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THIS STRATEGY HAS SEVERAL KEY ELEMENTS
Dell's transformation
Profitability management, coordinating a company's day-to-day activities through careful forethought and great management, was at the core of Dell's transformation in this critical period. Dell created a tightly aligned business model that enabled it to manage away the need for its component inventories. Not only was capital not needed, but the change generated enormous amounts of cash that Dell used to fuel its growth. How did Dell do it?
At the heart of Dell's profitability management was a seemingly impossible dilemma: the company had adopted a build-to-order system, yet it had to commit to purchase key components sixty days in advance. How did Dell manage this?
1.Account selection. Dell purposely selected customers with relatively predictable purchasing patterns and low service costs. The company developed a core competence in targeting customers, and kept a massive database for this purpose. A large portion of Dell's business stemmed from long-term corporate relationship accounts—customers having predictable needs closely tied to their budget cycles. For these, Dell developed powerful customer-specific intranet Web sites with predetermined custom specifications and budgets. The remainder of Dell's business involved individual consumers. To obtain stable demand in this segment, Dell used higher price-points and the latest technology products to target second-time …show more content…
The answer is very telling.
The seeds of Dell's success were sown in its failures of an earlier time. In 1994, Dell created two important products that were deficient due to quality problems. Sales plummeted and Dell faced a serious cash shortfall. At the same time, the company realized that it had to accelerate its growth in order to move from the list of declining Tier 2 manufacturers (Commodore, Zeos, etc.) to the group of prospering Tier 1 producers (IBM, Compaq, etc.), and this required even more cash.
The executives met to decide how to generate the funds to keep the company alive. The decision was made to dramatically reduce inventories. The heads of manufacturing and marketing were charged with devising a way to run the business without component inventories. At first they resisted. Then they developed a way to meet this goal.
The new Dell business model developed over a period of time. The first set of objectives focused on lowering inventory by 50 percent, improving lead time by 50 percent, reducing assembly costs by 30 percent, and reducing obsolete inventory by 75
Dell's transformation
Profitability management, coordinating a company's day-to-day activities through careful forethought and great management, was at the core of Dell's transformation in this critical period. Dell created a tightly aligned business model that enabled it to manage away the need for its component inventories. Not only was capital not needed, but the change generated enormous amounts of cash that Dell used to fuel its growth. How did Dell do it?
At the heart of Dell's profitability management was a seemingly impossible dilemma: the company had adopted a build-to-order system, yet it had to commit to purchase key components sixty days in advance. How did Dell manage this?
1.Account selection. Dell purposely selected customers with relatively predictable purchasing patterns and low service costs. The company developed a core competence in targeting customers, and kept a massive database for this purpose. A large portion of Dell's business stemmed from long-term corporate relationship accounts—customers having predictable needs closely tied to their budget cycles. For these, Dell developed powerful customer-specific intranet Web sites with predetermined custom specifications and budgets. The remainder of Dell's business involved individual consumers. To obtain stable demand in this segment, Dell used higher price-points and the latest technology products to target second-time …show more content…
The answer is very telling.
The seeds of Dell's success were sown in its failures of an earlier time. In 1994, Dell created two important products that were deficient due to quality problems. Sales plummeted and Dell faced a serious cash shortfall. At the same time, the company realized that it had to accelerate its growth in order to move from the list of declining Tier 2 manufacturers (Commodore, Zeos, etc.) to the group of prospering Tier 1 producers (IBM, Compaq, etc.), and this required even more cash.
The executives met to decide how to generate the funds to keep the company alive. The decision was made to dramatically reduce inventories. The heads of manufacturing and marketing were charged with devising a way to run the business without component inventories. At first they resisted. Then they developed a way to meet this goal.
The new Dell business model developed over a period of time. The first set of objectives focused on lowering inventory by 50 percent, improving lead time by 50 percent, reducing assembly costs by 30 percent, and reducing obsolete inventory by 75