Dell's Direct Model: In Need of Change?


Code :BSM0040

Year :
July 2009

Industry : Engineering, Electrical and Electronics

Region : US

Teaching Note:Available

Structured Assignment :Available

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Dell Inc. At the age of 18, while he was a freshman at the University of Texas, Michael Dell started a part-time business from his dorm room. By formatting hard disks of PCs and adding extra memory, disk drives, and modems to IBM clones, Dell was able to sell his machines at around 40% lesser value than similar IBM machines. Dell's part-time business was very successful and a year later, in 1984, revenues reached $80,000 per month. Michael Dell decided to drop out of college in the same year and founded Dell Computer Corporation (Dell) with a vision to "sell customized, built-to-order personal computers directly to customers"...

Manufacturing and Logistics Dell worked on the 'built-to-order' model. The company manufactured PCs only after an order was received and did not keep inventory of finished goods. Dell's manufacturing facilities were present in the US, Brazil, Ireland, Malaysia and China. Once a customer placed his order, the configuration details were sent electronically to a manufacturing facility. At the facility, a parts list of the order was generated by a computer and a bar code was assigned to facilitate order tracking at a later stage. As perthe specifications, the machines were configured inthe facility. After configuration, the machine was sent to a software loading area, where the operating systemand other software specified by the customer were loaded on the machine...

Dell's Growth Dell witnessed a rapid growth after its inception, based largely on the strength of its direct to consumer business model. Its sales increased from $546.2 million in 1991 to $2,013.9 million in 1993 to $12,327 million in 1998. But the company's fast-paced growth was not without hiccups. By late 1990, Michael Dell was of the opinion that Dell needed to broaden the range of its business activities in order to remain profitable in the future. To achieve this end, Dell targeted the growing market of individual and small business customers. In 1991, Dell decided to take the retail route of reaching these customers and entered into a distribution agreement with retailers like CompUSA, Staples, Price Club, and PCWorld etc...

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