Dell 's Direct Model Approach

Dell's business strategy combines its direct customer model with a highly efficient manufacturing and supply chain management organization and an emphasis on standards-based technologies. This strategy enables Dell to provide customers with superior value; high-quality, relevant technology; customized systems; superior service and support; and products and services that are easy to buy and use.

Dell. Dell’s products—computers, servers and printers—are commodities. Dell tends not to develop the technologies underlying these products. Instead, it purchases the components from firms that develop the technologies (semiconductors and computer software). Dell’s direct-to-customer marketing strategy is not unique, but the extent to which Dell performs this strategy better than anyone else in the industry gives it a competitive advantage. Its size, purchasing power, quality control, and efficiency permit it to operate as a low-cost provider.

The advantages of Dells model are: The internet allows Dell an extensive scope and reach for its products at a relatively low price (Dedrick and Kraemer 2001). Using the internet Dell has been able to automate many of its business functions, such as product configuration, order entry and technical support (Dedrick & Kraemer 2001), therefore the company can achieve higher revenues without customer service costs increasing greatly. Online configuration ensures that the customer gets exactly what they want. Dells build to order strategy means that inventory levels are low, they only hold approximately 4-8 days of stock, therefore inventory costs are low (Breen 2004).

By grafting its system of custom direct sales onto the Internet infrastructure, Dell has transformed these activities, creating an innovative and efficient procurement, production, and distribution network. The innovative advance made by Dell in deploying Internet communication as the foundation of its production network, is a process innovation. Although to some extent, the Internet has enabled Dell to create a new product -- a PC custom-configured through Internet communication -- it is the process of organizing flows of materials and information within its network, from customer order to procurement, production and delivery, by means of Internet communication, that defines the innovation at the Firm. The case supports this notion by stating “While most other PCs were sold preconfigured and pre-assembled in retail stores, Dell offered superior customer choice in system configuration at a deeply discounted price, due to the cost-savings associated with cutting out the retail middleman. Additionally, an important side-benefit of the Internet-based direct sales model was that it generated a wealth of market data the company used to efficiently forecast demand trends and carry out effective segmentation strategies. This data drove the company’s product development efforts and allowed Dell to profit from information on the value drivers in each of its key customer

In order to incorporate concurrent engineering into product and process and process design, it is important to understand the orientation of the industry. For an illustration, the author uses the genetic module of DNA – the double helix. Similar to DNA, organizations need to map their capabilities along with provider organizations regarding activities, subsystems provided, capabilities they bring to the value proposition and the technology contribution of each (Fine, 1998, p. 105). As organizations evolve and the industry changes, they “move” along the helix from vertical integration to horizontal and back. Many begin vertically aligned where they provide most all of the key elements. A classic example was IBM of the 1970’s. IBM had an integrated product design with an overall system and service package. As the industry evolved, it moved to a more horizontal structure using a modular design across multiple suppliers. As such, Compaq beat IBM to market with new products starting in the mid 1980’s; however, the modular structure may also lead to instability by allowing key providers the opportunity to displace the brand. The author references two classic

Dell Computer Corporation was founded in 1984 by Michael Dell. From the early 1990s until the mid-2000s, Dell was ranked as a PC market leader relying on their distinctive marketing pattern “Direct Model” which undertook direct communication with customers and provided customized products. Recently, the PC industry is facing inconceivable worldwide competition, and Dell is gradually losing their competitive advantages by using its direct model in critical business segments. The company is facing shrinkage of growth, increasing competition, declining quality of customer service, and limitation of expansion. These issues have an enormous impact on Dell’s position as a technological giant in the PC industry.

Fulfilling the client/customer’s requirement Dell perform primary and support activities that produces cost effective and differentiated features. The company provide

The companies offer numerous services with their products, only one has effectively organized these services making it easier for consumers to identify what they need. Dell has not only successfully organized its services into seven suites; it has also made it applicable to the company’s different market segments.

New product or service design and development supports operations management as it allows for product flexibility and caters for customers changing preferences in products. Products must be updated and improved depending on the markets demands to keep up with customer’s wants and needs and to retain businesses competition. This results in an increased amount of sales and profits.

Third, Dell has a rapid-response system for linking all suppliers, workers, managers, and customers to Dell’s value chain. This interactive real time communication system is employed to order parts, manufacture and outsource computer modules, and coordinate assembly and distribution of products to customers. Managers employ this system for all human resource functions, workers and suppliers for all coordination sequencing and quality control processes,

The Stage Gate Game Plan is one of the most commonly used process for new product and service development. However, the game plan is not foolproof to ensure success of an innovation. The Stage Gate process does not have separate stages for research and development of marketing, because each stage is multifunctional (Cooper & Kleinschmidt, 1993). By using the Stage Gate process as a guidance, we develop our own model of innovation that we find that would be more relevant. Our model of innovation processes are still multifunctional. However, different from the Stage process is that our model of innovation do not consist of parallel activities from different functional areas. The model of innovation will exist in a heavyweight team structure

Dell had also only catered to 2 market segments until late 1990s which consisted of corporate and governmental buyers, and low volume business and individual buyers. As sales progressed, the company found that the segments in which they catered to should have been divided into more specific categories with specific needs. The company then developed a sales force and a research and development department to start tracking and testing new developments in components and software and design them into Dell’s product line. The company had also created kiosks after finding that potential customers were more reluctant to purchase their products before testing along with customer forums to help stay close to its customers.

Development Time – Japanese automobile companies targeted to decrease traditional 50 month development time by

Senior management utilized the functional managers from the five key process areas that accounted for about 90% of the critical processes involved in product development. These managers identified three main changes to the current system that needed to take place in order to meet the development time reduction goals: Increased parallelization of design tasks, elimination of some design iterations, and quicker completion of the

The bullwhip effect is also being reduced as a result of Dell’s direct sales model. Dell contracts special web pages for suppliers, allowing them to view orders for components they produce when a customer orders them through Dell’s website. This will give suppliers the advantage and the possibility to plan based on customers demand.