Kuiper Leda Benchmarking

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Dell Computers

Issue Identified in the Scenario that is also Facing the Company

When Michael Dell started Dell Computer in 1984, he believed that by selling personal computer systems directly to customers, his company could better understand customers' needs and provide the most effective computing solutions to meet those needs. During that period, competing computer makers experienced poor supply-chain management strategies that usually involved assembling in advance and sending to distribution centers around the world. In the technology industry this is relatively expensive because it involves inventoried items that have associated costs. Apple, for example, pre-built computers and notoriously held onto too much inventory as newer technologies were introduced and hardware costs decreased.

Another challenge most computer makers faced during the 1980's were logistics. Computer companies were growing and could no longer be assembled in garages or corporate warehouses. It also became a risk to manage expensive components and personnel.

How the Company Responded to the Issue

Dell skips the distribution and retail steps typical of a manufacturing company's supply chain operations. The company sold its computers through catalogs and phone orders since its incorporation (Chase et al, 2005). With the emergence of the internet and ecommerce, in 1996 Dell began selling computers through its website.

Dell has reduced internal costs by outsourcing some of its logistics and assembly production. Quanta Computer Inc. assembles some of Dell's products (BusinessWeek, 2005) By outsourcing the non-core activities, Dell has been able to shed balance sheet assets, and boost their return on capital by using third-party service vendors (Chase et al, 2005). In 2005 Dell selected World Wide Technology for supply-chain management of components used in computer systems manufactured at Dell's new facility in Winston-Salem, N.C. (ExpansionManagement.com, 2007)

The company's latest approach is to build manufacturing facilities worldwide to increase its global footprint and get finished products to consumers faster. As of 2007, Dell has manufacturing facilities planned in Brazil, China, Malaysia, and Ireland (Trafficworld, 2007).

Outcomes of the Company's Response

Dell's model is a proven success for the company. With nearly $56 Billion in annual revenues and a 6.39% profit margin (a percentage for a discount-computer retailer) the computer maker has become a benchmark for the computer industry.

BusinessWeek (2005). Outsourcing ...