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Fergal Carton / AFIS MBA 642 / BIS Foundation


DELL Direct model• Price for Performance

– No resellers, retailers or other intermediary steps– Efficient procurement, manufacturing and distribution

process

• Customization– Every Dell system is built to order

• Service and Support– Dell provides tailored customer service

• Latest Technology. – Latest technology introduced quickly – Inventory is turned over every 10 days


Dell case study• A “mix” retailer (sells both on the web and via

traditional channels)• $10 million worth of goods sold per day on their

web site (from $1 million in 1997)• Dell will soon be selling more on their web site

than through the normal distribution channels• Direct sales cut out a number of intermediaries

(and the margin that they would normally add to the price of a PC)


“It has never been so easy to buy a PC“• Dell goal : quickly manufacture and deliver

inexpensive, good quality PCs • Simplify and improve the customer’s

experience of purchasing a computer • Dell also benefits from the increase in

efficiency :• Built-to-Order (BTO) model of manufacturing whereby

no goods are produced until there is a demand for them


BTO model is difficult to maintain • Especially in industries where customers demand very

short lead times …• …and where the goods manufactured require a complex

assembly / testing process (eg. computers)• Most computer manufacturers must use planning and

demand forecasting models for their production facilities • Computers are produced without specific knowledge of

customer demand • There may be unexpected variations leading to excess

production of some models and shortage of others

Obsolete stocks! Lost sales!


BTO model is difficult to maintain • Especially in industries where customers demand very

short lead times …• …and where the goods manufactured require a complex

assembly / testing process (eg. computers)• Most computer manufacturers must use planning and

demand forecasting models for their production facilities • Computers are produced without specific knowledge of

customer demand • There may be unexpected variations leading to excess

production of some models and shortage of others

Obsolete stocks! Eg. Boeing $2.6b in 1997 Lost sales!


Ultra quick order processing • Wait until a PC is ordered before committing to

production • All orders routed through 1 of 3 data centres (US,

Europe and Asia) • Orders dispatched to nearest production facility • Just-in-Time factories (located very close to their

suppliers) maintain no stocks • Trucks filled with components needed to produce

PCs are permanently connected to special loading bays


Ultra quick order processing • Contents of these trucks does not belong to Dell,

but to their suppliers • Dell will only pay for this inventory when it is

taken from the trucks and used on the assembly lines

• As the PCs move along this line, a tag is attached to them :• who has purchased them and what else they have ordered (so that

orders can be brought together)

• A monitoring system tracks PCs, giving operators configuration info for the computer at each stage of the production process


Ultra quick order processing • Within hours, the PC has been assembled and

tested and rolls straight into waiting delivery truck

• A scanner system ensures that the PCs are loaded in the truck that supplies the distribution centre nearest to the delivery address of the customer

• For example, in Dell’s Limerick facilities in Ireland, some trucks are supplying the local market, while others go to Germany, France and to the Scandinavian countries


Ultra quick order processing • Any PC sold by Dell is delivered to the final

customer within a few days and always within a week

• Dell never pays for any inventory before they need it to assemble a finished product

• Dell get paid for the PCs they build even before they are assembled

• Dell’s cash flow has been improved drastically and they can generate additional revenues from their positive cash flow situation


Secret to Dell’s success? • Robust order acquisition and processing systems

• Produce and ship the proper equipment (what was

ordered) to the proper customer (the person who ordered it).

• Dell can do this more efficiently than anybody else which enables them to produce cheaper PCs for a given specification

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