In 2002, after generating $80,000 revenue per month from upgrading and selling computers out of his dorm room, Michael Dell dropped out of University of Texas and founded Dell Computer Corporation. The upstart company was pitted against established commerce monsters such as IBM, Compaq, and Hewlett Packard; but by use of ingenious scheme and revolutionary enterprise forms Dell flourished and grew every year. Now they are on top of US PC market and competitors are scrambling to catch up. (Park 2003)
Rather than rest and enjoy their incredible success, Dell now attempts to assess their current situation and take the look to future. Will competitors try to imitate their strategies? If so, can they be successful? And if Dell's output and circulation forms are effectively imitated, what will be their source of comparable advantage? As Dell ponders these disturbing questions, they consider changing strategy that has done so well for them. (Monta 2004)
In order to recommend the course of action that may involve changing Dell's strategy, we first must understand Dell's current strategy. Dell pioneered Direct Model in PC industry. This means that while their competitors sold computers to distributors, resellers, and retail stores; Dell sold directly to customer. This is also known as dis-intermediation or removing middleman in the transaction. The first, and most prominent, advantage of this is that Dell realizes higher gross margins than their competitors. For instance, Compaq and Dell make the similar computer that has same processor, operating system, and equivalent accessories/features. This computer deals for $1499. (Matanovich 2003)
Consumers can either buy computer from the local reseller or order it directly from Dell. Also, both companies spent $1215 to make computers. Now difference is in distribution model. Compaq sells computer to the distributor for $1320 and distributor turns around and sells it to the small reseller for the slightly higher price. Dell sells directly to customer so they get paid the full $1499 for the computer that costs $1215 to make. Compaq only gets $1320 for the computer that cost them $1215. Results of competitor's distribution model is an 8-12% price markup and after the computer is manufactured it takes 4-5 weeks to make it through distribution channel to consumer. In contrast, Dell ships the newly manufactured computer to the customer about 1 and the half days after order was received. A second benefit from Direct Model is that it allows Dell to employ the made to order production strategy. Because Dell is receiving orders directly from customer, they wait until an order is received before they begin production of computer. This allows them to more easily customize computer and reduces Dell's inventory.
In their output amenities, Dell utilises 5 individual manufacturing cells are against to an assembly line. Parts for computers are put in the bin and sent to cell along with orders ...