Factors That Helped Dell Co's Success

Dell’s Overview

Michael Dell, in 1984, founded the Dell Computer Corporation. Initially he started it from his dorm room with $1K investment and sooner gained much attention by providing customers a quality product at cheap rates. Additional features then were included a 24 hours customer support service and delivery assurance of replacement of the defective components. Just in one and a half year Dell achieved worth around $70 million, which had started from nothing. Dell installed a manufacturing plant in 1990 in Limerick, Ireland to provide services to Middle East, Africa and Europe. By that time Dell Co. sales were beyond $500 million. In 1999, by the application of direct method, the annual growth rate reached to 49% and worth more than $25 billion. In 1999, Dell founded that his net earnings was over $1.7 billion (UNIVERSITY, 2000). In 2001 Dell was the number one PC manufacturer worldwide. Till 2012, Dell Corporation had revenue approximately equal $63.07 billion. According to the data recorded in 2013, Dell was pushed to third place in manufacturer list after Hewlett Packard and Lenovo. Now a days Dell is still the third largest PC manufacturers with more than twenty six thousands employees.

Following are the key reasons behind Dell Corporation success:

1. Direct method
2. Elimination of inventory
3. Elimination of retailers
4. Customization
5. Customer service

Direct Method

As the figures depict, this method focused on the direct relationship to customers. Customers place orders directly to Dell and the corporate manufactures and delivers the PC at short span of time. This also helped in maintaining liquidity as there was no involvement of middle channels.

In 1991, Dell started using the traditional way of sale i.e. retail channels. This made possible for Dell to cross the $2 billion sale line. In 1993, it was founded that the sales had increased up to forty percent and Dell became one of the top-five personal computer manufacturer across the world. The instant upraise in the sales brought him against the first loss in 1993. One of the reasons behind was absence of senior management for guidance to maturity of the firm. To tackle the problem Dell employed Mort Topfer as vice chancellor to manage his company. (Fisher, 1998) Mr. Topfer replaced whole of senior management and restructured the management. But the foremost issue was Dell’s incompatibility to retail channels. Since Dell was found of customization he wanted to let other enjoy it too. The indirect channel were refraining him not to deviate from the standard PC products. Although the sales had grown by the channels but Dell income did not changed. Dell restructured his sales method and got away of the retail system.

The method went so well that it projected an annual profit of 62 %. Dell had achieved 16% of United State share till 1999 just from 3% in 1994 and become the number one US personnel manufacturer. (UNIVERSITY, 2000)

Eliminating Inventory

Conventionally, companies possess a well-organized inventory to meet any instant order. As soon as an order is placed, the formatted path is enabled and the order is manufactured within the time frame. But Dell with stood with a new prospective that what was the point of having a large finished good inventory? Instead the components must be order according to the demand. This is how Dell managed to overcome the cost associated with inventory space, logistic for inventory handling and sorting etc. Another reason that supported the Dell viewpoint was decrease in price of components because of the advancement in technology. Holding a large inventory meant you were forced to serve older technology at the same rates as was new technology at that moment. Rick Schutte, an analyst from PC industry said, “It's because they are selling fresher fish. The PC market isn't that price elastic; it's performance elastic. Dell is providing more performance and the customers are paying for it.” (Fisher, 1998) Also Dell remarked, “If I’ve got 11 days of inventory and my competitor has 80, and Intel comes out with a new 450-megahertz chip that means I’m going to get to market 69 days sooner”. (UNIVERSITY, 2000) The Dell corporate followed the Just-in Time philosophy and focused on reducing the component acquiring time. The components acquisition method, so called high velocity model, was much effective that within 20 minutes the required components are at door step of Dell Corporate. Adoption of this method intensified the risk of getting a wrong component on demand. Dell took over the risk by tightly controlling the logistic and quality. Whenever a fault was identified the supplier was informed to redesign the component. Dell stressed on large amount of information transfer between the corporate and suppliers. This helped Dell to develop good relationship and trust among suppliers.

Eliminating Retailers

Conventionally, manufacturers have one to two middle men to reach the end customer. The presence of retailers has following issues;

1. Increase in selling price because of their profit adjustment.
2. Longer delivery time.
3. Standard product instead of a customized one.

The record showed that with direct model the cost reduces to 2% form 13.5%- 15.5% which in turn benefited customers.

Customization

Since everyone in this world have different feelings, emotions, thinking, mindset etc., it is normal not to satisfy a single solution. When Dell used to be a college freshman, he did customization in his personal computer as his hobby. Later on his hobby prompted an idea in his mind that besides upgrading the PC why not to purchase components, build a PC with his own mark and sell it by himself at cheap rate. He started act upon his idea and now renowned as world third biggest PC manufacturer. (LAPTOP Editors, 2018) Initially, he had intention to develop his corporate in customization field but was not sure about the behavior of the market. The period of 1991 to 1994 made things more clear to him as he had gone through the retail channels. He keenly observed the retail system and evaluated key points to make mass customization successful. By adopting direct method Dell is now the number one organization who possesses a successful mass customization procedure. It is one of the most attractive features for the customer, which uplifted the Dell’s sales graph.

Customer Service

Dell possessed a democratic type of behavior for leadership. In 1986, Dell consulted PC experts to develop strategies for more successful business. After brainstorming it was decided to hit the market with exceptional support services. To provide this facility, Dell employed 1300 technical support personnel and a 24 hour customer care service reachable through phone. Dell applied system identifier technology in manufacturing which enabled the service representative to quickly grasp the customer details on his monitor. More than 90 % issues were being solved on mobiles through standard troubleshooting process. (UNIVERSITY, 2000)

Conclusion

While directly communicating to his customers, Dell on one side came to know the faults in components and manufacturing process, he also got well aware of customer future desires and requirements. This helped Dell to project the corporate future.