Dell's Competitive Business Model In The Consumer PC Industry

Dell successfully carried out a very innovative business model at the time, especially in the consumer PC industry. When thinking about electronics, there is usually a clear distinction between the company that assembles the devices and the company that resells them for profit. This is usually the case when the manufacturing company does not have the expertise to manage the distribution channels required for efficiently reaching customers. Dell watched closely this model for years and identified a profitable customer segment that valued PC performance and quality. As a result, Dell took the risk to bypass the distribution channel intermediary and instead ship directly to these customers. This strategy allowed them to keep their inventories …show more content…
Dell was intelligent to stay as a manufacturing company and allowing other companies to enter the general consumer PC market at low margins as they would educate customers about PCs. After watching customers closely for years, Dell noticed that certain customers needed more powerful machines than the average user and were happy to pay a higher price in exchange for a higher quality PC. This profitable segment included global and large companies, federal and state government, entities in the education sector and a small section of general consumers. Because of the higher margins, Dell took the risk to bypass the reseller role and started shipping directly to these customers. By shipping directly to these customers, Dell was able to maintain very good estimates of the real quantity of PCs in demand. As a result, Dell was able to keep their inventories moving fast, which significantly lowered the costs and risks of having to manage large inventories of finished products. In order to keep costs low, Dell needs to track cash-flow performance metrics very tightly. By doing so, Dell is able to get paid before having to pay its suppliers. For years, large inventories had been a big source of costs for PC manufacturing companies and Dell was successfully reducing it via the direct model and tracking performance metrics. By serving a large profitable customer segment and having …show more content…
Dell's strategy when dealing with suppliers is to integrate them as partners in their business, sharing information and plans freely to achieve high efficiency levels. A concrete instance of this virtual integration approach takes place at launch, when the supplier assigns engineers to work in Dell's plant and fix flaws in real time. Virtual integration has the benefit of long lasting relationships and agreements to meet demand both in yearly agreements and in daily operations. Because of these long-term deals, suppliers agree to meet Dell's demand even when demand is higher than supply, which results in higher margins for Dell. Through the consistent information flow with supplies, Dell can order from their suppliers the exact quantity they estimate they will need throughout the day. This implies Dell can keep inventories moving fast and avoiding the inherent risk of finished