Analyses The Value Chain For Dell Business Essay
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This report analyses the value chain for Dell Inc. and goes on to identify the sources of its competitive advantage. The diagrams supporting the analysis can be found in appendices. Porter's Value Chain Model was used to evaluate the business operations of Dell Inc. The value chain categorises the business operations into Primary and Support Activities. The report looks at the resources and capabilities of Dell Inc. that differentiates it from its competitors by providing low cost solutions. In an effort to maintain their position as a low cost provider of effective IT solutions, Dell's future strategies should consider the impact of the rapidly changing global economic environment affecting the way companies do business.
Dell Inc. was founded by Michael Dell in the early eighties. It has now grown to become one of the largest players in the Information Technology sector. The initial business model aimed selling PC's directly to customers however, now they have diversified into other areas like printers and software that allows management of IT assets. This helps provide efficient effective solutions to the customers ever changing needs.
In the recent years they have faced stiff competition from other competitors like HP, Apple, Toshiba and Sony to name a few. Unlike its competitors Dell Inc. adopted a build-to-order, sell direct value chain which has proved successful over the years.
Value Chain is the most conventional approach towards exploring career opportunities. The concept was designed by Michael E. Porter to express the customer value that builds up along the chain of activities that an organisation performs to lead to the final product or service (BNet, 2010). A company's value chain is categorised into two groups of activities namely Primary Activities and Support Activities.
The constitution of the primary and secondary activities depends on the nature of the business. The value chain of a company represents the business operations, the technology, the operating procedures and the organisation strategies. Since these factors are different for different companies, the value chain for a company differs from the other, sometimes within the same industry (Thomson Jr, Strickland III, & Gamble, 2010).
Primary Activities lead to generating a profit margin for an organisation and help in creating value for customers. They are inbound logistics, operations, outbound logistics, marketing and sale services (QuickMBA, 2010).
The primary activities illustrated are helped by support activities. These activities are industry specific. They are procurement, technology development, human resource management and general administration (QuickMBA, 2010).
Value chain activities are not different from one another; one value chain activity affects the performance of the other (NetMBA, 2010). The value chain diagram is listed in Appendix I.
3.1 Value Chain Analysis for Dell Inc.
Given below is the Value Chain Analysis for Dell Inc.
3.1.1 Primary Value Chain analysis for Dell Inc.
Inbound Logistics: - Dell Inc. has adopted Just-in-the-nick-of-time, a variation of Just-in-time, for inbound logistics. The parts needed to assemble PC's are delivered by suppliers every couple of hours and each assembly point is served by double-decker conveyor belts. Dell Inc. aims at reducing the inventory turnover time and constantly strives to do so. The reason for this is the rapid advancements taking place in the computer components field. Their success in doing so can be gauged from the fact that in 1998 their inventory turnover was seven days where as the inventory turnover of the industry leader at that time, Compaq, was twenty three days, by 2007 Dell Inc. managed to bring it down to seven days. For the procurement of computer components Dell Inc. has favoured strategic alliances with its suppliers over backward integration.
Operations: - Until 1997 each worker performed a particular task in the assembly lines. However, after reorganisation in 1997 the company shifted to "Cell Manufacturing" where a team of workers assembled the entire PC to consumer specification. Cell Manufacturing was also dropped in favour of more improved assembly line. This improvement in assembly line was largely associated to PC design, innovative assembly process and reduction in the number of time a computer was touched by workers. Instantaneous build and test facilities also allowed the testing of components before the assembly of PC thereby saving on cost and time. As consumer specifications vary for certain computer components only, Dell Inc. latest initiative is to pre-assemble a mixture of configurations that are commonly ordered by the consumers. In times where major PC rivals have outsourced their manufacturing process Dell Inc. has stuck to in house assemblies as it believes that there is a six percent cost advantage in doing so.
Outbound Logistics:- After assembling, the PC's are transferred to the shipping department through conveyer belts where they are packed and shipped to the customers. The delivery of these PC's takes three to five business days. Major output of the company is build to customer orders with only a small fraction of inventory being produced to cater to the needs of retailers and whole sellers.
Marketing and Sales: - Dell sales are a mix of sell-direct-to-customer strategy and selling through retailers. Dell Inc. sells its products through its website, toll free lines and in case of corporate clients; it has special sales teams taking care of them. In markets where the sell-direct-to-customer strategy failed Dell Inc. installed Kiosks in leading electronic stores for the customer to physically check the product and then place an order. In a response to its declining share in the computer market, Dell inc. lately has formed partnerships with computer retailers and has had success in doing so.
Unlike other manufactures whose marketing efforts are directed more towards the retailers and wholesalers Dell Inc.'s marketing efforts are focused towards the end users. Advertising is a major emphasis in Dell Inc.'s business strategy. Dell Inc.'s advertising efforts include TV promotion, promotion in magazines, inserts in news papers, newsletters, online promotion and periodic mailing of Dell's latest product catalogue to existing Dell customers.
Service: - Dell Inc. has undertaken number of initiatives to provide after sale service and support to its customers. Some of these initiatives are premier pages, product design services, value-added services for customers and after sale services.
Support Activities for Dell Inc.
Product R&D, Technology and systems Development: - Dell Inc.'s R&D group employed four thousand engineers and had a budget of six hundred million dollars in 2008. In 2007 through its website Dell Inc. invited customers to give their ideas on improving Dell's products and till date has received 8900 ideas out of which 45 have been incorporated into Dell's products.
Dell Inc. has high standards of quality control in it plants with all plants having ISO 9001:2000 certification. Various tests and quality control process are in place to check the quality of parts, components, sub-assemblies and end products. Audits are conducted for ongoing product reliability; failure tracking process is also in place for early detection of problems.
Procurement: - Dell Inc. is works closely with their suppliers to maintain high quality of components. Dell's long term relationship with reputable suppliers has provided the following advantages:
Supply of enhanced quality components like branded processors, disk drives, modems etc.
Timely delivery of components
Suppliers have located their distribution centres close to Dell's assembly plants.
Suppliers' engineers are stationed at the company's plants for development and launch of new products.
Suppliers adapt new ways to reduce costs out of the supply chain
Human Resource Management: - Dell Inc. has 88,200 employees worldwide as part of its primary value chain and to support it. Fifty seven percent of these employees are in customer facing and frontline roles.
General Administration:- Dell Inc. has formed strategic alliances with local service providers to provide on-site services to its customers. Dell Inc. has also entered into White-Box PC Segment forming alliance with private labels. Dell Inc. formed strategic alliance with Lexmark to make printers and cartridges under the Dell label.
4.0 Competitive Advantage
Competitive advantage plays a key role in any company's strategy. According to the positioning view a firm can achieve two types of competitive advantages-Cost Advantage or Differentiated advantage (Competitive Advantage, 2010).
The Resource Based View analyses the resources and capabilities of a firm to identify those that assist in creating competitive advantage. For a list of resources and capabilities identified, please refer to Appendix II
From the value-chain analysis carried out above, the following competitive advantages have been identified.
New Product Time to market:
Unlike its competitors Dell Inc. does not maintain a large stock of inventory. They follow a process of 'just in nick of time' delivery of supplies where only parts required are delivered to them by suppliers. In an ever changing IT industry this allows them to clear out their existing inventory more quickly before pushing new models into the market place as compared to their competitors.
Offer more than products:
Dell Inc. primarily sells directly to its customers. They have various sales and marketing groups that look into different customer segments and their sub segments. As a result, they are able to understand their customer's needs more efficiently and provide effective solutions to meet their needs.
Their low cost structure allows cost savings to be passed to the customers. Since its inception, Dell Inc. has delivered low cost effective solutions to meet their customer's needs.
Dell Inc. provides support to its customers through its 25 customer service centres, online diagnostic tool and onsite support via contractors. Their asset tag service, regional forums to listen to customers and enhanced support for larger enterprises has further enhanced the relationship with customers. This also adds to their brand value.
In a dynamic ever changing IT industry, Dell Inc. should revisit its strategies in order to keep up with its competitors. The company has maintained a 6% cost advantage over the competitors by manufacturing products in-house however, due to rising costs they have begun outsourcing notebook PC production to Asian manufacturers. Dell's future strategy to reduce cost and further expand should not negatively impact their market credibility.
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