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DISTRIBUTION CHANNEL
DELL

Submitted to: Prof. S. Parihar

Submitted by: Arjita Grover
PGDM-09-035
Dell Inc. is an American multinational information technology corporation based in RoundRock,
Texas, United States, that develops, sells and supports computers and related products and
services. Bearing the name of its founder, Michael Dell, the company is one of the largest
technological corporations in the world, employing more than 96,000 people worldwide. Dell is
the third largest PC maker in the world. It is listed at #38 on the Fortune 500 (2010). Fortune also
lists Dell as the #5 most admired company in its industry. Dell has grown by both organic and
inorganic means since its inception²notable mergers and acquisitions including Alien ware
(2006) and Perot Systems (2009). The company is in the business of personal computers, servers,
data storage devices, network switches, software, and computer peripherals. Dell also sells
HDTVs, cameras, printers, MP3 players and other electronics built by other manufacturers. The
company is well known for its innovations in supply chain management and electronic
commerce.

Michael Dell¶s strategic choices and his effective way of realizing them have played a
significant role in Dell¶s success story. The key element of his successful business model of the
company is its supply chain management; hence, many theorists of Supply Chain Management
have tried to investigate Dells SC strategies, and several companies have attempted to ³copy´
Dell¶s business model, without success however. This fact shows the complexity of Dell¶s SC
strategies and its unique way of putting them into practice. The core elements of Dell¶s business
model are its direct sales model, usually referred as ³directmodel´, and the build-to-order
strategy.

The direct model refers to the fact that Dell does not use the retails channel, but sells its PCs
directly to customers through its website, Dell.com. This way the intermediary steps that may
add time and cost are eliminated, and Dell is directly linked to its customers.
In fact, Dell sells directly to all its customers, ³from home-PC users to the world¶s largest
corporations´. This way it creates a direct relationship with each individual customer, which
turns out to be a great source of competitive advantage. As Michael Dell has stated, this direct
relationship ³creates valuable information´ about the customer, thus Dell knows who the end
users are, what they have bought from Dell and what their preferences are, a fact that allows Dell
to offer add-on products and services, and stay, in general, closer to the customer. As Lawton et
al suggest, this ³provides Dell with a wealth of marketing and product development information´


  

Dell entered the PC industry at a time when most companies sold through small, specialized,
high-cost dealers which provided customers with support on both how to purchase and how to
use computers. This high-cost channel was quickly obsolete and most PC suppliers switched to
large, megastore retail chains (CompUSA, Computer City, etc.).

While the other suppliers were struggling with retail channel evolution, Dell took radically
different path by finding a means to sell products which normally required both significant
customer assistance and local stocking without a dealer or distributor network. Dell created a
new channel option by bringing new technology to traditional roles played by the distribution
channel. Dell takes orders over the telephone, internet it allows purchasers to customize products
to their own needs, it assembles products largely to order, and it achieves rapid delivery. The
combination provides a high degree of customer service at a previously unattainable cost
structure. With this distribution changes a major element of its strategy, Dell grew to a profitable
$7.8 billion business at the time when many larger computer companies were giving up on the
PC market.

Dell shows how a company can meet most of the same end customer needs as its competitors
through a radically different distribution approach. As enabling technologies (telephone
communications, call centers, shipping logistics, etc.) evolve, more suppliers will supplant
traditional sales and distribution approaches and, therefore, gain competitive advantage.

However, simply copying a model which has worked once is not a guaranteed path to success.
No other ³ mail order´ computer company has managed to match Dell¶s growth in sales and
profits. Dell built a strong overall business model and established its position before others had a
chance to copy the model.

According to me dell can make shipment free for certain products since the competitor is having
this strategy. Dell can have physical shops in India and china since the direct sell through
internet is not up to the level in those regions

Dell use RFID in manufacturing and shipping which is helpful to check the status of the product.
According to me
Dell¶s success is a combination of:
Direct Sales

Build-to-order

Supplier Integration

Together these allow for maximum effectiveness with minimum cost.

Dell¶s organizational structure: The virtual company

cDirect relationship with customer is strategic; rich information flows

c Outsource non-strategic functions

c Information flows substitute for physical flows

c Coordinate value network thru IT-enabled information processes

Dell¶s Direct vs. Industry Indirect model

Dell¶s Direct vs. Industry Indirect model

Logistics
Compon System
companie
ent integrators
s
suppliers and
resellers
Dell Order
managem
Operations ent Custo Custome
Compone and supply mer r
nt chain relation
Manufact s
urer

Third party Repair and

HW and SW Distributors support
suppliers providers

Dell¶s Direct vs. Industry Indirect model

cStrengths of the direct model

]c rost efficient method of distribution

]c ÷ tremely low inventories.

]c Yapid response to customer changes.

]c trong relationship with customers and suppliers.

cWeaknesses of indirect model

]c Time = money (rapid innovation by parts suppliers send value of newly built PCs
plummeting quickly).

]c ›ave to discount old technology.

]c Yetailer sends unsold units back to manufacturer.

cResults:

cDirect vendor Dell has best performance.

cDell has forced other vendors to go direct.

cIndustry as a whole has improved performance.

cThree golden rules at Dell :

cÎDisdain inventory'

cÎ isten to the customer'

cÎ
ever sell indirect'