Dell Online

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Dell Online

• V. Kasturi and Marie Bell

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Michael Dell

• Business associates viewed Michael Dell as an
  aggressive personality, a competitive risk-taker
  who always played close to the edge. His
  employees were aggressive and competitive, traits
  that translated into an aggressive, competitive,
  intense corporate culture with a strong sense of
  mission and dedication.
• Dells best results came from "turning loose
  talented people who can be relied upon to do what
  they're supposed to do."

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History of Dell

• In 1983 Michael Dell started building computers
  from his Dorm room at UT Austin
• By 1985 , sales were 6 million
• By 1990, sales were over 500 million
• In 1993, has its first operating loss despite a
  40 increase in sales
• Loss was due to selling through retail chains
  such as CompUSA, Staples and Sams Club
• By 1996, sales were 7.8 billion

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PC Market Drivers

• Rapid improvements in PC technology, and growing
  customer demand for PCs equipped with the power,
  components, and software they wanted.
• Component prices had been falling as much as 50
  percent annually (an average of 1 percent a
  week).
• Industry's PC sales consisted of computers
  selling for less than 1,300.

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Competition in the PC Industry

• Retailers margins had fallen from 35 to 40
  percent in the early 1990s to 20 percent in 1996
  and it is estimated to drop to 15 percent in the
  future
• In 1992, the top ten vendors accounted for 50
  percent of the PC market
• By 1996, the top ten vendors had captured 65
  percent of the market

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Component Outsourcing

• Vertically integrated manufacturers cant keep up
  with component competitors.
• Component suppliers lead/match advances.
• Component suppliers have economies in RD and
  production that are cheaper.

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Shorter Value Chains

• Dell, Gateway, and Micron sell direct to
  customers, eliminating independent resellers.
• Dell Computer was the world's largest direct
  seller to large companies and government
  institutions
• Gateway was the largest direct seller to
  individuals and small businesses.
• Micron Electronics was the only other PC maker
  that relied on the direct sales and
  build-to-order approach for the majority of its
  sales.

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Comparison of Value Chains
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Types of Customers

• Transactional (30 of sales) customers who are
  individuals or businesses who buy computers as a
  stand alone transaction.
• Relationship (40 of sales) customers who have
  an ongoing long term relationship with Dell and
  are less price sensitive.
• Mixed (30 of sales) customer who switch
  between transactional and relationship based
  purchasing patterns.

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Economics Direct v. Online
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Dells Direct Model
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The 5 Tenets of the Direct Model

• Most Efficient Path to the CustomerWe believe
  that the most efficient path to the customer is
  through a direct relationship, with no
  intermediaries to add confusion and cost. We are
  organized around groups of customers with similar
  needs. This allows our teams to understand the
  specific needs of specific customers - without
  customer needs being "translated" by inefficient
  resellers and middlemen.
• Single Point of AccountabilityWe recognize that
  technology can be complex, so we work to keep
  things easy for our customers. We make Dell the
  single point of accountability so that resources
  necessary to meet customer needs can be easily
  marshaled in support of complex challenges. Our
  customers tell us they want streamlined and fast
  access to the right resources direct provides
  just that.
• Build-to-OrderWe provide customers exactly what
  they want in their computer systems through easy
  custom configuration and ordering. Build-to-order
  means that we don't maintain months of aging and
  expensive inventory. As a result, we typically
  provide our customers with the best pricing and
  latest technology for features they really want.
• Low-Cost LeaderWe focus resources on what
  matters to our customers. With a highly efficient
  supply chain and manufacturing organization, a
  concentration on standards-based technology
  developed collaboratively with our industry
  partners, and a dedication to reducing costs
  through business process improvements, we
  consistently provide our customers with superior
  value.
• Standards-Based TechnologyWe believe that
  standard technology is key to providing our
  customers with relevant, high-value products and
  services. Focusing on standards gives customers
  the benefit of extensive research and development
  from Dell and an entire industry - not from just
  a single company. Unlike proprietary
  technologies, standards give customers
  flexibility and choice.

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Direct Sales Advantages

• This sell-direct strategy requires no in-house
  stock of finished goods inventories. Building to
  order avoids
• having to keep different models on retailers'
  shelves to fill buyer requests for various
  configurations of options and components, and
• having to clear out slow-selling models at a
  discount before introducing new generations of
  PCs.
• retailer costs and markups (retail dealer margins
  were typically in the 4 to 10 percent range).

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Dell Situation 1998

• 12.3 billion sales in 1997, 944 million
  profits.
• Eliminated distributor and retailer markups by
  selling direct.
• Builds-to-order to reduce parts, components, and
  finished goods inventories.
• Cost and profits outperform competitors.
• Dell market share global market share 7.9
  percent and U.S. share 11.8 percent.
• Internet sales of 5 million/day (1.5b/yr.)

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Primary Products

• Desktop PCs (65 of sales). Dell's average
  selling price was 2,500 per unit. Dell's new
  budget models were priced in the 1,200.
• Notebooks, workstations, servers (33 of sales).
  Dell Servers cost 15 to 20 percent less than
  competitors. The company expected servers to be
  50 percent of corporate revenues by 2001.
• Accessories ROM drives, modems, monitors,
  networking hardware, memory cards, storage
  devices, speakers, and printers

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Dell Virtual Integration

• Tied together Dell's business with its supply
  partners and customers in real time such that all
  three appeared to be part of the same
  organizational team.
• Dell partnered with a few vendors as long as they
  maintained their leadership in technology,
  performance, and quality, supplied the volume of
  components needed on a timely basis, deliver
  daily or hourly if needed, and participated on
  product design teams. Dell shared production
  schedules, sales forecasts, and new-model
  introduction plans with vendors.

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Dells Fulfillment System

• Customers configure microprocessor speed, random
  access memory (RAM), hard-disk capacity, CD-ROM
  drive, fax/modem, monitor size, speakers, and
  accessories.
• Cell manufacturing" teams operating at a
  workstation to assemble an entire PC according to
  customer specifications (reduced assembly times
  by 75 percent and doubled productivity per square
  foot of assembly space).
• Assembled computers were tested, loaded with the
  desired software, shipped, and delivered within
  five to six business days of the initial order.

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History of Dell Online

• Dell launched their online website www.dell.com
  in July 1996
• Site visitors could customize a computer
  configuration to suit their needs
• Customers could check on the status of their
  order and receive technical support online

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Internet Strategy

• 1.5 million people visited Dell's Web site
  weekly, about 20 times more than called to talk
  with sales representatives over the telephone.
• 6 million sales per days during the 1997
  Christmas shopping period.
• Europe had weekly Internet sales volume of 5
  million in early 1998.

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Customer Response

• 5 million Internet sales per day kept Dells
  finger on the market pulse, quickly detecting
  shifts in sales trends and getting prompt
  feedback on any problems with its products.
• When design flaws or components defects are
  found, the factory is notified and the problem
  corrected within days.

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Dell Computers Strategy

• Core elements
• build-to-order manufacturing, mass customization,
  
• partnerships with suppliers,
• just-in-time components inventories,
• direct sales,
• market segmentation,
• customer service, and
• extensive data and information sharing with both
  supply partners and customers.

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Dell in 1999

• 62 value-added productivity in two years, with
  245 sales growth.
• 65 reduction in inventory-- to six days' of
  sales.
• 61 annual inventory turns, with zero
  finished-goods inventory.
• 216 annual WIP turns.
• 50 reduction in manufacturing cycle time in
  three years.
• 0.12 scrap/rework rate of sales.
• 90 of production workers participate in teams.
• 99.5 of materials purchased without incoming
  inspection.
• 97 of domestic orders shipped directly from
  the plant.
• 35 reduction in manufacturing costs, including
  materials, in two years.

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The Soul of Dell

• Customers We believe in creating loyal customers
  by providing a superior experience at a great
  value. We are committed to direct relationships,
  providing the best products and services based on
  standards-based technology, and outperforming the
  competition with value and a superior customer
  experience.
• The Dell Team We believe our continued success
  lies in teamwork and the opportunity each team
  member has to learn, develop and grow. We are
  committed to being a meritocracy, and to
  developing, retaining and attracting the best
  people, reflective of our worldwide marketplace.
• Direct Relationships We believe in being direct
  in all we do. We are committed to behaving
  ethically responding to customer needs in a
  timely and reasonable manner fostering open
  communications and building effective
  relationships with customers, partners, suppliers
  and each other and operating without inefficient
  hierarchy and bureaucracy.
• Global Citizenship We believe in participating
  responsibly in the global marketplace. We are
  committed to understanding and respecting the
  laws, values and cultures wherever we do
  business profitably growing in all markets
  promoting a healthy business climate globally
  and contributing positively in every community we
  call home, both personally and organizationally.
• Winning We have a passion for winning in
  everything we do. We are committed to operational
  excellence, superior customer experience, leading
  in the global markets we serve, being known as a
  great company and great place to work, and
  providing superior shareholder value over time.

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Dells Code of Conduct

• Trust  - Our word is good. We keep our
  commitments to each other and to our
  stakeholders.
• Integrity  - We do the right thing without
  compromise. We avoid even the appearance of
  impropriety.
• Honesty  - What we say is true and forthcoming -
  not just technically correct. We are open and
  transparent in our communications with each other
  and about business performance.
• Judgment  - We think before we act and consider
  the consequences of our actions.
• Respect  -We treat people with dignity and value
  their contributions. We maintain fairness in all
  relationships.
• Courage  - We speak up for what is right. We
  report wrongdoing when we see it.
• Responsibility  - We accept the consequences of
  our actions. We admit our mistakes and quickly
  correct them. We do not retaliate against those
  who report violations of law or policy.

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Top 5 Vendors, U.S. PC Shipments, Second Quarter
2000 (000) units
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Top 5 Vendors, Worldwide PC Shipments, Second
Quarter 2000(000) units
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Dells Financial Results