Dell Corporation

Case 7-5 Dell Computer Corporation

Dell is probably the most competitive US company one the international computer market. Dell dramatically changed the value chain in the computer industry by outsourcing the production of all components, eliminating all retailers and shipping all orders directly to the end customers. Dell used internet and phones to customize the production and developed an integrated supply chain that linked the suppliers and customers. This gave Dell a technology advantage because of the fast developing components only stayed in dell inventories for about seven days. The same figure at IBM or Compaq was 60-90 days. Dell also could derive a cost advantage in components, inventory, working capital and marketing in the new supply chain model.

All strategies must be implemented to create the potential profitability. At Dell this was done by a new developed and very modern management control system. All profit centers all over the world were evaluated in the same way and with a Balanced Scorecard. Dell was actually one the first US company to implement the BSC.

Financial measures: ROIC, gross margin, selling price, component cost, GM&A cost and selling cost.

Nonfinancial measures: Inventory level, account payables & receivable, asset turnover, stock, cycle and lead time, forecast accuracy, customer satisfaction, time to market.

The value chain model and balanced scorecard gave Dell mangers a superior ability to forecast the market demand and to plan the production and deliveries. They had real time information on strategic important issues both on the supplier and customer market. They also had build up close and reliable relations in the direct channels to these actors. IBM and other US competitors found it very difficult to imitate Dells management system.

"Our competitors are prisoners of their history.They are stuck with their dealers"

(Michael Dell)