Dell Computer have recently announced changes to their business strategy and supporting
supply chain. They will no longer focus on a made to order direct sales model for their
personal computers. Nor will they continue to refine their renowned supply chain model
that supported their sales model. Instead, they will be looking to produce personal
computers with fixed configurations at lower prices. This essay looks at why Dell have
changed their strategy, and then considers the customer value proposition of the new
strategy, as well as lessons that other organisations can learn from the Dell experience.
According to Michael Cannon, Dells President of Global Operations, the key
differentiators that have made Dell so effective for nearly two decades are its made to
order direct sales model and its innovative supply chain (SCN, 2008).
Historically, personal computer companies produced most of the components for a
computer which they assembled into their final products and distributed to resellers. The
manufacturing of these components was vertically integrated into the organisation. Dell, as
a small start-up, could not build this infrastructure. Instead, they developed a model where
they developed relationships with organisations that could provide these components,
allowing Dell to focus on selling and delivering computers. By selling directly to
customers, initially through mail orders and later by using the internet, Dell avoided
reseller mark-up. Dell also enabled customers to order customised computers, which Dell
then assembled after receiving the order (Magretta, 1998, p.73-74). Customers got exactly
the computer they wanted and Dell saved money making the computers only when they
were ordered (Hill & Seggewiss, 2008).
Dell also focused on developing an efficient and innovative supply chain, providing
customers with their products within 2-3 days after ordering (Bozarth & Handfield, 2008,
p.26). Dell have also focused on building strong partnerships with their suppliers, and
sharing information with them to help them provide better service to Dell. The direct
model allowed Dell to gain access to valuable purchasing information that could also be
passed down the supply chain to suppliers (Magretta, 1998, p.73-74). Dell were also able
to reduce inventory turnover to 3-4 days compared to its competitors 30-45 days,
providing a slight first mover strategic advantage (Kumar & Craig, 2007, p.201).
Up until quite recently, this model had served Dell extremely well, helping them to
become the largest supplier of personal computers in the world, until 2007 when HP took
their place (Shah, 2007). Since then, Dells profits have gone down, along with their share
