Distribution Channel Dell

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DISTRIBUTION CHANNEL

DELL

Submitted to: Prof. S. Parihar

Submitted by: Arjita Grover

PGDM-09-035

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Dell Inc. is an American multinational information techno logy corporation based in RoundRock, Texas, United States, that develops, sells and supports computers and related products and

services. Bearing the name of its founder, Michael Dell, the company is one o f the largest

technological corporations in the world, employing more than 96,000 people worldwide. Dell is the third largest PC maker in the world. It is listed at #38 on the Fortune 500 (2010). Fortune also lists Dell as the #5 most admired company in its industry. Dell has grown by both organic and inorganic means since its inception²notable mergers and acqu isitions including Alien ware

(2006) and Perot Systems (2009). The company is in the business of personal computers, servers, data storage devices, network switches, software, and computer peripherals. Dell also sells

HDTVs, cameras, printers, MP3 players and other electronics built by other manufacturers. The company is well known for its innovations in supply chain management and electronic

commerce.

Michael Dell¶s strategic choices and his effective way o f realizing them have played a

significant role in Dell¶s success story. The key element of his successful business model of the company is its supply chain management; hence, many theorists of Supply Chain Management have tried to investigate Dells SC strategies, and several companies have attempted to ³copy´ Dell¶s business model, without success however. This fact shows the complexity of Dell¶s SC strategies and its unique way of putting them into practice. The core elements of Dell¶s business model are its direct sales model, usually referred as ³directmodel´, and t he build-to-order

strategy.

The direct model refers to the fact that Dell does not use the retails channel, but sells its PCs directly to customers through its website, Dell.com. This way the intermediary steps that may add time and cost are eliminated, and Dell is directly linked to its customers.

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In fact, Dell sells directly to all its customers, ³from home-PC users to the wo rld¶s largest corporations´. This way it creates a direct relationship with each individual customer, which turns out to be a great source of competitive advantage. As Michael Dell has stated, this direct relationship ³creates valuable information´ about the customer, thus Dell knows who the end users are, what they have bought from Dell and what their preferences are, a fact that allows Dell to offer add-on products and services, and stay, in general, closer to the customer. As Lawton et al suggest, this ³provides Dell with a wealth of marketing and product development information´

Distribution:

Dell entered the PC industry at a time when most companies sold through small, specialized, high-cost dealers which provided customers with support on both how to purchase and how to use computers. This high-cost channel was quickly obsolete and most PC suppliers switched to large, megastore retail chains (CompUSA, Computer City, etc.).

While the other suppliers were struggling with retail channel evo lution, Dell took radically different path by finding a means to sell products which normally required both significant customer assistance and local stocking without a dealer or distributor network. Dell created a new channel option by bringing new technology to traditional roles played by the distribution channel. Dell takes orders over the telephone, internet it allows purchasers to customize products to their own needs, it assembles products largely to order, and it achieves rapid delivery. The combination provides a high degree of customer service at a previously unattainable cost

structure. With this distribution changes a major element of its strategy, Dell grew to a profitable $7.8 billion business at the time when many larger computer companies were giving up on the PC market.

Dell shows how a company can meet most of the same end customer needs as its competitors through a radically different distribution approach. As enabling t echnologies (telephone communications, call centers, shipping logistics, etc.) evolve, more suppliers will supplant traditional sales and distribution approaches and, therefore, g ain competitive advantage.

However, simply copying a model which has worked once is not a guaranteed path to success. No other ³ mail order´ computer company has managed to match Dell¶s growth in sales and profits. Dell built a strong overall business model and established its po sition before others had a

chance to copy the model.

According to me dell can make shipment free for certain products since the co mpetitor is having this strategy. Dell can have physical shops in India and china since the direct sell through

internet is not up to the level in those regions

Dell use RFID in manufacturing and shipping which is helpful to check the status of the product. According to me

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Direct Sales Build-to-order Supplier Integration

Together these allow for maximum effectiveness with minimum cost.

Dell¶s organizational structure: The virtual company

Direct relationship with customer is strategic; rich information flows Outsource non-strategic functions

Information flows substitute for physical flows

Coordinate value network thru IT-enabled information processes Dell¶s Direct vs. Industry Indirect model

Dell¶s Direct vs. Industry Indirect model

Strengths of the direct model

 Most efficient method of distribution

 Extremely low inventories.

System integrators and resellers

Dell

Order managem ent _Custo mer relation s Operations and supply chain Compone nt Manufact urer Compon ent suppliers Third party HW and SW suppliers Distributors Logistics companie s Repair and support providers Custome r System integrators and resellers

Dell

Order managem ent _Custo mer relation s Operations and supply chain Compone nt Manufact urer Compon ent suppliers Third party HW and SW suppliers Distributors Logistics companie s Repair and support providers Custome r

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 R apid response to customer changes.

 Strong relationship with customers and suppliers.

Weaknesses of indirect model

 Time = money (rapid innovation by parts suppliers send value of newly built PCs

plummeting quickly).

 Have to discount old technology.

 R etailer sends unsold units back to manufacturer.

Results:

Direct vendor Dell has best performance. Dell has forced other vendors to go direct. Industry as a whole has improved performance.

Three golden rules at Dell :

`_{Disdain inventory'} `L_{isten to the customer'} `N_{ever sell indirect'}