Distribution channel management
CHAPTER 1: Introduction
This chapter will introduce the topic, specify the key aim and objectives of the dissertation, discuss the research approach and state the dissertation outline. The key aim of this chapter is to establish the foundation for the research topic by giving out basic information.
The research is about study of distribution channel management at Dell Computers, UK. The dissertation is more practical in nature, studying the Distribution Channels of Dell, both at a strategic and an operational level. I would be analysing the business function on its efficiency and effectiveness, comparing with the other industry performers. I would mostly be comparing the function against Sony Electronics, the most respected name in multi-channel distribution network; Acer, pioneer of value computing products and proprietary brands like Advent.
Dell Inc. is a multibillion dollar, multinational technology firm that manufactures, develops, sells and supports personal computing and computer related products. Dell has seen a rapid growth to become one of the top three vendors in the PC manufacturing industry, and has seen a substantial increase in share price and market value.
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While many other companies were unable to handle the demands of the competition, Dell has proved successful in such an environment.
The main key to success to Dell has been its two innovative practices that is direct sales and build-to-order business model. This model is simple as a concept but highly complex to execute, especially in the present conditions of rapid growth and change. Dell has continually renewed and extended its business model while striking a balance between control and edibility.
Dell made changes in its design, manufacturing, procurement, and logistics processes to reduce the costs, and to speed up the entire distribution system. It has expanded into International markets and it started making notebook and server product lines which has led to extraordinary profits for dell, and has given a great market value for the company. Dell has reached sales of $18.2 billion by the year 1998, with a profit of $1.46 billion, and Dell's market share in the PC market grew from 3% in 1995 to 9.2% in the year 1999 with stock price increasing by 40 times. Dell's market capitalization has reached $100 billion.
Research aim and Questions
The primary purpose of my research work is to analyse the role distribution channels play in the functioning of a business, both in the long run and in the short run. My study is to present a detailed description of the unique distribution channel adopted by Dell Inc., analyse its efficiency and effectiveness, identify possible loopholes and put forth recommendations for development.
My study is being undertaken with an aim to answer the following research questions:
- How are the various distribution channels organised within Dell Inc.?
- How does it compare with its competitors?
- How effective and efficient is this channel management at Dell?
- What can be done to make it better?
The four research questions are the guiding blocks of my entire research and all of the work would be done, keeping them in view.
Distribution Channels within Dell:
I would be looking at Dell's innovative distribution channel management which has literally revolutionised the importance of Direct Marketing in the consumer electronics space. Direct marketing is still the primary distribution mechanism within Dell. I would be documenting the evolution of this concept within Dell right from its customized sales regime during PC's Limited to the complex and sophisticated systems that it employs currently. I would be presenting a visual of the entire distribution network that it stands at today.
Comparison with its competitors:
I would be comparing the dynamic distribution systems of its arch rivals. Sony, Acer, Advent and HP - Compaq are the brands that I would be concentrating upon. I would be looking at the strategies adopted in different economies, though my primary concentration would be on the English markets.
Efficiency and Effectiveness:
I would be conducting an efficiency and effectiveness test of Dell's powerful distribution network against its competitors. This would be an empirical study. I would be concentrating on the parameters of Customer Satisfaction and Vendor relationship management.
Finally, I would be putting forth recommendations for future developments along with the cost benefit analysis of such implementations.
The study is conducted by collecting secondary data and primary data. Secondary data is collected from books, journals, government websites, company documents whereas primary data is collected by means of survey questionnaire distributed among channel partners and the end customers. Participants of research would be intermediaries in the distribution network and the end customer. In order to select the participants the study has made use of stratified random sampling method in order to make sure that major demographic segments are represented while selecting the samples (Rao & Skinner, 1996).
Questionnaire design consists of two parts. The first part contained the demographic information while the second part dwelled on each of the subjects perception on each variable using five point likert scales from 1 ("Strongly Agree") to 5("Strongly Disagree").
The study did not require any assistance from a third party or any other institution. In order to collect data the study made use of web portal survey to distribute survey and get responses. The system was designed in such a way that the respondent have to submit all the answers. Out of 60 questionnaires, responses for 50 surveys were obtained. The duration for the survey was kept as two weeks, a reminder mail was being sent to the respondents at the end of week one to remind them.
Importance of the study
This essay is an example of a student's work
Organizations have been undergoing strategic changes over the past decade. More so in the past couple of years. The current recession has proved that risk management and strategic planning are most vital for an organization's long lasting and self-sustaining performance. My work will strive to highlight one such areas of strategic thinking and inform the senior management about the benefits involved.
My work would primarily be concentrated on the UK market. Though Dell is a global corporation with intermediaries present across the globe, all working towards forming an effective value chain to maximize business potential and ensure efficiency in operations; UK being the second biggest market after the US will be a general approximation of the entire organizational behaviour. Furthermore, the cosmopolitan nature of London and demographic diversity ensures that it would be a close estimate of the general population.
Limitation of Research
I intend to undertake my research as comprehensively as possible. As in any research work, inherent are some unavoidable drawbacks in my study. Few of them are:
- Financial and Time Constraints: As outlined before, the scope of my work is limited to the English market. Financial and time constraints of my semester mean that I'm not able to conduct a global research that would be more apt in this case.
- Personal bias. Most of my work is conducted through a personal observation method; as such it is prone to my personal bias. However as the person who is to do the entire research right from formulation of research questions to recommending solutions, I would be most qualified to comment on the topic.
- Information Constraints. Distribution channel model is a sensitive piece of company information. Though I have secured access to Dell, wherein I could do all the data mining myself, the extent of information that I would be able to muster about the rivals' model is still to be seen.
The structure of the dissertation is as follows
Chapter 1: Chapter 1 encompass introduction to the topic, followed by brief background into the research topic. This beginning chapter also lays bare aims and objectives of the research followed by structure of the thesis. Apart from that this chapter also gives information on the research approach adopted and the limitations of the research.
Chapter 2: The literature review section of the dissertation explores the definition of distribution, channel, and distribution channel and distribution channel management. Apart from that the section also examines the activities and the levels of distribution channel. The latter half of the section focuses on the distribution strategy adopted by Dell, Sony and Acer. The final section compares the distribution strategy by all the three players.
Chapter 3: The thesis then moves on to methodology section wherein the research model, research framework and data collection methodology is discussed. Questionnaire method is used to collect the necessary data from the consumer.
Chapter 4: This chapter explores data findings
Chapter 5: This chapter presents the conclusion.
Chapter 6: This includes references using Harvard referencing style
Chapter 7: This includes the Appendix
The chapter introduced the topic of the dissertation, specified the key aims and objectives of the research. Discussed the research approach in form of secondary and primary data collection through the means of questionnaire and clearly stated the limitations of the research in brief. The chapter also outlines the research structure specifying the contents of each chapter.
Chapter 2: Literature Review
During my research, I would primarily be looking towards the concepts of Distribution Channel and its management. I would be guided by the various contributions in the field, though my work would primarily be influenced by the theories and suggestions of Philip Kotler in the area. A Professor of Business Studies at the Kellogg's Business School, Kotler is often regarded as the 'Father of Modern Marketing'. My work also coincides with various other management thinking like Consumer Behaviour, Relationship Management, Marketing Mix and Optimization, among others.
Kotler (1996) states that distribution is a key element in the marketing mix (place amongst the 4P's). It is the systems and practices in use which make a product or service available to the consumer of such a product or service.
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Channel is defined as "a set of interdependent organizations involved in the process of making a product or service available for consumption or use" (Gorchels, West, & Marien, 2004). It can also encompass physical movement, warehousing, ownership of the product, presale transaction, post-sale activities; order processing, credit and collections; and other different types of support activities (Gorchels, West, & Marien, 2004).
The Distribution Channel is the chain of intermediaries, each of them passing on the product or service to another intermediary until it reaches the consumer.
The business dictionary defines it as
"The route by which a product or service is moved from a producer or supplier to customers. A distribution channel usually consists of a chain of intermediaries, including wholesalers, retailers, and distributors, that is designed to transport goods from the point of production to the point of consumption in the most efficient way" (Dictionary, 2010)
Another definition of Distribution channel states
"A group of independent and interdependent organizations involved in the sale and movement of goods and services to the end users may be called a distribution channel or network" (Gorchels, West, & Marien, 2004).
More specifically, a distribution channel is:
- The transfer of goods from manufacturer to the end user.
- Route of a company for distributing the goods.
- The process of moving goods from the manufacturer to the consumer.
- A supply chain consisting of all parties in between production to the end user.
Types of channel members
The activities in the distribution channel can be carried out by the marketer himself or it can be carried out by specialist organizations. The specialist organizations and the channel members can be categorized into two types.
- Specialty Service Firms.
Resellers are the companies which usually buy and take the ownership of the products from the manufacturer with the intention of selling to end consumers. An organization can have one or more than one reseller in the chain. The network or chain of resellers is known as reseller network. The resellers can be further classified into:
Retailers: A retailer sells the product directly to the end customer.
Wholesalers: Wholesalers buy the products from manufacturer or other wholesalers and then they sell the products to the retailers.
Industrial Distributors: They are the ones who sell products from one business to other, they are suppliers who buy the goods and sell it to another firm.
Specialty service firms are organizations that do not take the ownership of the products. They also provide additional services along with the products. Specialty firms can be:
Agents and brokers: They are the firms which bring together the suppliers and buyers and mediate the sale and they charge a fee for this kind of service.
Distribution service firms: They provide services which help with the movement of goods in the distribution channels like transportation, processing and storage of goods and products.
Others: They are the firms which provide other services to the channels in distribution like insurance, routing assistance etc.
The distribution channels consist of many parties among which each of them is trying to meet their objectives. Relationships between channel members should be strong with each other's especially on which they are depending for the further distribution of product.
The arrangement of the distribution channels can be classified into two types:
- Independent channel arrangements.
- Dependent channel arrangements.
Independent channel arrangements:
In this type of arrangement the channel members negotiate deals with others which do not result in the binding of the relationships. Channel members are free to make arrangements which they feel is in their own and best interest. An individual member decides what is best for them and not the entire channel.
This is also called conventional distribution arrangement and often significant conflict as each member decides what is best for him and not in concern with the entire channel
There are four levels of distribution channels. Channel 1 is called the direct marketing channel which is the distribution of products or services from the manufacturer to the customer. The best example for this channel is Dell which does not makes use of any intermediaries to distribute its products to end customers; there are no retailers, agents or wholesalers. The channel does not have any intermediaries. This type of channel helps to eradicate the excess cost and also helps to have good control over the quality and marketing.
The other three channels fall in the category of "indirect marketing channels".
The second channel has one intermediary, if the market is a consumer market the one intermediary is basically a retailer. Electronic consumer goods market of UK is an example of second type of channel arrangement. In this type of distribution arrangement the companies sell good to large retail chains, example would be Sony, Canon, and HP selling their electronic goods to large retail chains such as Dixons. These retailers in return sell the goods to the end customer.
The role of the wholesale in this channel is to buy the products at bulk from the manufacturer and then sell the same to retailer in smaller quantities. This model works best for retailers on small scale and not for big chains such as Dixons. This type of distribution channel is best when there are large number of small retailers and not big companies. Example in this case would be the medical drugs distribution market in the UK.
The fourth channel has added level to it in the form of agents who work as intermediary between manufacturer and wholesaler. The agent acts as representative for both the sides. This works in textile market.
A direct distribution channel is where a company sells their products direct to consumers. While direct channels were not popular many years ago, the Internet has greatly increased the use of direct channels. Additionally, companies needing to cut costs may use direct channels to avoid middlemen mark-ups on their products. Distributors, wholesalers and retailers are the primary indirect channels a company may use when selling their products in the marketplace. Companies choose the indirect channel best suited for their product to obtain the best market share; it also allows them to focus on producing their goods. Though, in practicality, a number of other players exist, they can be generalised to the above. The specific channel of distribution adopted by a company depends, to a major extent, on its business model, the industry type and the scale of its operations. As an Instance, Sony has its own set of company operated exclusive showrooms. The strong brand equity of Sony, the scale of its business and clearly identifiable product differentiations that it enjoys with the consumers, allow it to leverage on its economies of scale and scope by operating its own outlets. Directly, this result in better margins for the company and indirectly it helps building on its already demanding brand leadership. Dell, on the other hand, relies more on online sales. This is because of the organization of its service delivery utility. Dell's business model is based upon its centralised manufacturing facilities, rather than the nuclear organization at Sony. Online sales suits such a strategy by negating the high costs of transportation and inventory planning issues involved. A manufacturer selling a physical product might require three channels: Sales Channel, Delivery Channel, and Service Channel. In Our case, Dell uses telephone and internet as sales channels, express mail services as the delivery channel and local repair people as its service channel.
Distribution Channel Activities
Distribution includes different range of activities (Richard Gay, 2007)
- Linking many suppliers to provide wide range of consumer choice
- Assist the exchange process - identify the needs of the buyer in the context of product categories, quantities, range etc. and devise manufacturing, inventory and packaging schedules to fit.
- Marketing information: This encompass collection, distribution and analysing marketing research information such as the past sales data about the players within the organizations marketing environment.
- Promotional activities- This involves setting of promotional objectives and activating the various elements of the marketing communications mix and measuring their effectiveness, this will encompass identify and communicate with prospects.
- Pricing: Deciding on the sales terms and conditions at each stage of the value chain
- Risk management - This includes analysis and resource sourcing required for involvement in the channel , the degree of control and influence and the potential benefits such as revenue and profit generation.
- Physical Distribution Management - It includes the transportation all aspects of warehousing management and information flows.
Other Activities that may be part of the distribution channels are as follows:
- Order Generation.
- Handling of Goods.
- Shipping of Goods.
- Storage of Goods.
- Display of Goods.
- Promotion of Goods.
Distribution Channel Management
Distribution Channel Management is all about getting the product or service to the right people at the right time under the constraints of profits, efficiency and effectiveness. Successful marketing does not end when a business has developed a product or service and has found its appropriate target audience with a view to selling it at the 'right price'. The next issue that needs to be faced is how they are going to distribute and sell this product/service to these people- the consumers. When a product/service is purchased by a consumer, it may have been bought directly from the business, or it may have been through a number of intermediaries (wholesaler, retailer, etc.): these are known as distribution channels. Small businesses need to acknowledge the different types of distribution channels to utilize sales potential.
Distribution channel management involves a lot of channel decisions, strategic alternatives and numerous linking concepts, all of which would be explored in my research paper.
Distribution channel management involves a lot of channel decisions, strategic alternatives and numerous linking concepts.
The PC industry is driven by rapid technological improvements in components, particularly microprocessors, other semiconductors, and storage devices. The improved performance of hardware has been matched historically by increased complexity of software, creating demand for the latest hardware.
This means that time is a critical competitive factor in the industry in two ways:
- Firstly, excess inventory loses value (at an estimated 10% per month ;) and costs money;
- Secondly, products incorporating the most advanced technologies are in high demand and carry a price premium.
As a result, companies that minimize inventory and bring new products to market faster can reduce costs, increase market share, and maintain higher margins. Two factors come into play in determining the ability of PC companies to manage inventory and introduce new products. First is the standardized, modular nature of the PC. PCs are built from standard components, using common architectural interfaces determined largely by Intel, Microsoft, and, earlier, IBM. PC makers also can outsource much of their production and purchase components from a well-established production network of contract manufacturers and components suppliers. This makes it quite easy for PC companies to introduce new PCs with the most advanced technologies. By the 1990s, PC makers could no longer gain much of an edge by virtue of design and manufacturing, as everyone had access to the same technical information and supply base. The difference among PC companies was determined increasingly by the second factor-the structure of distribution.
The traditional distribution system of the PC industry is an indirect model often referred to as "the channel". The PC maker sells its products to distributors, who buy products from many manufacturers and then sell them to a variety of retailers, resellers, system integrators, and others, who sell products and services to the final customer. This distribution system was an effective means for distributing high volumes of PCs with a variety of configurations to reach a broad customer base. However, it had inherent weaknesses that left it vulnerable in a time-based competitive environment.
First was its reliance on market forecasting to drive production. Even the most successful PC makers, such as IBM, Apple, and Compaq, were chronically bedevilled by their inability to accurately forecast demand in a market driven by ever shorter product cycles. They were either caught with short supplies of hot products, causing them to lose sales to competitors, or stuck with excess inventories of slow sellers, which clogged the distribution channels and often had to be sold at a loss to move them out. Even with the best forecasting, the indirect model was plagued by the need to hold inventory at each step.
In the early 1990s, it was common for PC makers to have up to 90 days of inventory on hand and in the channel. The high inventory costs and lack of responsiveness of the indirect channel meant that there was an opportunity for someone who could a way to circumvent the channel.
The company that seized this opportunity was Dell, which pioneered a new business model based on selling PCs directly to the final customer, and building the PC only when an order was received Selling directly removes two links in the supply chain where inventory could build up and also enables Dell to know its final customers, provide better service to them, and promote repeat or expanded sales to them.
Build-to-order production allows Dell to introduce new technologies as soon as customers want them and makes it possible to adjust production to demand very quickly. It also means that Dell does not purchase components and assemble PCs until it has received payment from the customer, giving the company a negative cash conversion cycle in which it receives payment from customers before it must pay suppliers.
The current environment for the computer hardware industry is shaped by several macro forces. Primarily, Dell and its competitors are influenced by economic, demographic, technological and national forces. Government, social, physical and national forces peripherally affect the computer hardware industry to varying degrees. The commoditization of the personal computer-a vital tool for business and consumer. Customers- are a key driver for the economics of this industry. Corporate spending accounts for 80% of all technology spending, and economic conditions decreasing business capital expenditures has a negative and direct impact on the computer hardware industry. While this industry is mature in the U.S., leading to decreased growth expectations, computer spending by other countries around the world will likely fill this void.
Pricing in the computer manufacturing industry is extremely competitive. IT reflects the rapid pace of technological change and decreasing PC costs. Since 2000, the prices of chips and disk drives declined and the standardization of primary components of PCs led to a decline in PC prices. Direct sellers, including Dell, have traditionally been able to under-price indirect sellers in the industry including Compaq and HP. However, most PC vendors now offer a desktop model for less than $500 and a laptop for $700. Key success factors for companies in this industry continue to evolve as the industry matures. Specifically, they include:
- Competitive prices
- Superior relationships with suppliers
- Product customization for business and consumer customers
- Quality customer service
- Excellent cost structure
Some of the channels issues that the companies face are as follows
- Product related issues
- Promotions related issue
- Pricing related issues
- Target market related issue
Product related issues:
The nature and type of the product decides the distribution option that should be chosen for the product. A few products require special handling. Ex. Flowers, Fragile goods etc.
Promotion related issues:
The type of promotions that are required to sell the products to the customers also decides the distribution options; there are products which require an extensive contact of the sales person with the customer like automobiles etc. and there are products which require no sales assistance from the sales person like milk etc.
The price at which the marketer desires to sell their product also decides the distribution option for the channel if a product is prices really less it cannot have many members in the distribution channel as each one of them looks at making their own profit in the channel.
Target market issues:
The distribution channel is successful only if the product can reach the right customer. Choosing a distribution channel is the path to reach the target customer. A key decision in setting of a channel arrangement is for the marketer to choose the approach to reach his target customer in the best possible manner.
Dell Inc. is a multibillion dollar, multinational technology firm that manufactures, develops, sells and supports personal computing and computer related products. Based out of Texas, it employs over 75,000 people globally and is amongst the biggest players in the personal computing space. With revenues crossing 60 billion dollars in 2009, it is a Fortune 500 listing. Dell is a brainchild of Michael Dell, when he was a student at the University of Texas. PC's limited was started by him with a meagre capital of $1,000. The company produced its first computer in 1985, the "Turbo PC" sold for $1,000. Powered by an Intel 8088 compatible processor running at 8 MHz, it was the start of the most successful story in the modern computing space. Pc's Limited offered these machines in a variety of specifications, customised to each order amongst a pre-defined choice sets. Though not the first company to use this model, it was the pioneer to succeed using it. In its first year of trading, the company grossed over $ 70 million.
In 1988, the company was renamed as "Dell Computer Corporation". In 1987, the company expand overseas with a fully functional service and assembly centre in Ireland. Within the next few months, the count reached eleven. In June 1998, Dell became public with a 50 million dollar Initial Public Offering, one of the biggest in its times. In 1990, Dell test marketed a multi-channel retail distribution strategy with little success and was forced to return back to its direct marketing channel. In 1992, Dell featured in the Fortune 500 list for the first time. In 1992, it started on line sales, by offering its products, initially through its own website and later on through various partners and compare websites. In 2002, Dell expanded its product line by foraying into the consumer electronics segment. It also started manufacturing computer accessories with the launch of the dell branded home and office printers. In 2003, the company was named "Dell Inc." so as to parallel its brand name with the variety of product offerings that it started. In 2005, Dell saw its international sales exceeding its domestic ones for the first name. The company was now a truly global performer, featuring in the top 5 power brands, both in the emerging markets as well as the developed economies (Dell Inc., 2006).
Dell Corporation's organizational structure is a functional, decentralized structure. The company encourages different departments and functional components to contribute ideas to enhance the strength of the organization. The hierarchical structure provides defines the various functions provided by Dell Corporation, including Business Development, Education, and Global. A decentralized structure provides more learning availability for all members of the enterprise, as decisions come from various levels; in contrast, the centralized structure has more of the decision-making coming from the upper levels of the enterprise, such as the CEO and Vice Presidents. In the divisional organization, every division has its own groups to support that specific division (such as purchasing units and human resources units).
Dell is a completely customer centric organization and its business has been built for a direct sale of the products to the customers. They follow the concept of build-to-order strategy for manufacturing and selling PCs. Dell originally sold PCs to individual PC users, by the end of 1980s; it made its way into the corporate market. Dell's direct approach didn't need the various services provided from resellers. Dell concentrated on its efforts on working closely with those departments to simplify their lives and lower the price of PCs to the end customer.
Dell developed a sales force to deal directly with the top executives of companies, and it penetrated into the corporate accounts that had long been dominated by vendors such as IBM, HP and DEC.
Dell has glued to its inherent model of build-to-order business model to increase their profit margins. A main advantage of this build-to-order production is that quite expensive inventory does not pile up and lose its value before it can be sold. The inventory turnover rate of Dell of 60 times per year compared to that of indirect vendors which is 12-15 times more.
Customers often pay for the product before the sale as it is built to order and Dell pays its suppliers for the parts that go into the PC after the customer pays them, which shows that Dell operates on negative conversion cycle.
One of the most important benefits that Dell gains are the customer relationship which is the key area for many businesses. Unlike many manufacturers who do not know who is their end customer is Dell knows its end customer and how much he is spending with the company and feedback the customer gives after the usage of the product.
Dell uses the feedback of the customer to offer add-on and keep-on products and services.
Dell provides system maintenance and customer support services to the customer to help the customer plan PC replacement and to upgrade themselves with the latest technologies.
Dell calls itself a "PC outsourcer" as it takes the responsibility for managing customer's PC inventory, from purchase to disposal. Its manufacturing operations and systems are set up to support their business model which is building PCs to a customer's requirements which includes pre-loading software and making a hard drive "image" of it in the factory, and providing an asset tag that can be scanned to compare to that of the PC throughout its lifecycle.
The build-to-order process is being practiced for years, and involves the entire production process and supply chain. A Dell PC is designed to minimize manual activities in production.
Suppliers are selected with an assurance of high quality material, suppliers are also integrated into production process and system, and the entire production is managed by the combination of all information systems which are internal as well as external.
Distribution Channel at Dell
When Dell started it took a different path than the other suppliers in the retail channel. Dell found a means to sell its products without keeping a large number of inventory, dealer or distributor network. A new channel was invented by bringing in new technology to traditional roles played by the distribution channel. Dell took the orders over the phone and gave the option to the customer to customize their system to suit their own needs and requirements; Dell assembles the products which are made to order and delivers them quickly which ensures high amount of customer service and unachievable cost structure. Because of this Dell grew to $7.8 billion business when large corporations in the field of computers were thinking on quitting the personal computers market (Achieving Competitive Advantage Through Sales and Distribution Strategy, 1997).
The distribution approach of dell is very different. It assembles different technological means such as telephone communications; internet, and call centres, local shipping logistics to gain competitive advantage over other and at the same time provide satisfactory service and products to the customer (Achieving Competitive Advantage Through Sales and Distribution Strategy, 1997). The figure below shows the distribution channel adopted by Dell which is direct distribution channel.
Unlike its competitors Dell discards the services of middle man and hence is able to have holistic control over the quality of the products, customer service, cost and the efficiency over the lead times. The company understands the diversity of each of its market segments in terms of costs, investment levels, support costs, margins and growth. The company does not have to bear any wholesaler or retailer cost, so it saves on that front. It avoids the costs which are associated with the traditional distribution channel by providing tailored needs and services for each of its market segment.
Building to order means the company does not have to pay or worry about the shelf space on the retail counters; the company works on the model of producing the system after receiving a request from the customer with turnaround of eight days of inventory. The customers make the entire payment before the company sought the parts from its suppliers. The company does not have to pay to its suppliers for approximately 30 days. This is quiet useful in technological field which keep changing at a rapid pace. The company reduces the cost and the risk related to the new technological advancement and the products becoming out dated, because of this reason the company is able to product up to date technologically advanced products to its customers.
Bob Barr, Dell's director of product management for e-business states there are four important factors which are responsible for the success of Dell model, they are Dell's "most efficient path to the customer" means direct sales, whether through the Internet, sales teams or online - but not through channel partners. A "single point of accountability" helps quality control and gives customers a sense of reliability. "Industry standard technology" is cheap and commoditized, and "low cost leadership" keeps overhead down.
Selling through Internet
With the growing use of Internet and e-commerce in 1994, Dell started its online shopping as it withdrew from the retail market in the US. It believed that electronic selling will provide a new opportunity for their growth in sales and it would help them to restore their growth.
In the year 1995, after the Internet the buying and selling through the internet had started, Dell has created its own website www.dell.com to provide information and assistance to its customers in technical support and product related information. The web site also contained the company's information such its annual reports, stock price, and other statistical data.
The suppliers for hard drives for Dell are those which are same for the others in the same group such as Intel, Seagate, Quantum, Maxtor, Philips, Nokia, Samsung, Acer etc.
The notebook range of systems of Dell of the lower end models are manufactured completely by mainly Quanta and Arima which are suppliers from Taiwan. The base units of higher-end notebooks are manufactured by Dell.
Dell completely relies on Intel for microprocessors which is a smart decision and which will make the task of product development easy for them.
More than 70% of procurement is done from the Asia pacific region though the manufacturing is concentrated completely in the US.
Dell has redesigned its computers so that same components can be utilized for different models, which in turn helps in the reduction of number of parts in inventory, its cost, economies of scale, and the process of managing their procurement.
From the years 1992 to 1997, the suppliers for dell were reduced by more than 75%. The suppliers who produced more than 85% of their material were also reduced.
Dell has a multiyear planning negotiating and supplying with its suppliers by reducing the complexity of procurement and inventory management.
External Relationships: From Value Chain to Value Web
Dell's core part of the business is based on the value chain. Like other PC manufacturers it does not focus on designing and selling the models and by relying on others to provide components software and parts for its models.
Dell sells its products directly to the end users by cutting out the distributor and reseller.
A big part of its components are manufactured by other manufacturers and suppliers and are shipped directly to the customers. In terms of designing manufacturing and delivering PCs Dell works in a different way than the others.
Because of its unique way of operating and selling PCs, it has changed the general value chain with a new model which can be called as a value web or a virtual corporation.
Indirect value chain
Co-ordination and control of the value network is completely in control of the company, which creates a direct relationship with the end user.
Customer feedback can be taken easily.
The necessary information can be passed on to suppliers who actually manufacture the components.
The value web model illustrates how Dell's distribution model can respond immediately to customer feedback. As all the traditional mediators are removed from the system the gestation period of customer order to receiving the product is reduced substantially.
The large chains of retailers and distributors merchants in the US which represents a large chain of marketing and sales channel. Dell has a relatively large chain even in the UK and Europe. Dell Inc. Corporation has more than 100 international distributors.
Dell uses online market for its sales. It uses the e marketing practices and procedures to sell its products and conducts many online campaigns. It builds its awareness for is brand through mass advertising and by maintaining good customer relations.
Dell conducts market research to receive feedback through its customers and uses this feedback to refine its products and develop new products.
E-commerce is used to increase its sales over the internet and to increase customer satisfaction.
Dell Inc. direct to customer model solves the problem to spend the cost on capital for business development, marketing and sales.
By selling directly to the end customer it eliminates the retailers along the way.
Dell is continuously in customer relationship with its customers which gives them 2 main advantages sales and marketing is made very easy, they can easily sense the changing trends in the market.
Dell gains competitive advantage through its technology which is one of its major strengths.
Dell follows a "transformational leadership style," Michael Dell applies this style of leadership which involves inspiring employees and increases their efficiency and effectiveness.
Dell convinces its subordinates to make important and positive changes in business operations and management believes in values that go beyond its changes and achieving ways to perform better and it uses IT as a factor for successful business operation.
Dell will make sure to value the voice of their customers and business partners as if they are integrated with the company and by using the customer feedback for analysing and forecasting customer demand and achieving the mass customization.
Dell expects that their success would be consistent and stable and they wish that other companies would implement such leadership models and believe that Information Technology would play a vital role in the growth of the business.
Communication is an important aspect in Dell Corporation because it has a business environment and culture in which interactions are needed, and where much information is acquired.
Due to effective communication within Dell Corporation development of a healthy corporate culture, job satisfaction of employees, and the happiness and productivity of employees is also attained. It helps to manage the company more effectively.
Kanban Process is defined as "a technique for work and inventory release, is a major component of Just in Time and Lean Manufacturing philosophy" (Fujitsu, 2002). The concept was originally developed at Toyota in 1950; it is an efficient factory production system. The Kanban process also demands huge amount of trust between the company and its supplier.
The company works closely with its suppliers and customers. The company makes use of Internet to integrate its customers and suppliers to its manufacturing and logistic function which is based on Just in time management model. The company relies on its robust organization to get the supplies and components when and where required. Any alternative components are acquired through the time of the production process by making use of the 'Kanban' System. The suppliers of Dell deliver parts when they receive the request or an empty transportation giving request for refill. Apart from the company also makes use of 'integrated Kanban' process to be more efficient, the integrated Kanban process is divided into two parts. The first part is the transport Kanban and the other is the production Kanban and the key difference between both of them is the schedule, the transport Kanban works on every day basis where components are manufactured by the suppliers based on the specific order for that particular day. Because of made to order system at times it can be challenging for Dell to identify or forecast the components which would be required which justify the use of Kanban process. The production Kanban gives details about the completion of the production by a specific unit or workstation, depending on which the suppliers are able to find out the time when the assembly line would need their product. The process is based on the production schedules that are fixed and autonomous in nature which helps in successful and effective logistic process. The company makes use of information technology in the best possible manner to encourage trust and cultivate health relationship (Internal Reports).
Distribution Channel Management - Competitor Analysis
Sony Corporation is a multinational organization with base in Tokyo, Japan. The company is one of the world's largest media company reporting revenue worth US$88.7 billion in 2008. The company deals in various kinds of products such as video games, cameras, personal computers, laptops, camera, information technology products and other consumer electronics. It also caters to the professional markets. The company is engaged in the electronic business through its five key segments which is the electronics, gaming, entertainment, financial services and others. These segments together make the brand Song as one of the most comprehensive entertainment company globally. The child companies encompass Sony Pictures Entertainment, Sony Computer Entertainment, Sony BMG Music Entertainment, Sony Ericsson (mobile segment) and Sony financial Holdings. The company is also ranked among the top 20 semiconductor sales leader around the world (Inc, 2010).
In the computer and peripheral segment the company combines form, function and the best technology to provide designer and efficient IT and computer products. The company provides wide range of laptops, Sony VAIO being the most popular among youngsters. In this segment the company caters to different demographics such as students, professional and home use. Some of the different products under this segment are business projectors, laptops and computers, computer accessories and memory sticks (Inc, 2010).
Sony makes use of retailers to distribute their products, places where the customer are most likely to buy them. The company uses one level distribution channels from manufacturer to retailer to customer. The company sells its good to big retail chains such as Dixon in UK, the chain then sells the products to the end customers. Apart from that the company also uses zero level channels and two level channels. The figure below shows the one level channel which is discussed above.
Sony in the recent article published in a UK channel commented that "As customers' needs are becoming increasingly diverse, we have decided to focus on our relationships with our specialist distribution to deliver the highest level of expertise and solutions to end users, their experience, reputation and geographical reach will provide a strong platform for Sony." The company intends to strengthen their position in the display market by merging their distribution network. Based on the need and requirement the company makes use of its distribution network. Midwich the UK's leading specialist distributor of commercial and consumer audio visual products and Imago the Video Communications specialist are to become the primary specialist distributors for Sony in the UK (Bicheno, 2008)
The company was founded in the year 1976 and today is regarded as one of the top give brands in the PC industry. In the year 2000 the company stopped its manufacturing operations to focus its resources on development of technological advanced user friendly solutions. Acer has been able to receive good results because of the specific marketing activities that best suit its distribution channels. The Company ranks fourth in the global PC market behind Dell, Hewlett-Packard and Lenovo, according to the latest figures from analyst Gartner. Acer ranks first in thirteen countries such as Italy, Spain, Austria, Holland, Switzerland, the Czech Republic, Russia, Portugal, Belgium, Denmark, Poland, Hungary and the Slovakian Republic. The product range of the company includes notebooks and Desktops, servers and storage systems, monitors, peripheral devices, digital devices, LCD TVs and e-business solutions for business, Government, Education and home users. The company employs 5,400 people throughout the world and has created a consolidated sales and service network in more than 100 countries. In 2004 the company reported revenues worth $7 billion (Inc A. , 2010).
The UK market changes its distribution strategy in 2006 by ending its relationship with one of the retail distribution partner Midwich in May. At present its current partners include Northamber, Micro-P, Ingram, VIP, Lynx, computer2000.co.uk etc. (Hailstone, 2006).
The distributor of the company in 2006 complained that the company made it mandatory for them to keep huge amount of stock , in response to this Levit explained: "The amount of stock we had at the beginning of the year was due to the fact that we had a great 'back to school' in 2005. Everyone in the industry then expected a good Christmas. However, the festive period was not that good, so at the beginning of January we had more stock than normal. This became an opportunity for our distributors and they sold it all" (Hailstone, 2006).
The company has stock cycle of 6 weeks which means that its vendors are required to keep the stock of PCS for six weeks. The company has also faced criticism in terms of service levels which is an integral part of the distribution channel.
"In the UK, service is a key factor. Unfortunately if you burn a reseller it is really hard to win them back. We need to change the perception of Acer's service and get the message out to resellers that Acer's service level has improved" (Hailstone, 2006). The company in 2006 had around four hundred certified resellers between its Acer point and Acer active channel programmes. The resellers are the companies partners with a shop front or demonstration facilities who are expected to make use of their display area of the shop with the products of the company. Acer active partners are b2b VARs that address the SME market who are required to £60,000 a year (Hailstone, 2006).
Levit said "We'd like to have another 100 partners by the end of the year split between Acer Point and Acer Executive, focusing on the SME and consumer markets, we are happy with the number of resellers that we have in the other areas." (Hailstone, 2006). The company also made a decision to add 100 resellers to its distribution portfolio between its Acer solution and Acer Executive programmes.
The literature review section of the dissertation explores the definition of distribution, channel, and distribution channel and distribution channel management. Apart from that the section also examines the activities and the levels of distribution channel. The latter half of the section focuses on the distribution strategy adopted by Dell, Sony and Acer. The final section compares the distribution strategy by all the three players. Dell adopts the direct distribution model whereas the two competitors makes use of indirect marketing model, in UK Sony uses the one level distribution channel whereas Acer too uses one level distribution channel.
CHAPTER 3: METHODOLOGY
Various theoretical and practical methods are implemented to get overall view about the research project. As a practical tool, Web based questionnaire were given to Channel partners and end customer. Various research techniques and its importance are discussed here in detail. This chapter also gives total explanation about the research method to be selected. It also describes in detail questionnaire design.
Different research approaches are available but there is no particular method to go about it. Here, it explains about the research method used for the dissertation to analyse distribution channel of Dell Inc., UK.
As justified by Fred Kerlinger for quantitative analysis, he said "there's no such thing as qualitative data, everything is either 1 or 0." Further, Denzin and Lincoln stated that "qualitative analysis is multi method in focus, involving an interpretive, naturalistic approach to its subject matter", (1994, p. 2). Further to clear and precisely explain, Kaplan and Maxwell (1994) said that "the goal of understanding a phenomenon from the point of view of the participants and its particular social and institutional context is largely lost when textual data are quantified".
According to me, both the methods have their own importance and significance. The method can be selected on the basis of the elements included in the analysis. To explain in detail the importance of each method along with few differences are narrated as below. Quantitative analysis is an inductive approach as it is based on assumption of elements whereas qualitative analysis is a deductive approach. In quantitative analysis the researcher is an observer where in qualitative approach the researcher is the part of the research.
Quantitative analysis emphasizes more on quantities. Numbers are used to indicate values and different levels of theoretical concepts. The numbers help in interpreting and providing facts for occurrence of the event. Statistical tools and packages are used in the quantitative positivist research. Quantitative positivist researches sometimes use archived data or judge through structured interviews. The researcher in qualitative analysis uses world for data interpretation shows different variances, which rely on observer and analyst for the event. Contrary to Fred Kerlinger, I believe that everything does not have to be either 1 or 0. I believe in the power of Qualitative analysis which is from a more social perspective.
Some researchers also combine one or more research methods in their study, which they coined as triangulation. Mingers (2001) argued "the real world is ontologically stratified and differentiated consisting of a plurality of structures that generate the events that occur and those that do not occur". Different paradigms each of which focuses their attention on different aspects of the situation which requires multi-method research to deal effectively with the full richness of the real world. In order to do justice I have chosen a mixture in terms of research approach. I will be making use of case study as well as the questionnaire for my research.
Orlikowski and Baroudi (1991), suggest three paradigms for qualitative research which are philosophically distinct research epistemologies: positivist, interpretive and critical. Positivists assume that the reality is objectively given and is a measurable property independent of the researcher. Positivists study helps in predictive understanding of the phenomena. Orlikowski and Baroudi (1991,p.5) classified Information System research as positivist if any trace of formal propositions, hypothesis testing, quantifiable measures of variables and drawing of inferences of a phenomenon from a sample to a stated population. Gorman and Clayton (2005) suggested a less positivist paradigm by stating that the qualitative approach "lies within the interpretivist paradigm, which focuses on social constructs that are complex and always evolving" as against the qualitative approach which is more of a positivist paradigm. The modus operandi or the method of research was selected from four available and known categories: Action Research, Case - study research, Ethnography and Grounded Theory. I chose the Case - study research as the preferred method since the research is about the distribution channel of one organization, "the quintessential characteristic of case studies is that they strive towards a holistic understanding of cultural systems of action" (Feagin, Orum, & & Sjoberg, 1991)
Yin ( 2003) who is more of a positivist and incorporates the case study approach towards qualitative analysis states that the case study should be "significant, must be complete, must consider alternative perspectives, must display sufficient evidence, must be composed in an engaging manner." I believe this is more of an idealistic statement which could be a rare possibility in terms of occurrence in research where quite a few unknowns are evident .However we could take it as a model and work our best to get as close as possible to the targeted value. Walsham (1993) unlike Yin (2003) advocates interpretive in-depth analysis however in the same framework of Case study research. Due to the ever volatile and dynamic constraints of our research - the analysis of interaction of the organization with clients and objectification of identity, it was impractical to rely on accuracy of numerical interpretations ( which is why we chose the qualitative approach in the first place) and as a consequence we chose to follow an interpretive in-depth Case - study analysis.
Now we delve further into the realms of our model to explore the directives we can exercise further to make a more subjective study. Case studies are categorized as being single or multiple case designs. Till this point the research equipped me with ample information to make an assessment of the path to be followed in the context of the project. However in deciding the case design to be followed there were a few anomalies which required insight as well as judicial evaluation on my part. The subject of my discomfort was to decide whether to take single or multiple case designs for the project and more importantly how many cases to be considered if multiple shall be the selection. The dilemma between single and multiple did not take long to evaporate since I had some able judgment from my peers and documented proof of the validity of each. It is a known fact that multiple case designs incorporate more of replication rather than sampling logic. When there is non-availability of cases for replication then the researcher is left with single case design. Yin (2003) made an inference that "generalization of results, from either single or multiple designs, is made to theory and not to population". Multiple cases strengthen the results by replication of pattern making and increases confidence in the theory.
The more construed factor of choosing the number of cases to be considered while performing the research is where I found myself left thinking. There was a plethora of fuzziness with respect to what would be an adequate number of cases which would represent my objectives instrumentally. It can be argued that increasing the number of cases would provide more generality to the study but that would be at the expense of accountability and would take away the essential dogma of qualitative study. I do not mean to absolve the concept of generality in qualitative approach, however would like to limit it in my own research as an expense made to provide a more realistic and descriptive analysis of the subject. Following this thought process I decided on restricting the number of cases to three which could be deemed as debatable to those who consider "the more the merrier" as their ideology.
Justification of Research Approach
Qualitative method and quantitative method both have their own advantages and disadvantages. The research has used both the methods as and when required. For quantitative data, basic elements were collected through questionnaire. The questionnaire was filled by Dell customers to evaluate and determine quality and service and the important factors for PC or laptop .Even for evaluating information collected through data collection from government websites, company reports and journals qualitative research method is used. For case study, internal documents of Dell were accessed whereas to analyse the distribution channel of its competitors information from the online articles and newspapers was used.
Here, details about various data collection methods and tools used for data collection are explained.
Primary data can be collected through various mediums like questionnaires, face to face interviews, observations, telephonic interviews, etc. here, online questionnaire were used to collect primary data. It emphasized on collecting the socio dynamic information about the respondents. This method is easy to use and understand, so it was selected for results derivation. Primary data is very important when you need to achieve various research objectives.
Secondary data is already available in easy format to understand and manage, so to extract it is very easy. Data is collected on the basis of reliability of the authors. Books, magazines and journals were used to collect data and as a proof to support and scrutinize the findings of the study.
Normally, to collect quantitative data Questionnaires are used. Questionnaires are most common tool to obtain data as they are cost effective and easy to interpret the findings of the answers. Questions included in the questionnaire are open ended, close ended, indicated responses and any response. In this dissertation questionnaire were filled by the Dell customers and their channel partners.
Few advantages of using questionnaire are (Zikmund, 2003)
- Cost effective tool
- Easy to interpret the data extracted
- Data can be collected from large group of people
- Possible answer to each question
Few disadvantages of using questionnaire are (Zikmund, 2003)
- Lack of proper information
- It is not flexible as compared to interviews
- People hardly realized the importance of questionnaire
Design of the Questionnaire
In this study, questionnaires were e-questionnaire and nearly 60 questionnaires were emailed to get the necessary data. If a client doesn't have an email address, questionnaires were sent through a survey website. Most of the applicants were friends and relatives. Once the questionnaire was send lat
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