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Dell Case StudyPersonal Computer BusinessLow MarginDecline in prices and componentsThreat for substitutionRapid change in software availability & technologySubstitution Threat by Mobile technologyLarge no. of manufacturersProduct has become like a CommodityNon branded white Box products (large % sell in Europe , Asia & China ranging from 50 90%)Industrial Rivalry - HighPrice critical factor (e.g. Compaq low prices IBM clone) leading to lower marginStandard already defined by IBM (WinTel) little scope for product differentiation except AppleLarge number of competitors (top 5 competitors controlling 48% market while remaining is with other manufacturers). Top Well known brands IBM, HP etcLarge number of smaller buyers (only ~ 38-40% are large/ mid size business & government buyers)Industrial Rivalry - HighPositionManufacturerMkt ShareFocus1Compaq16%Broad range of products (sub $1,000 PC to fail safe servers)3IBM10%4HP7%Focus on High Quality & Performance5Gateway4%High Quality manufacturing, Latest Intel microprocessors, High Dependency on Distributor / ResellerAttempted Direct sale but no breakthrough success like Dell (IBM AAP, Compaq ODM & HP ESPP)AAP Authorized Assembly Program; ODM Optimized Distribution Model & ESPP Extended Solutions Partnership Program High % of Direct sales like DellBut poor execution from 1997 (Excess inventory, Acquisition charge, Aborted Customer info. System) Entry barriers HighStart up cost - HighFixed assets: High (In case of dell it is ~ $ 200 Million)Current asset: High (34% of the sale)Inventory: High cost $ 273 Million in case of Dell (which has the lowest inventory days of 7)Economies of scale

Buyer Power - HighDell approach:Mass manufacturing (Broad menu that tailored to customer needs)Build to order manufacturing (Manufacturing post placing order)Focus on delivery speedIn transit merge (Sony monitor)Daily management (matching production schedule with sales)Use of electronic (bar code based) systemCell manufacturing / AssemblyCustomer segmentation in micro segments(Geographical, size of company etc)Direct sale through Online portal www.dell.com:Custom premier pages for large organizationOption for Customization of product as per customer needsImpact: Easy management of segmentReduced inventory and economy of scale to reduce costLarge number of transactions through portal ($ 10 million per day worth orders)Faster delivery of products (5 working days) leading to higher customer satisfactionFaster response to changes in technologyFewer defects and higher efficiencyLow switching cost (as standard configuration and low cost)Large number of options available in the marketRange of buyers from single to bulk (Increased negotiation power for bulk purchases)Supplier Power - LowComponents supplier & service providers:Operating System: Monopoly with Microsoft (MS software installed on > 90% PCs)Microprocessor: Handful of suppliers (Intel, AMD etc) Monopoly with IntelMonitor: Sony Other components: Large suppliers with competitive priceAssembly: in-house assemblyThird party shippersService through external service providers & Online platform

Supplier location:Near the assembly plant (co-location)

Supplier ManagementIntegration of systems with suppliers with feedback on bad quality and hourly replenishment

Impact:Successful implementation Just in Time supply resulting in Inventory reduction from 32 to 7 daysNegotiation on credit terms (Doing business with Supplier money). Payable days larger than receivablesThreat of substitutes - HighMobility is an issue with Personal computers (except notebooks)Advancement in technology and availability of smart phones as substitute posing a challenge for Personal computersPrice difference between Dell and other computers has narrowed to almost nilHighly standard configuration across all suppliersThank You