Dell Computer Corporation

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1. Introduction

Deep in the heart of Texas lies a Fortune 500 (a ranking of the top 500 American public corporation as measure by gross revenue, although eligible companies are any for which revenues are publicity available, compiled and published by Fortune magazine) company who show many of the principles of a Zero Time organization. Dell Computer Corporation has seen extraordinarily growth: a 58% revenue increase and an 82% profit increase in 1997, an equally extraordinary short period of time. Sales rose to $12.3 billion in 1997, profits to $944 million in 1997, and the stock split for the sixth time in 1998. Much of this success is due to management principles and a vision that we describe here. First I will provide some background information on the company, than describe the management principals and philosophies that I think make Dell successes. Finally, we describe Dell using the lens of a Zero Time organization.

2. Company Background

Many know the story of Michael Dell, his college-based business of building personal computers with available parts, and his build to order strategy. Founded in 1984 as PC's Limited, the name was officially changed worldwide to Dell Computer Corporation when the first stock offering took place, in June 1988. Other key turning points, according to Michael Dell, were in 1986, when Dell first went outside the US to Europe and hit $50 million in sales; 1989, when the company when from last to first place in their industry on the management of their inventory; and 1993 when the concept of segmenting took shape and allowed the management to regain control of customers.

At the core of Dell's business was the build-to-order strategy. Customers ordered PCs directly, and their order was routed through a credit check, then directly to the manufacturing floor. The order was then built, tested, and shipped to the customer, who received it 5-7 days after placing their order.

This strategy afforded Dell some impressive results. First, Dell eliminated middlementhe resellers, who were part of the traditional distribution model. As such, Dell not only passed the savings to the customers in the form of lower costs, but was also able to understand customer needs first hand and adapt to market changes faster than competitors. Second, Dell built computers directly for customers, not for inventory. This meant that the company did not waste resources building systems that may not reach a customer, need staffing positions to move inventory around the world, or spend time managing and tracking inventory, and reworking systems that become obsolete before purchased. Third, Dell Computer practiced just-in-time manufacturing, where trucks with vendor parts pulled up to one side of the plant, and unloaded directly into bins used for building customer orders. These parts did not become the property of Dell Computer until they were unloaded, which took place as frequently as every few hours. Fourth, information systems tied together the entire company, routing orders to the next step in the business process and eliminating waits, backlogs, and losses that a less automated system may experience. Michael Dell explained,

In this business, it is not about how much inventory you have, but about how fast it's moving through the cycle. I don't want a warehouse of stuff, because it becomes obsolete so quickly. With our model, we start with the customer whose order pulls inventory through the channel. That results in our ability to deliver a desktop computer in 3 days which is configured exactly as the customer wants. That provides a great deal of value.

In 1998, Dell Computer employed 16,000 employees in central Texas, its largest workforce, and was in the process of expanding their European facility, in Limerick, Ireland, to 4500 employees. There were five plants: three in Texas, one in Ireland, one in Maylasia. A sixth plant was planned for China, and a seventh was planned for Brazil.

Customers were initially divided into three categories: Large businesses, Small to medium businesses, and personal consumers. Each group was supported in a manner consistent with their requirements. Large businesses had dedicated sales people who managed the orders. Small and medium businesses shared sales staff who insured that the needs of these businesses were met. Individual customers interested in Dell's products were served by either telephonebased inside sales people, or later by the sales system on the Internet. Underlying all customer accounts was the famous Dell Direct distribution strategy. The inside sales force took phone calls from a toll-free phone number from customers seeking information about the products and placing orders. These sales people sat at a computer at one of the Dell offices and serviced customers as they called in. The entry of an order by the inside sales group initiated the entire build to order process. Customers with corporate accounts could order from these sales people, or they could work with the dedicated sales teams for the corporate account. Each large account had field people in charge of the relationship with the client, and dedicated team members in Austin, Texas to service the account. But the ability to call directly to Dell, order a computer, and have it arrive a week later became the cornerstone of the business.

In 1996, Dell expanded their direct order model to the Internet, and their success in this medium quickly became legendary. Scott Eckert, Director of Dell On-Line, began as Michael Dell's Executive Assistant in 1995. In 1996 when Dell decided to launch an on-line sales program, Eckert took over the project. In the first quarter of 1997, the on-line business did $1million per day in sales. In the second quarter, they did $2 million per day, and the success continued. By the end of the first quarter of 1998, Dell logged $ 5 million in sales per day, by the end of the third quarter it was up to $10 million per day in sales over this channel, and the rate of growth was expected to continue. In addition, the web site had grown in functionality. In 1994, it was a simple technical support tool for disseminating tips and bug-fixes to internal and external customers. In addition, Dell conducted customer surveys. In mid-1996, Eckert was put in charge of using the Internet for a “yet to be determined” online business. The first application was an order status system, where customers could track their orders through the Dell process. By fall 1996, the configurator system was ported to the Internet, and electronic commerce began. The configurator assists customers in designing the exact product they need, and in pricing it out. Once this system was available to customers, the revenue took off. Eckert explained,

Using the Internet, we were able to offer our corporate customers special services like our Premier Page. This was a custom web site designed and dedicated to the individual corporate account. It included sales and technical information. One part of this service was a set of standard configurations for the customer based on those approved by their information technology people. Another part was technical support custom designed for the systems we know the customer has. We even linked the premier page to the technical support pages in our internal customer support system. A third part of this page had reporting tools like purchase history and service history so that the customer could keep track of their Dell activity. And we included some marketing information such as the account team contact information. We had built over 8000 of these pages, and each one was different. Some had the orders go directly to us, while others had the orders pass through their internal groups for approval. We had the ability to offer this level of customization in our sales and customer service using the Internet.

Dell Computers was best known for its pioneering use of the direct marketing channel for selling and distributing personal computer systems. Its well-known strategy of manufacturing a system for a customer, or build to order, provided Dell with a cascading series of advantages over its competition-including low inventory costs, no dealer costs, and current technology in every system manufactured. Conventional wisdom said that it was necessary to have inventories of systems in order to provide customers with many choices, and it was necessary to have those systems sold through dealers who could explain the complexities of the systems and give customers a chance to “kick the tires.” Instead, Dell gave the customer a chance to pick whatever features he or she wanted from those available. In addition, Dell manufactured systems only after they were ordered by a customer, which conventional wisdom would say was either too costly or took too long. But Dell was able to guarantee delivery within five to seven days of order. Finally, Dell saw that personal computers were becoming a commodity and realized that sales people would not be needed to explain the systems in the conventional, physical way.

The result was a win/win situation for both Dell and its customers. Factory inventory was at most three days, supported by tight alliances with suppliers who deliver smaller loads, but more frequently than traditional manufacturing systems. Downstream inventory was zero since the systems were directly shipped to customers. No one in the “stream” was sitting with more than 7 days of inventory, whereas traditional supply chains held up to 60 days of inventory of parts and 30 days of inventory of systems for dealers. Exhibit 1 summarizes the business model of Dell, as compared to a more traditional value chain model.

3. Factors that make Dell success

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4. Insight
5. Conclusion
6. References