Dell Case study for International Supply Chain Management 2009/2010
Dell overview
Dell is a technology company, offering a broad range of product categories, including
desktop computer systems, storage, servers and networking products, mobility
products, software and peripherals and services to manage IT infrastructure for large
organizations . Dell are the number one supplier of personal computer systems in the
United States, and the number two supplier worldwide.
This case study is based on the Dell 2007 SEC filing. Read the latest Dell SEC filings
from Yahoo!. I have also added additional insight from a Dell employee presented at
E-consultancy 2007 Online Marketing Masterclass.
Dell proposition
The main Dell product offerings are:
1. Desktop PCs — Five lines of desktop computer systems are produced for
different markets. For example, the OptiPlex line is designed to help
business, government, and institutional customers manage their total cost of
ownership by offering stability, security, and managed product transitions;
The Dimension line is designed for small businesses and home users requiring the
latest features for their productivity and entertainment needs. The XPS™ and
Alienware lines are targeted at customers who require the highest performance
gaming or entertainment experience available. In July 2007, we introduced the
Vostro™ line, which is designed to provide technology and services to suit the
specific needs of small businesses.
1. Servers and Networking — The PowerEdge™ line of servers is designed to
offer customers affordable performance, reliability, and scalability. Again
different options are available for different markets include high performance
rack, blade, and tower servers for enterprise customers and lower priced
tower servers for small organizations, networks, and remote offices.
2. Storage — For example, storage area networks, network-attached storage,
direct-attached storage, disk and tape backup systems, and removable disk
backup.
3. Mobility — Notebook computers are targeted at customers who require the
highest performance gaming or entertainment experience available.
4. Software and Peripherals — Office software and hardware including
printers, televisions, notebook accessories, networking and wireless products,
digital cameras, power adapters, scanners, and other products.
5. Enhanced Services — Dell’s global services business offers tailored
solutions that help customers lower the cost of their services environment and
maximize system performance, efficiency, and return on investment. These
include: Infrastructure Consulting Services; Deployment Services to install
and integrate new systems; Asset Recovery and Recycling Services. Training
Services ; Enterprise Support Services and Managed Lifecycle Services
(outsourced IT management).
6. Financial Services - for business and consumer customers iworldwide.
through a joint venture between Dell and CIT Group, Inc.
Dell business strategy
Dell’s vision is to “strive to provide the best possible customer experience by offering
superior value; high-quality, relevant technology; customized systems; superior
service and support; and differentiated products and services that are easy to buy
and use”.
The core elements of the strategy which are evident in Dell’s marketing
communications are:
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“We simplify information technology for customers. Making quality personal
computers, servers, storage, and services affordable is Dell’s legacy. We are
focused on making information technology affordable for millions of
customers around the world. As a result of our direct relationships with
customers, or “customer intimacy,” we are best positioned to simplify how
customers implement and maintain information technology and deliver
hardware, services, and software solutions tailored for their businesses and
homes.
We offer customers choice. Customers can purchase systems and services
from Dell via telephone, kiosks, and our website, www.dell.com, where they
may review, configure, and price systems within our entire product line; order
systems online; and track orders from manufacturing through shipping.
We have recently launched a retail initiative and plan to expand that initiative by
adding new distribution channels to reach additional consumers and small
businesses through retail partners and value-added resellers globally.
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Customers can purchase custom-built products and custom-tailored services.
Historically our flexible, build-to-order manufacturing process enabled us to
turn over inventory every five days on average, thereby reducing inventory
levels, and rapidly bring the latest technology to our customers. The market
and our competition has evolved, and we are now exploring the utilization of
original design manufacturers and new distribution strategies to better meet
customer needs and reduce product cycle times. Our goal is to introduce the
latest relevant technology more quickly and to rapidly pass on component
cost savings to a broader set of our customers worldwide.
We are committed to being environmentally responsible in all areas of our
business. We have built environmental consideration into every stage of the
Dell product life cycle — from developing and designing energy-efficient
products, to reducing the footprint of our manufacturing and operations, to
customer use and product recovery.
Dell’s sales and marketing
Dell sell products and services directly to customers through dedicated sales
representatives, telephone-based sales, and online at www.dell.com.
Customer segments include large corporate, government, healthcare, and education
accounts, as well as small-to-medium businesses and individual consumers.
Dell stresses the importance of its direct business model in providing direct and
continuous feedback from customers, thereby allowing them to develop and refine
our products and marketing programs for specific customer groups.
In it’s SEC filing Dell emphasizes how it listens to customers to develop relevant
innovative technology and services they trust and value. Evidence for using the
participative nature of Web 2.0 is that customers can offer suggestions for current
and future Dell products, services, and operations on an interactive portion of the
Dell website called Dell IdeaStorm. It says: “This constant flow of communication,
which is unique to our direct business model, also allows us to rapidly gauge
customer satisfaction and target new or existing products”.
For large business and institutional customers, Dell maintain a field sales force
throughout the world. Dedicated account teams, which include field-based system
engineers and consultants, form long-term relationships to provide our largest
customers with a single source of assistance and develop specific tailored solutions
for these customers. Dell also maintain specific sales and marketing programs
targeted at federal, state, and local governmental agencies as well as specific
healthcare and educational markets.
Dell Premier
For it’s large organizational customers, Dell offers Premier (http://premier.dell.com)
which is a secure, customizable procurement and support site or extranet designed
to save organizations time and money through all phases of I/T product ownership.
The main benefits of Dell Premier are described as:
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Easy Ordering - A custom online store ensures access to your products at
your price.
Easy Tracking - View real-time order status, online invoices and purchase
history details.
Easy Control - Custom access groups define what users can see and do
within Premier.
Marketing communications
Dell markets it’s products and services to small-to-medium businesses and
consumers primarily by advertising on television and the Internet, advertising in a
variety of print media, and by mailing a broad range of direct marketing publications,
such as promotional pieces, catalogs, and customer newsletters. In certain locations,
we also operate Dell stores or kiosks, typically located within shopping centers, that
allow customers to view our products in person and purchase online with the
assistance of a Dell expert.
Dell Online marketing Communications
The management of the consumer site was presented to E-consultancy (2008). Dell
has a three stage order funnel:
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Marketing communications execution measured by Site visits
Site merchandising measured by consideration % (site visits to e-store visits)
Store merchandising measured by conversion % of Estore visits to e-receipts)
The presenter explained how Dell aim to understand and act on customer behaviour
based on identification of a series of consideration drivers, for example, the Quality of
Online Advertising; Path quality through site; Merchandising / offers and conversion
drivers, for example, configurator “ease of use”, Accessibility of decision support
tools and consistency of message through entire path
Dell will invest in strategic improvements to the site to improve these levers,
examples mentioned included New merchandising approaches such as Customer
Ratings & Reviews, Videos, Major ‘path’ or customer journey changes created
through Decision support tools to “Help me choose”. There are also more tactical
initiatives to help deliver the right message to each customer including Customisation
/ personalization, Real estate optimization and Message Balancing.
The presenter also noted how across Europe, the promotional mix has to vary to
reflect the differences in buying psychology. He summarises the main differences
between customers as follows:
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**Dell UK" – all about price
Dell Switzerland (CH) – add value over price
Dell Germany (DE) – all about high-end products in mix
Dell Itally (IT) – design is important (!)
Dell Denmark (DK) – cheap is good
Dell Norway (NO) – added value is key
Dell France (FR) – tailored for France
Dell and indirect channels
Although the focus of Dell’s business strategy has been selling directly to it’s
customers, it also uses some indirect sales channels when there is a business need.
In the U.S. we sell products indirectly through third-party solution providers, system
integrators, and third-party resellers.
During financial year 2008, Dell began offering Dimension desktop computers and
Inspiron™ notebook computers in retail stores in the Americas and announced
partnerships with retailers in the U.K., Japan, and China. Dell says: “These actions
represent the first steps in our retail strategy, which will allow us to extend our
business model and reach customers that we have not been able to reach directly”.
Dell’s e-commerce
Since its launch in the mid '90s, Dell's e-commerce business has been a poster child
for the benefits of online sales, says Aberdeen Group analyst Kent Allen. The
company's strategy of selling over the Internet -- with no retail outlets and no
middleman -- has been as discussed, admired and imitated as any e-commerce
model. Dell's online sales channel has proven so successful, says Allen that the
computer industry must ask: "Does the consumer need to go to the store to buy a PC
anymore?"
Regardless of the company's past success, Dell is affected by two current trends in
e-commerce, says Forrester analyst Carrie Johnson. And only one of these trends
works in the PC giant's favor.
The early adopters were always comfortable buying PCs online, she notes, but the
general public has taken a while to catch up. "What we know about how consumers
buy online is that they start with low-ticket, low-risk goods like books, and they
eventually begin to trust the Internet more and graduate to higher end products like
PCs and travel."
At this point, "Enough consumers have been shopping online for three or more years
that they trust the Internet to buy almost anything," Johnson says. "Which is why you
see apparel do so well now and even computers do so well, because it's not just the
early adopters buying online now. We've caught the second wave of online
shopping."
But while this trend bodes well for Dell, says Johnson, another does not: due to a
slowdown in PC sales, what's fueling most of the online growth [in the PC market] at
this point are second hand sales of computers. Auction sites like eBay and uBid are
enjoying thriving growth rates in PC sales, she says, in contrast to new PC vendors
like Dell. So the challenge for Dell now is figuring out how to grow sales in a tough
market.
The Front End
Launched as a static page in 1994, Dell.com took the plunge into e-commerce
shortly thereafter, and by 1997 was the first company to record a million dollars in
online sales, according to Dell spokesperson Deborah McNair.
After six strong years of online sales -- widely regarded by analysts as stumble free -Dell has racked up some impressive statistics. In the last quarter of 2002, Dell.com
logged a billion page views, a company first. According to Dell spokesperson Bob
Kaufman, about half of the company's revenue comes from the site, which means
approximately $16 billion flowed through Dell.com in the last year.
A key part of Dell's success, says Aberdeen's Allen, is that the site offers consumers
"choice and control." Buyers can click through Dell and assemble a computer system
piece by piece, choosing components like hard drive size and processor speed
based on their budgets and needs.
"Their ability to allow people to custom design has traditionally been something that
they're ahead of the game with, and a lot of people are slowly starting to catch up
now," Allen says. "But they continue to be viewed as the leader."
This direct contact with consumers gives Dell a competitive advantage, explains
Dell's McNair. "Because we know exactly what our customers are ordering, it's a 1to-1 proposition. We get feedback on how our site is working so we're constantly
making tweaks to it to make the experience for our customers easier."
Certainly Dell's competitors see the advantage of the company's direct model, and to
a varying degree use similar tactics. But, says Gartner analyst Mark Margevicius,
"The other vendors have legacy ties to supply chains -- supply chains with
distributors and resellers. Those elements provide value and revenue to the IBMs
and HPs of the world. So they can't automatically switch on a dime. But those nondirect channels are also less efficient. So Dell had the ability to cut margin without
cutting profit."
Profit Source: B2B
While Dell's consumer sales are highly visible, thanks in part to a high profile TV
campaign, its business sales are a much bigger revenue source. "About 15 percent
of our total revenue is consumer business and the rest is B2B," Dell's Kaufman says.
"Our major focus in the IT marketplace is selling servers, storage products, network
switches and services to corporate customers. A lot of the e-commerce engine
revolves around that."
Or, as Aberdeen's Allen notes, "B2C keeps them in newspapers a lot, B2B keeps
them in the black."
To facilitate B2B sales, the Dell site offers each corporate customer an individualized
interface. Using what Dell calls a Premier page, purchasing managers log on and
order using an interface customized for their company's needs. "They place the
order, it gets routed up to whoever in their company needs to approve it, then [the
order] is sent directly to us," McNair says.
The efficiency of the B2B system works in synergy with the consumer sales,
Kaufman says. "Remember, corporate customers are also consumers, so if they
have a good experience, they'll come over and buy a system for their home, or vice
versa."
The Back End
Now that many e-tailers have built a customer-friendly front end, their back end
supply chain is a greater focus, says Aberdeen's Allen. "That's a lot of what you saw
this past Christmas: progress on making sure [e-tailers] weren't just capturing the
order but were fulfilling the order. That's where Dell is continuing to succeed."
Or, as Gartner's Mark Margevicius says, "You can give me the best e-commerce
experience but unless they've got the supply chain nailed, there's no way Dell is as
successful as they are today."
Dell's Kaufman says the PC maker uses the Internet to provide a "constant and
seamless flow of information among all different aspects of the company to drive the
process." The company's back end is calibrated to respond so closely to orders from
the front end that inventory is kept to a razor-thin, four-day supply. "We build systems
only after a customer has ordered them," Dell's McNair says, noting that this applies
to desktop systems as well as complex server orders.
Dell has no central warehouse facility but instead ships to customers directly from its
manufacturing plants. Based on customer location, a shipment may originate from a
Dell plant in Ireland, China, Brazil, Malaysia, Texas or Tennessee.
Making a Giant Bigger
As for how Dell expands from here -- having built a thriving e-commerce operation,
but faced with a slow market -- no analyst would hazard a definitive guess. But a
recent Dell announcement provides a clue.
Last July, the company began to experiment with kiosks in shopping malls. Since
launching the initiative, it has opened 57 kiosks in nine states. Recently, Dell
announced it is ramping up its kiosk presence by placing them in Sears stores.
The kiosks are mini-stores, about 10-12 feet wide, with basic inventory and Dell
salespeople. Dell's Kaufman explains that the kiosks enable mall shoppers to "go in
and touch and feel some of our product and then either order right there or go back
home and order."
So part of the e-commerce giant's expansion effort is geared, ironically, toward
traditional retail. Or rather, since the kiosks are tied electronically to Dell.com, they're
an odd hybrid: a brick-and-mortar mini-store with an e-commerce option. Analysts
note that one of the advantages of the Sears kiosk placement is that, in comparison
to the Dell site, the department store's foot traffic contains a higher percentage of
women and shoppers who are over 55.
Certainly, though, it appears that Dell's core focus will remain its direct e-commerce
model. Perhaps the best estimate of where Dell goes from here is more of the same,
just bigger and better. As Aberdeen's Allen observes, "With e-commerce, there's no
end. You're never done, it's constantly evolving, and it has to reflect the dynamics of
the market. If anyone thinks they can catch up to Dell, there is no catching up -- it's
just trying to stay ahead of the customer."
Dell conducts operations worldwide, and we manage our business in three
geographic regions: the Americas; Europe, Middle East and Africa (EMEA); and Asia
Pacific-Japan (APJ).
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The Americas region, based in Round Rock, Texas, covers the U.S., Canada,
and Latin America.
The EMEA region, based in Bracknell, England, covers Europe, the Middle
East, and Africa.
The APJ region, based in Singapore, covers the Asian countries of the Pacific
Rim as well as Australia, New Zealand, and India.
We have invested in high growth countries such as Brazil, Russia, India, and China
to design, manufacture, and support our customers, and we intend to continue to
expand our global infrastructure as our international business continues to grow.
A conversation with Michael Dell
http://mitworld.mit.edu/video/94/
Appendix – Dell’s Global Locations
Americas
Headquarters: Round Rock, Texas
Business Centers*:
· Brazil – El Dorado Do Sul
· Oklahoma – Oklahoma City
· Panama – Panama City
· Tennessee – Nashville
· Texas – Austin and Round Rock
Manufacturing and Distribution:
· Brazil – Hortolândia (opened 2007)
· Florida – Miami (Alienware)
· Nevada – Reno
· North Carolina – Winston-Salem
· Tennessee – Lebanon and Nashville
· Texas – Austin
Design Centers:
· Texas – Austin and Round Rock
Europe, Middle East, Africa
Headquarters: Bracknell, England
Business Centers*:
· Germany – Halle
· France – Montpellier
· Ireland – Dublin and Limerick
· Morocco – Casablanca
· Slovakia – Bratislava
Manufacturing and Distribution:
· Ireland – Limerick and Athlone (Alienware)
· Poland – Lodz (opened 2007)
Asia Pacific, including Japan
Headquarters: Singapore
Business Centers*:
· China – Dalian and Xiamen
· India – Bangalore, Gurgaon, Hyderabad, and Mohali
· Japan – Kawasaki
· Malaysia – Penang and Kuala Lumpur (opened 2007)
· Philippines – Quezon City (opened 2007)
Manufacturing and Distribution:
· China – Xiamen
· Malaysia – Penang
· India – Chennai (opened 2007)
Design Centers:
· China – Shanghai
· India – Bangalore
· Singapore
· Taiwan – Taipei
*Business center locations include facilities with capacity greater than 1,000 people.
Operations within these centers include sales, technical support, administrative, and
support functions. Locations of smaller business centers are not listed.