Dell Europe Managing Its Supply Chain
Financial Times; London; Nov 9, 2001; Daniel, Caroline;
At a time when PC growth has been declining for the first time in western Europe,
Paul Bell, who heads the European operations of US computer company Dell, is
surprisingly upbeat. "We are assuming relatively slow growth in the industry for
next year, but continued fast growth for Dell," he says. Mr Bell's confidence is
based not just on internal forecasts. A report from Gartner Dataquest, a technology
research group, found that PC sales in western Europe fell 11 per cent during the
third quarter, compared with the same period a year ago.
Even so, of the top five vendors only Dell achieved any growth over the period. It
grew at 5.6 per cent, compared with a fall of 18.8 per cent for Compaq - the leader
in Europe - and a fall of 23.9 per cent for Fujitsu Siemens. Moreover, Dell has
grabbed market share. It is now within three percentage points of overtaking
Compaq in Europe, which has more than 11 per cent of the market, according to
Gartner Dataquest. Part of that gain has come after Dell kicked off a price war. In
February it cut some portable PC prices by 26 per cent. Mr Bell, however, shies
away from crude talk of a price war. Not surprisingly, as a former management
consultant from Bain, where he helped mould the Dell strategy, he prefers to credit
Dell's business model. Dell's ability to cut prices is helped by selling direct to
customers. More than half its European sales are sold online, helping efficiency.
More important is the way Dell manages its supply chain. "Low inventory is
critical to our cost advantage. Component costs have been reducing at a rate of
about 1 per cent a week, and that is still continuing," says Mr Bell. Dell carries
about one week's worth of stock, compared with rivals' three to four weeks, with up
to a further month's worth of inventory stuck in partners' sales channels. "So we
maybe have six weeks' advantage of buying components at lower prices," says Mr
Bell. The growth has helped drive revenues in Europe, Middle East and Africa to
about $6.4bn last year, about one-fifth of Dell's revenues globally.
Dell employs about 8,700 in the region, more than half in Ireland, where Dell has a
factory and call centre. But Dell is unsatisfied. "We are number one in the world,
but have only 13 per cent of the market after year-on-year of aggressive growth
.…Michael Dell [the company's founder] has stated he wants 40 per cent market
share worldwide, so we are not going to ease off."
To achieve that, Mr Bell estimates Dell must more than double its market share in
Europe. "At a minimum we are aiming for 25 per cent. It will take several years to
get there," he said.
Dell could benefit from rivals' problems. Gateway is exiting the European market.
IBM has pulled back from retail PCs, and the potential merger of Compaq and
Hewlett Packard could create opportunities. Even so, Brian Gammage, an analyst
at Gartner, said: "Without changing the business model, Dell's target is unrealistic.
The rate of growth is dependent on the rate of changing the business buying
culture." Dell has already cornered about half of the direct sales business in
Europe, Mr Gammage says, "so the propensity to grow is limited by the overall
size of the direct market".
The challenge is that companies in continental Europe have been slow to embrace
the direct sales model. While more than 50 per cent of businesses buy direct in the
UK, only about 27 per cent do so in Germany, and 17 per cent in Italy. "Dell's
Anglo-Saxon model has mapped most readily to the UK and Australia. But Dell
could find it can't colonise the world without taking on the cultural peculiarities of
these continental European countries," says Mr Gammage. The company ranks first
in the UK for PC sales and fifth in France. It is now risen from seventh to fourth in
Germany, after a series of setbacks. "We had lots of fits and starts in the 1990s in
Germany. We had never really got a management team in place schooled in the
Dell model. It was not progressing because it was not delivering the Dell model,"
says Mr Bell. Dell is also pinning its hopes of growth on the sale of less
commoditised products, such as servers and networking equipment, conscious that
a continuous price war on desktop PCs will destroy margins.
"We need to keep the financial health strong by diversifying . . . Our job is not to
stake our future on the big grey desktop," says Mr Bell. "We are looking to double
storage revenues across the EMEA next year."
Success in these product areas will be crucial, especially as Mr Bell rules out a
sudden rebound in demand for PCs. "Now the US has stabilised. It is too soon to
call recovery, but it looks like we have found the bottom. In Europe I don't
honestly know if it will go down any further or stabilise like the US," he says.
Dell Europe moves up a gear as PC industry declines: Direct sales and low inventories have enabled the computer manufacturer to buck the recession, says Caroline Daniel:
Financial Times; London; Nov 9, 2001; Daniel, Caroline;