Company Heritage of Dell.

Company Heritage

Dell was a company that had been created as a result of the PC’s open architecture. In 1983, Michael Dell, an 18 year old freshman at the University of Texas at Austin, spent his evenings pre-formatting hard disks for IBM-compatible PC upgrades. A year later he dropped out of college to attend to his burgeoning business, which had grown from nothing to $6 million in 1985. In 1985, Michael Dell shifted his company’s focus to assembling its own brand of PCs- that were available on a build-to-order basis. By the time Dell entered the 21st century it was by far the most successful company in the PC industry. Founded in 1984, the company had achieved phenomenal records in sales and profit growth.

Market Trends

At Dell new product groups and customer segments were formed to manage exploding opportunities, and new employees were hired. In the fourth quarter of 2000, the growth came to a screeching halt. Dell along with its rivals saw a slump in the stock price and market capitalization. In spite of the slowdown and Dell’s significantly reduced growth targets for 2001-2002, the company’s top management remained supremely confident of Dell’s future success. Some in the industry however believed that the hyper expansion phase of the industry’s growth was over, and that the players would have to adjust their strategies to reflect the commodity nature of the environment. In addition to continually improving its position in PC’s the dell company’s leadership was aggressively pursuing a multi-growth categories (storage and server), opportunities in the service side and to expand in the international market.

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Customer Services

Dell’s sales were to business customers, splitting up almost evenly between the large corporate accounts and medium and small businesses. Even though Dell was labeled a “mail order company”, revenue from individual consumers was less than 5% of sales.

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Customer Services

Many of Dell’s corporate customers not only valued the ability to customize their PC configurations to meet the unique needs of users but also liked being able to deal with the manufacturer directly and to receive the Dell’s attractive pricing that was the result of its direct model. Dell’s direct model became the means of delivering a high quality PC in a very cost-efficient manner. The model focused on direct customer relationships and virtual integration. By 1999, Dell was the leading seller of PCs in the United States, having surpassed early leader IBM and Compaq. Dell serviced the North American market from its plants in Austin, Texas and Nashville, Tennessee. To support its global business, Dell had manufacturing facilities in Limerick, Ireland, and Penang, Malaysia and two new sites in Porto Alegre, Brazil and Xiamen, China that came on-line in 2000.

Post shipment

Customer had several service options;

The customer could go online to dell.com and access technical support, or call Dell over the telephone. The phone service model was a major innovation in the PC industry and allowed Dell to handle over 75% of service calls either on-line or over the phone, with fewer than 25% of calls requiring the dispatch of a tech support person.
If the problem required onsite repair, one of Dell’s major service partners (such as Unisys, Wang, Techtronics, or IBM Global Services) sent technicians to solve the problem, generally within a 24 to 48 hour window;
In many product categories Dell set the standard for customer service, for example;

The industry average downtime for a PC was 16 hours, but only 8 hours for a Dell PC;
For servers, industry average downtime was 5 hours compared to 1 hour for a Dell server;

A March 2001 Fortune and Trilogy survey of senior officers of Fortune 1000 companies ranked Dell first in managing customer relations.

Inventory Management Process

From earliest days, Dell was a built-to-order computer manufacturer. Orders would come to the factory from two major streams:

Inbound calls from consumers and small business customers who’d seen a Dell catalog or print advertisement referring them to specific toll free telephone number;
Order placed by Dell “inside sales reps” on behalf of large accounts;

This method for taking orders allowed Dell to sell richer configured systems and achieve higher average revenue per unit.

Once Dell received an order at its factory, the order was electronically broken down into list of parts required for the computer. When the specification sheet was generated, an electronic bar code linked the system back to its original order number. This identification number not only allowed the customer to check on order status, but also became the basis for problem solving if required after the customer took delivery. The incoming parts were pulled through the system and ordered on a just-in-time basis. Dell’s model was one of continuous improvement, making it difficult for its competitors to emulate. For example in the mid-1990s Dell’s direct model operated on 13 days of inventory, versus 75 to 100 days in the typical direct model. At the close of fiscal 2000, Dell had six days of inventory with its build-to-order process, compared with 20 to 70 days for most of its major competitors. Dell’s ability to operate on a just-in-time basis was facilitated by its suppliers, who warehoused the bulk of their components within 15 minutes from Dell factory. Dell had been able to reach these agreements by reducing the number of primary suppliers, from about 200 in 1992 to about 25 in 2000.

Competitor Analysis

Starting in 1977, there were several waves of entries by firms into the personal computer market. The first wave was between 1977 and 1978 with the entry of Apple as the clear technology leader. Apple offered a unique operating system, with an intuitive and easy graphic user interface that enabled applications to be driven by a simple point-and-click menu system rather than typing commands. This ease-of-use attracted many first-time users in the consumer market and made Apple particularly strong in the educational and hobbyist market.

Industry giant IBM entered PC market in 1981. IBM’s entry legitimized the PC in the minds of business customers. Maintaining a premium-priced position, IBM used its sales force to sell PCs to large corporate customers and retail channels to reach small-and-medium-sized business. IBM’s decision to use open architecture created an environment that allowed new manufacturers to enter in the market and meet unsatisfied demand. Compaq, founded in 1982, was one such manufacturer. Unlike IBM, Compaq was a new player to the industry and lacked a sales infrastructure to get its product to market. Faced with this challenge Compaq recruited retail dealers and value added resellers by promising them full rein of the market including the large-volume corporate accounts. More efficient and focused than IBM, Compaq soon rose to the PC market.

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