed blocks at the
storage level in real time from the primary site to the disaster recovery site. This
method is fast but does not guard against data corruption. The combination of
Data Guard and SRDF provides both fast and secure data replication. Dell IT
also uses several other programs to provide key backup, load balancing, and
administration capabilities:
• Oracle Recovery Manager: Dell IT uses this program to back up the
primary database and archive logs. Two full (hot) backups are made to
tape weekly through the EMC NetWorker™ interface; archive logs are
backed up hourly to enable Dell IT to recover the database to a specific
point in time if necessary. Dell IT can also back up the database from the
disaster recovery site rather than taxing the primary nodes.
• Oracle Database 10g Services: This software provides load balancing
for each cluster—for example, Dell IT can have three nodes handle online
users and three nodes handle batch processing.
• Oracle Grid Control: This software provides monitoring and
management capabilities and helps simplify many day-to-day database
administration tasks; it also allows administrators to set thresholds for
different events to create trouble tickets through the problem management

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 system. Dell IT has implemented these clusters at multiple locations
around the world.

Dell IT has implemented these clusters at multiple locations around the world.
Standardizing on cost-effective Oracle RAC 10g clusters of powerEdge servers
with Dell/EMC storage, with similar processes for deployment, disaster
recovery, and backup, helped Dell IT deploy the systems globally in just eight
months.

Performance increases: Dell engineers measured database performance for

both the previous and current SCM systems. The most significant time savings
occurred in the data extraction for all material movements transactions, which
dropped from almost 5 hours to just 35 minutes for an 88 percent improvement,
while the time for the entire end-of-quarter jobs processing decreased from 31
hours to 23 hours.

Cost-effective, scalable supply chain management: Supply chain

management is essential to Dell operations around the world, with both factory
operations and internal systems dependent on SCM systems to provide real-time
information about key business functions. Running these systems on Oracle
RAC 10g clusters of industry standard Dell Power Edge servers enables Dell IT
to scale them efficiently and cost-effectively to handle increased workloads. By
moving the systems to Dell servers when it did, Dell IT avoided significant
additional expenditures for proprietary UNIX-based servers, enhanced
performance, and provided a clear path for future growth.

Channels – Dell used its Direct Model approach when entering major markets,
but for smaller markets it operated through its distributors. Dell was labelled as
a “mail order company”, but less than 5% of sales actually came from

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individual consumers. Most sales were to business customers through its direct
sales force, with 50% of sales going to large corporate accounts and the other
50% of sales going to medium and small businesses. Computers were shipped
directly to the customer, cutting out the middle man. (Dell briefly altered this
direct approach by selling computers in CompUSA and Sam’s Club in 1992, but
unfortunately, entry into retail channels was not successful in broadening its
penetration of the consumer market because customers no longer had the option
to custom configure their machines - a previous leverage for Dell). Dell also
sold servers through its direct sales force to larger relationship clients and
through telephone and online channels to smaller business clients using a three-
tiered architectural system.

Sales infrastructure – Orders for the factories came in from 2 different

sources. Consumers and small business customers responded to print ads calling
toll free numbers, while Dell’s inside sales representatives placed orders for
their large corporate customers.

Industry- Dell entered the server market in 1996, and within 3 years, servers
accounted for 12% of its sales. It entered the workstation market in 1997 and by
2000 was the worldwide market leader. Dell had 2 US plants to service the
North American market in Texas and Tennessee. It also had plants in Ireland,
Malaysia, Brazil and China to support its global business. By 2000, Dell
generated $7.4 billion, with 25% ($1.85 billion dollars) coming from outside of
the US, but surprisingly, international market share was half of what it was in
the states. With the US computer industry pretty well saturated with 53% of
homes already owning PC’s coupled with consumer fears of a recession, there
was a significant decrease in demand. The industry had recently just gone
through a hyper expansionary phase with 30% growth rates in 1999-2000, but
gross profit margins overall have dropped from 50% to 25% in the last decade.

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Therefore, the economic downturn of 2000 resulted in predictions of desktop
and laptop revenues decreasing by 10% from the previous year.

Competitors – The computer industry is fragmented. New products are coming

out all the time, the competition is brutal, and customers are changeable. Dell’s
main competitors were Apple, IBM, Compaq, Gateway, and HP, but the
“Others’ segment had the most percentage of vendors market share at 34%.
Many of these companies could not continue making profits operating in Dell’s
“low-margin sweet spot” as the gross margins of the industry consistently kept
dropping. Compaq had been the market leader in desktops and portables in
1997, but by 2001, Dell had overtaken them.

Customer Analysis - Customers valued Dell’s uniqueness of: offering the

ability to easily customize their PC’s, dealing directly with the manufacturer,
and the attractive pricing resulting from the ‘direct model’. Dell understood the
different needs of its large corporate, small business, and governmental
customers and attempted to optimize its 7,500 worldwide sales and support reps
for each particular segment. In order to do this, Dell segmented its customer
base into 9 US geographical regions. Dell also had created 3 regions outside of
the US: Americas International, EMEA, and APCC. Dell’s four main types of
customers were differentiated through the buying process as primarily
relationship (consumers with ongoing purchases) or transactional customers,
(consumers making 1 purchase at a time) broken down into the following
segments.

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Global: Primarily relationship and transactional, then broken down into 3 core
areas: Relationship Business, Small/Medium Businesses, and Consumer
Business

• US Market (Relationship = 60%): Business-global, enterprise, large

corporate accounts, federal government, education, state & local
government

• Small/Medium Businesses (Relationship = 30%): Preferred account

division, Business systems division

• Consumer Business (Transactional = 10%): knowledgeable buyers.

Dell has combined and implemented a multi-segment target marketing strategy

with 90% of its business being relationship based.

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SWOT Analysis

Strength – By offering superior telephone customer services such as Premier

Access, and outsourcing their shipping, Dell had the lowest operating cost in the
industry at 11.5%. It had a unique ability to predict which new high margin
technology product could be driven to scale w/lower priced products driven by
its direct model, which was continuously improving, making it hard to copy.
Dell set the industry standard for customer service/relations resulting in satisfied
customers and less downtime (Dell resolved 72% of problems remotely, which
was twice the industry average.)

Weakness – Dell was late getting into the Latin American market (5th place in
overall market share), resulting in lost sales. It also had weak international
market share in 2002 (Western Europe =3rd, Asia/Pacific = 7th, Japan = 8th, and
5th place in the rest of the world. In addition, jumping into the laptop market too
soon, entering the workstation market late and signing unsuccessful retail
agreements all brought losses to the company. Dell doesn’t have robust products
to support mission critical environments and is shut-out of big enterprise storage
accounts.

Opportunity – Dell can further capitalize on the remaining build-out of the

Internet infrastructure and increase market share in the external storage market
(i.e. SAN/DAS were expected to take 2/3rds of the market by 2005) and
participate more in the midrange and high-end server markets (2000 saw a 7%
worldwide increase from 1999.) It can develop itself into the premier Internet
partner for customers around the world by heavily targeting sales to first-time
PC buyers and introducing new product categories and services. With only a 5%
global market share, Dell can easily increase business revenues from
international growth.

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Threat – Computer industry consumers have traditionally been notoriously
fickle in their buying habits and trends, affected by the rapid pace of technology
and the bursting Dot.com Economy. While the growth of the Internet should
produce more demand for servers and storage, those markets will test Dell in
areas that haven't been its strong points: sophisticated product engineering and
labor-intensive services.

Current Strategy
“High Quality, More Powerful, Faster, Customized and Cheaper.” For every
new product or service it introduces to the market, Dell consistently implements
its startup mindset of “build-to-order computers” (referred to as the direct model
approach) from the very beginning of the development and production process.
Dell’s business was unique in that it was able to consistently make significant
profits in low margin product areas.

Its’ direct model approach evolves for every new product and service achieving
delivery of high quality PC’s in a very cost efficient manner; one of continuous
improvement. Dell is a continuous-growth model, constantly adapting, changing
and finding ways to master its environment, as opposed to just responding to it.
In addition, Dell has been able to take flexibility and speed, and build it into the
company’s DNA.

Positioning- Michael Dell portrays his company as “the good guy”, the Robin
Hood of the computer industry offering more for less. Their mantra is “better,
faster, cheaper” using brand name components, build to order manufacturing,
and customized customer service, which led to high quality and more powerful
computing power. Dell had a reputation for “effectively entering product
markets where core proprietary elements had become standardized and

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undercutting existing players based on price.” Dell’s strategy was to choose the
best in class providers (like Intel and Microsoft) for each component and
leveraging their scale investment in R&D. By 2001, Dell had become the US
market leader in Wintel server sales.

Target Market – Dell’s main focus is on large corporations with secondary

efforts on small and medium sized businesses. In addition, they also target the
global consumer directly, but with minimal effort. Dell mainly focuses on the
segments that are already knowledgeable about computers.

Products - Dell currently has 6 main products: PC’s, laptops, customer service,
storage devices, workstations, and auxiliary services.

Pricing - When Dell decides to enter a particular market, it consistently uses the
Direct Model approach, pricing their product below that of their competitors.
These low prices are the result of multi-level leveraging and from achieving
economies of scale.

Promotion - On-line model, direct mail order, catalogues, Premier Pages,

special training and certifications, word-of-mouth, editorials, reviews, sales
reps, and awards

Place - Direct from Dell: On-line, telephone, mail-order. (Dell does not use any
retailers or wholesalers to sell their products.)
In conclusion, Dell’s strategies do match the company’s 4 P’s, targeting, and
positioning and can be summarized as a low-cost, fast and efficient business
model, with superior customer value with virtual integration.
STRATEGIC OPTIONS

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Market Penetration – Maintain status Quo and continue to do more of the
same. “If it isn’t broke don’t fix it”. Many people believe the recession will end
soon, so Dell could just ride it out and hope to hang onto the market share it
currently has. This option is not a proactive approach and could prove to be
risky, resulting in declining market share, lower profits, and the possibility of
the competition advancing while Dell stays stagnant.

Product Development –

• Pursue Mid-Range Server Growth. By 2001, Dell was the market leader
in entry level servers, but had no presence in the mid-range server market.
Pursuing this growth option could result in increased market share and
higher profits due to the higher selling prices and markups of these units,
but could be risky if technology suddenly changes. Increased post sale
costs are also a concern, as server sales don’t just stop upon delivery, they
require continued service regarding reliability, serviceability, availability,
and manageability.

• Increase product line: By introducing new products like a PDA, Dell can
capture new markets and increase sales and awareness. However, Dell’s
R&D budgets are well below that of its primary competitors. This option
contains increased risk and high initial start-up costs.

• Pursue Associated Services Growth – within the US, 2000 service

revenues accounted for over 37% of $2 billion in total revenues. This
business unit was becoming an increasingly important part of Dell’s
portfolio with longevity, able to stand the test of time and market
uncertainty, no matter what turn technology took.

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New International Market Development – Target new segments and enter
new markets with existing products. The Potential benefits of international
expansion are increased market share, revenues, profit, and buyer awareness.
However, the successful Dell Model might not work everywhere. The product
chosen for expansion should be a commodity where the demand is already in
place and the country must also value on-time delivery. In addition, terrorism,
cultural barriers, political systems, and longer ROI must be taken into
consideration as well as limits on foreign ownership and tariff barriers.

Diversification
Merger and Acquisitions: By 2000, the external storage market was growing
at 23% per year. By acquiring an innovative leading company like the EMC
corporation, Dell can effectively enter the external storage and software
market previously untapped, leveraging EMC’s expertise and experience.
Due to the sagging economy, EMC’s stock price had fallen over 800% in
2001, meaning now might be the perfect time to buy the company at a
significant discount. The Pros include increased market share and economies
of scale, but cons are higher costs and the need to re-train employees to learn
Dell’s culture and mission.

RECOMMENDATIONS & IMPLEMENTATION

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After analyzing Dell’s IT and their competitive advantage as a result of their
advanced and successful IT, it was challenging to come up with
recommendations to help them achieve more success in an industry that they
already prosper in. However, even with Dell’s current success, we realize that
in an ever-changing technology industry, there is always room for improvement.
1) Dell should consider selectively adding other vendors to its supply
chain management system. Due to the increase in Dell’s global sales, Dell may
need to consider to selectively adding additional suppliers to their supply chain
management system. The additional suppliers should not result in any
significant cost to Dell and Dell might be able to negotiate better component
costs from new suppliers. New suppliers would want to participate in this
exchange because they would be seen doing business with a leading technology
company
2) Use “Customer Surveys” to gain market share. Although Dell does
well in its markets overseas, Dell has lost some domestic market share and has
more potential overseas. It is important for Dell to advertise and get their
products noticed in international markets. In order achieve this goal, in-depth
customer satisfaction surveys should be used in markets where they trail their
competition. Even in the US, where they are ranked high against their
competitors, Dell’s margin of leadership has declined. Dell can send out
questionnaires to previous consumers to see how they can improve. By going
directly to the consumers, they can get feedback from sources they care most
about. It also makes consumers feel that Dell truly cares about how they feel
about their products and service.
3) Invest more in Research and Development. With the growth of
quality competition, it is crucial for Dell to keep its competitive advantage by
offering new technology products and services. Dell should consider expanding
into peripheral product markets that would compliment their computer sales.
This might include specially designed systems for specific industries (architects,

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doctors, etc.) or additional hardware for specific markets (gamers, music lovers,
etc.) It is also important for Dell to watch its competitors and see what new
products and techniques they introduce.
4) Dell could offer online data back-up capabilities. Another way to
increase revenue is to offer existing customers (business and individual
consumers) back-up capabilities on Dell’s own servers. This process will have
advantages for both consumers and Dell. For consumers, especially businesses,
if something happens to their plants and computer systems, they can always
retrieve their data from Dell who has their information backed up offsite on
their system. By keeping their data saved at another location that is maintained
by Dell, Dell can make money by charging for this additional service. Dell also
has a built-in customer list based on the sales that they make for computer
systems.
5) Reduce errors in Dell’s direct Internet ordering system and create a
“Clearance” area on its website. It is important that Dell keeps their service of
DellDirect efficient by avoiding mistakes and making sure that purchases online
are correct. Since all purchases can be done on the Internet, it is easy for
consumers to click a wrong button when customizing their products. Therefore,
Dell should enhance its online ordering system with customer confirmation
before manufacturing starts. This would help reduce costs of production if there
are incorrect orders and it will also help increase consumer satisfaction. If there
are cancelled orders or completed orders that don’t get paid for, Dell can start a
clearance area on their website. This section can include these systems at lower
prices because they would be final sales on pre-configured systems. (This
might be the result of Dell’s unsuccessful mediation through its order resolution
policy. In addition to pre-made systems, Dell can offer discontinued items
(older models of components), that remain in Dell’s inventory. This will also
help Dell keep its revenues high by not experiencing extra costs because of
items that were not sold. If they place a section on their website titled,

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“Clearance Products,” they will appeal to customers who want to buy a
computer at a cheaper price and do not have a strong preference on what
features the product has. Therefore this recommendation is a win-win situation
for both Dell and the customer.
6) Enhance customer support services. Since successful customer
support and communications are crucial to Dell’s success, it is important that
Dell keeps enough well-trained people on the phones and on the Internet for
customer support. Based on the results of some surveys that say that Dell might
be losing customers because of actual or perceived decrease in support, Dell
should do a cost-benefit analysis to determine whether they should invest in
more people who can answer technical questions & support customers with
their problems and needs. In addition to more people, they should review their
service support training and quality control procedures. This is an area where
possible over-staffing might be worth the additional costs. Like many
companies, Dell has taken advantage of the cheaper labour in other countries by
routing most of its technical support calls from the US to headquarters in India.
The only problem with this was that “Corporate customers were telling us they
didn’t like the level of support they were getting, and in the normal course of
business, we made some adjustments (Brewin, 2003),” according to Jon
Weisbatt, the company spokesman. As a result of prior experience with Indian
support staff, they need to either train Indian support staff more effectively so
they can take advantage of the cheaper labour in India or keep support staff here
in the US.
7) Increase Company recognition through a national advertising
campaign. In order to keep the name Dell out in the market, it may be helpful
for Dell to consider a national advertising campaign to increase Dell’s visibility.
These ads would probably be most effective for the small business and
individual user markets. This may include ads on the Internet, as well as
commercial, magazine and newspaper ads. Dell succeeded increasing its brand

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name recognition once before with its “Dell guy” campaign. This will only help
Dell get its good name out there for all people to see, recognize and eventually
result in purchasing Dell products.

Server/Storage/Service Growth
The booming PC market seems to have bottomed out, with little signs of
improvement due to market saturation. Positive signs have come mainly in the
form of limited PC replacement programs at some large companies and sales of
notebook PCs. Any future PC market recovery will most likely be tied to an
improvement in the economy. Therefore, Dell should ramp its efforts in three
non-core areas as key for future growth: servers, external storage and services.
Meanwhile, it can carry on with its aggressive price-cutting strategy for all of its
products. Hopefully, these moves will allow them to gain traction in some
markets, and even overtake some competitors in others. Once Dell has used its
lowest price strategy to increase its installed base of clients in hardware sales,
particularly in the enterprise market, the company can leverage its expertise in
customer support to keep those clients. Even though Dell has already made
some impressive progress in server and storage developments, it still lags
behind other server vendors in total shipments and sales. The company needs to
create a greater presence among enterprise and service-provider customers. Dell
can quickly grow its storage business by providing simplified and standardized
storage solutions to customers ranging from small businesses to large, global
corporations with enterprise-class requirements. It can leverage its ties to
Microsoft, Intel and other prestige component vendors to focus on providing
Windows-based storage and server products. This move will make its high-end
storage products work with IBM, Hewlett-Packard and Compaq Computer
Windows servers, as well as Dell servers. This allows Dell to widen its
customer base by appealing to customers that don't have Dell servers, or have a
mixture of servers from different vendors. With comprehensive support for
multiple platforms, Dell can also offer customers a storage solution that
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leverages their existing Windows server investments, while scaling to
accommodate their growing data requirements.
An expansion of the services group should also be pursued based on customer
needs, which will vary from country to country. While Dell continues to partner
with third-party services firms in some areas, it should also bulk up on its own
services capabilities so it can provide customers with more complete services
offerings. Dell should realize that it would need to expand its services capability
significantly in order to be taken seriously by some global enterprise and
service-provider customers. Dell can also implement a fixed-price approach to
services that will boost its presence in that market. New services, such as
migrating from Unix-based servers to new ones based on Linux can be offered
and combined with Dell's hardware. A total of $2 billion to $3 billion in service
revenue can be achieved if this strategy is correctly implemented. Dell's three-
pronged growth strategy by no means guarantees a sure-fire path to future
profitability, but Dell's deliberate and measured steps to expand beyond its PC
roots could result in additional good news in the future.

International Expansion
As Dell looks at expanding into international markets, it needs to consider
entering the markets that are key to the region. For example, Germany in
Europe, China in Asia, and Brazil in South America. Dell needs to carefully
study these types of key markets and implement its Direct Model only after it
understands how these regions economically and politically function. However,
this expansionary growth will place extensive demands on Dell’s information
infrastructure needed to support such global operations. To be successful in
these new markets, Dell must update its websites in the particular languages and
modify the accounting systems to handle the specific currencies. Keeping these

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new employees in touch with one another and with customers, suppliers, and
partners will be a gigantic task requiring the latest technology, increasing the
demand for instant information. The global market is huge and virtually
untapped and Dell is in a great position to take advantage of this market,
especially with the use of the Internet and its advanced online capabilities.
Dell’s most important strategic advantage is the ability to sell direct from Dell,
eliminating all the middlemen in the normal distribution line. Anyone who
wants a Dell must order it through the mail, online, or over the phone, which is
a perfect method for doing international business. Dell just takes the order and
ships the computers via one of its many shippers. Dell should focus on
dominating the Asian market where they only have a 3.7% hold on a market
with over 19.9 billion units. Asia is a virtually untapped market and is expected
to grow rapidly in the next few years. Dell currently has two manufacturing
plants and four technical support offices in the Asia area. Dell should look for
ways to optimize these facilities and budget some advertising towards attracting
enterprise and big businesses in that region. If Dell can capture a few large
clients in China, it may be able to dominate the Asian market, drastically
increasing its revenues.

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