Matching Dell - Strategic Management

Group 7                                  Section B                                    

Group Members

Ainnie Abbas- M072/14

Karthik B-M099/14

Kishu Keshav –M100/14

Manchala Pradeep Kumar –M101/14

Neha Verma - H025-14

Shailesh Singh-M123/14

Sharayu Pagare- H027-14

Seshank Puli –M121/14

2.  Why has Dell been so successful despite the low average profitability in the PC industry? Can you do a value chain analysis of Dell to outline its superior profitability?  Assume data after providing suitable justifications.  

The major points which are responsible for the success of Dell in a low profitability industry are:-

• Direct Selling Model:-

• The case mentions (Exhibit 11) that Dell sells 86.6% of its PC by the direct selling. While the industry average for Direct Selling of PC is 4.2%. Direct Selling model by-passed the usual channel of sales i.e the retail stores, distributors and resellers. The resellers usually marked up the hardware by 5-7%. In case of Dell, since company dealt directly with customers, it did not share its profits margins with the distributor network.
• Other competitors had to offer buy back unsold channel inventory and price protection to its resellers and distributors. The case mentions that manufacturers spent 2.5 cent per dollar of revenue on inventory buy back and price protection. Since, Dell was able to buy pass distribution channel it did not need to bear expenses of buy back and price protection.
• Dell was not involved in any market development activity for the channel players. As per the case, such activity cost another 2.5 cent per dollar.

• Operational Efficiency :-

• Dell was able to achieve operational efficiency by moving from assembly line to cell structure. This ensured higher efficiency and fewer defects.
• Just in time delivery of parts and co-location of warehouses and production facilities ensured substantial savings on inventory costs.
• Dell’s inventory turnover ratio has been increasing sharply(Figure1) , this shows that Dell was able to operate while constantly reduce inventory and increase sales.
• Few parts were shipped directly to customers and never passed through Dell's facilities.
• Dell has been able to run its operation while maintain the lowest capital expenditure with respect to other competitors.( Figure 2). Since it follows just in time delivery and held no finished goods inventory of standardized machines, it was able to operate without much capital expenditure in terms of warehouses.

[pic 1] Figure 1(Data from Exhibit 6, 12, 13, 14)