Dell: Competitive Advantage Case Study

Dell Computer is a leader in the e-commerce computer hardware market. It is an established brand that leads personal computer manufacturers both in U.S. sales and overall online sales. Its trademark method of selling products to customers, corporate and individual consumers, originates from the Dell Direct model, a Web-enabled infrastructure that allows customers to customize their PCs and order other products they need or desire. This virtual integration structure eliminates the need to manufacture everything, and instead uses the power of the Internet to share and exchange information with suppliers and vendors to build a truly superior supply chain that keeps inventory turnover low and costs to a minimum (Harrington, 2002).

The primary method Dell uses in order to achieve and sustain their competitive advantage is a unique, direct to customer business model (Dell, 2007). The model is known as Dell Direct, referring to the relationship between the company and its customers as being “direct.” This model helps Dell focus on price for customization, service and support, performance, latest technology and superior shareholder value. Additionally, Dell is able to distinguish itself from its competitors with its customized on- demand manufacturing. Through customisation of the products manufactured by dell, the company has the ability to offer more value for the money of its customers due to the removal of the intermediaries in the manufacturing, procurement and distribution processes of Dell.

Dell’s primary resources include the most advanced technology, which allows the company to successfully move along their superior supply chain and achieve the value they strive for. Dell’s value chain allows Dell and its suppliers to exchange information and interact with each other. The Internet, Dell’s important IT factor in its success, results in lower costs to customers than other retailers, the customers tell Dell exactly what they want and Dell creates products for the consumer without experiencing wasteful resources in production (Breen, 2004).

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Overall, it is evident that Dell’s competitive advantage lies in its Direct model success. Through Dell’s IT performance, which combines its resources, its relationship with suppliers and its consumer communication capabilities, Dell has attained a big advantage over its competitors.

Analysis of Dell’s Competitive Advantage:

Dell carries the tag of being, one of the best computer systems company in the world. Dell is able to sustain a competitive advantage over competitors in the computer industry because of an extremely efficient supply chain/distribution system. Dell is able to achieve superior profits in the industry because they are a knowledgeable user of information, communication, e-commerce, e-business, internet, and web technologies.

Dell implements a Just-In-Time inventory system which operates on only 6 days of inventory. Dell is able to achieve greater profit margins and increased profits because of their inventory system. Inventory and labor are the highest liabilities of a firm. Operating only with 6 days of inventory, allows Dell to reduce its expenses on hiring people to track and maintain inventory, warehousing, and holding on to obsolete technology. This allows Dell to free up cash flow to invest in other value adding activities.

The direct Model strategy compels the company to use a JIT inventory system, as the customers are only allowed to order directly from Dell. Dell uses their website www.Dell.com to take customer’s orders. The organization focuses on direct sales, cutting out other distribution channels entirely. This allows for a deeper relationship with the customers whereby Dell can offer their customer’s better service, savings, convenience, and efficiency.

Dell’s use of the internet has revolutionized the company. Dells extremely consumer friendly website offers the customers to place their orders with ease. The separate “Premier Pages” on Dells website designed for Dell’s large accounts like corporation, educational institutions and Government, delivers easy navigation, dynamic price upgrades and wide range of available options. Customer relationship management software keeps close tabs on the types of computers that customers are buying.

Not only does Dell use the internet to make the customer ordering process easier. They also use the internet to build better relationships with their suppliers. In order for Dell to work off of 6 days of inventory, their suppliers have to be very involved in the company to make sure superior service is met. The use of art production planning programs assist in predicting the quantities of components needed to build the computers. The forecast is passed to the supplier, who respond with cost estimates and plan their production as a result.

Dell’s e-commerce is a huge part of their competitive advantage. Their e-commerce internet infrastructure is so advanced and knowledgeable that by using it to determine trends and demands of their products, they have gained superiority over their competitors.

Dell has set up strategic alliances with other companies to have their products sold on Dell’s direct selling distribution channel. Back in 2000, Palm, Inc. made an agreement with Dell to offer an expanded line of handheld Palm products and accessories. This agreement allowed Dell to drive momentum for the Palm operating system market (Dell: 2000, April 17). Along with Palm, Xerox also partnered with Dell to take advantage of Dell’s e-commerce. Advantages to Xerox were increased profits by offering the printers with the Dell computers. Advantages to Dell include selling high quality printers along with their computers, but more importantly, it allowed Dell to be involved in the customer buying process for printers. Being involved in the decision making process is the key to Dell’s success because they see directly what the customers want and determine their production schedule from that information (Dell: 2000, May 22).

Dell achieves its competitive advantage over other firms in the industry by having superior supply chain management. Dell utilizes technology to interpret information. By being involved in the customer buying process they are able to determine their customers’ needs. This allows Dell to streamline production and have close relationships with their suppliers which results in getting timely deliveries in order to mass customize customer’s computers.

Analysis of Dell’s Business Model:

The four markets within an industry are defined as Business to Business, Business to Consumer, Consumer to Business, and Consumer to Consumer. Dell focuses on Business to Business and Business to Consumer commerce to satisfy their business and individual customers. Dell differentiates between classes of customers because the needs of their business customers, who buy large quantities of computers, are different than the individuals who want to configure a single unit. “Dell’s business model is no secret, of course, and it’s been emulated with considerably less success by many of its competitors (Henricks, 2003).”

Dell’s initial success was due to its early implementation of the internet as the means of sales and marketing. “Dell’s direct-to-the-customer strategy presents a highly attractive cost advantage that’s tough to ignore. Their direct interaction with their customers continues to be “a key driver in sales for the quarter (2000).” Dell’s early work with using the internet helped them get a jump on their competition while their competition was finding it difficult to conduct successful Business to Business operations online since “exchanges are still in their infancy and many haven’t even gone live yet. Matching customer ease of ordering and direct interaction through the internet proved successful because Dell believes that it is the customer that drives the business model.

Dell recognized the challenges in dealing with the customers and fragmented them into two distinctive groups with different needs, dealing with the business customers (like corporations) and dealing with individual customers. Dell has done a remarkable job managing these two different types of consumers thus far. In the last couple of years, Dell decided to split their operations into two different websites with separate B2B sites. With separate sites, Dell planned to “simplify the Internet procurement process for businesses and institutions of all sizes, generating savings that can range to millions of dollars annually for large customers (1999).” However, this idea failed, and “Dell had to shut down its B2B site, four months after it launched. Dell said “the site failed to attract more than three suppliers”.

Recommendations to build sustainable competitive advantage in future:

After analyzing Dell’s IT and their competitive advantage as a result of their advanced and successful IT, it was challenging to come up with recommendations to help them achieve more success in an industry that they already prosper in. However, even with Dell’s current success, we realize that in an ever-changing technology industry, there is always room for improvement.

1) Dell should consider selectively adding other vendors to its supply chain management system. Due to the increase in Dell’s global sales, Dell may need to consider to selectively adding additional suppliers to their supply chain management system. The additional suppliers should not result in any significant cost to Dell and Dell might be able to negotiate better component costs from new suppliers. New suppliers would want to participate in this exchange because they would be seen doing business with a leading technology company

2) Use “Customer Surveys” to gain market share. Although Dell does well in its markets overseas, Dell has lost some domestic market share and has more potential overseas. It is important for Dell to advertise and get their products noticed in international markets. In order achieve this goal, in-depth customer satisfaction surveys should be used in markets where they trail their competition. .

3) Invest more in Research and Development. With the growth of quality competition, it is crucial for Dell to keep its competitive advantage by offering new technology products and services. Dell should consider expanding into peripheral product markets that would compliment their computer sales.

4) Dell could offer online data back-up capabilities. Another way to increase revenue is to offer existing customers (business and individual consumers) back-up capabilities on Dell’s own servers. This process will have advantages for both consumers and Dell. For consumers, especially businesses, if something happens to their plants and computer systems, they can always retrieve their data from Dell who has their information backed up offsite on their system. By keeping their data saved at another location that is maintained by Dell, Dell can make money by charging for this additional service. Dell also has a built-in customer list based on the sales that they make for computer systems.

5) Enhance customer support services. Since successful customer support and communications are crucial to Dell’s success, it is important that Dell keeps enough well-trained people on the phones and on the Internet for customer support. Based on the results of some surveys that say that Dell might be losing customers because of actual or perceived decrease in support, Dell should do a cost-benefit analysis to determine whether they should invest in more people who can answer technical questions & support customers with their problems and needs.

References:

Dell.com, Supplier Principles: Supply Chain Management System, 2007, viewed 9th April 2011

Harrington, L, The Accelerated Value Chain: Supply chain management just got smarter, faster and more cost-effective, thanks to a groundbreaking alliance between Intel and i2 technologies, 2002

Breen, Bill, Living in Dell Time. Fast Company, 2004, viewed on 10th April 2011,