1. Case Study DELL COMPUTERS

2. Dell Computers: A success story
The S&P index is a reference used by most investors in the US as a very good return on investment. It includes a mix of stocks of very good companies, such as P&G.

3. Michael Dell: Founder’s milestones:
1965 Born on Feb 23,
1983 Starts rebuilding PCs,
1984 Drops out of college,
1985 At 20, his company reaches 34 million,
1995 Becomes the youngest CEO ever to make the fortune 500,
1997 At 32 he has over 4 Billion in Dell’s stocks
Let participants read the slide. You can choose to mention that at 32 he just finished building a 25 Millions Dollars Home in Texas and is the richest man in the state.
Pretty impressive isn’t it. Besides a great match between opportunity and capability, what drove this tremendous success?

4. Evolution to a faster model:
1 Industry Model:
Supplier
Plant
Distribution
Channels
Customers
2 Dell’s direct model:
Supplier
Plant
Customers
3 Virtual Integration
Supplier Plant Customers

5. Fact: Dell Supply System
Hard Drive
Supplier
Dell’s
Factory
(Texas)
Orders
Customer
UPS
Lets take a closer look at this chart. They have co-located the supplier’s Hard Drive Warehouse “wall-to-wall” with their plant and they supply just in time.
The Hard Drive is one of the most expensive and delicate components. By streamlining the flow of this component, they reduced the number of “touches” to half from 30 to 15, increasing the reliability of this part by 20%
With a Supplier like Sony, who makes very reliable monitors, with defects under 1,000 per million, they feel confident to put the Dell logo on top of it and send it directly to customers. Less touches also = less damage...
They went directly to Sony and said: “Hey we are going to buy two or three million of this monitors every year. Why don’t we just pick them up as we need them?
It is UPS who picks them up (about 7,000 ever day) and while we’re sleeping, they match up the computes with the monitors and deliver them to the customer.
Ask: What do thing happen to the Sony Factory in Mexico after the change was implemented? What happen to their demand variability of this monitors as one “stop” in the supply system was eliminated?
Sony
Monitors
Factory
(Mexico)

6. 2. Focus on moving product Fast
Inventory Velocity is tracked closely
Real time information on demand
Communicate replenishment needs regularly, to some suppliers hourly
Fine - tune the sales forecast with major customers, individually.
Is a key measure for Performance Dell watches closely. It creates tension to work with suppliers to keep reducing inventory and increasing speed.
Dell produces to demand, asks over the phone / Internet what configuration each computer going to take and in the last step of the production line, a big “Server” loads the software tailored to every individual requirement.
Suppliers watch their inventories very closely, some do it more than once a day.
Forecasting are a critic sales skill. They teach their sales account managers to lead customers through a discussion of their future PC needs, asking them to designate which needs are certain and which are contingent. And when they’re contingent to some event, the salesperson will know what that even is so she can follow up.

7. 1. Virtual Integration (Flexibility)
Keys to Success
1. Virtual Integration (Flexibility)
2. Change the focus from how much inventory there is, to how fast it’s moving.(Responsiveness)
Review their two key strategies. Mention that even though the end result was clear in Michael Dell’s mind, he did not even dream about the additional benefits he was going to harvest by using this two combined strategies

8. c Focus on creating value for their customers.
1. Virtual Integration
a Use of technology to enable coordination across boundaries to achieve new levels of productivity
b Partners are treated as if they’re inside the company
c Focus on creating value for their customers.

9. Industry Average: 80 Days
Fact: Inventory
Dell Inventory: 11 Days
Industry Average: 80 Days
The typical case in the PC industry is a Factory building 10,000 PC’s a day, day in and day out. First the machines stack up in the warehouse, and then they stack up in the channel. And all of a sudden, the guy at the end of the chain hollers: “Whoa, hey, we’ve got to many of these. Everybody stop!”. And the order to stop flows back through the chain until it reaches every compounded supplier. It’s literally stop and start, because if you have a 90 days lag between the point of demand and the point of supply, you’re going to have a lot of inefficiency in the process.
And the more inventory and time you have, the more variability, and the more problems.
Dell substitute information for inventory and ship only when they have real demand from real end customers.

10. Fact: Speed to market
If Intel comes up with a 500 Mhtz MMX processor in Oct-1, Dell would deliver it to you 69 days sooner:
Dell = Oct-11
Anybody know what is the life cycle of a processor in the market?
(if no one answers, “I do not either, but its getting shorter and shorter. One year ago, the 200 MHz was the fastest money could buy. 6 months later you could get a 333 MHz, therefore 69 days means half the product “shelf life”.
Any guess of the impact of this speed to market on sales?
Industry Avg.. = Dec-20
11 Days
69 Days

11. Fact: Sales Growth
Looks like it did have an impact on sales… Comments, questions?
Pause for comments, questions, if not just contemplate the chart for 5-10 secs. and move on.

12. Dell Computers
Logistics strategy plays an important role in Dell Computer’s impressive financial performance.
Dell’s direct distribution eliminates as much as 2 months of warehouse and retail storage.
About 80% of the cost of a PC consists of components.
Component prices fall while on the shelves at 30% per year.
The consequences of logistics delays are overpriced products and possible obsolescence.
Direct sales also helps Dell in forecasting.
Remarkable story of how a company has thrived using these supply chain concepts: Dell
They are number two in sales but number one in profit
Stock price has gone up a thousand times in twenty years
A significant amount of cost is in the components that get assembled - but Dell only buys the products when they need it.
With falling prices you win if you buy them just as you need them, as close as actual consumption as you can.
Dont always see actual consumption if you rely on secondary retailers