Value Chain Analysis - Dell Inc

Value Chain Analysis: Dell Inc.
Subject: Strategic Cost Management
Dell Inc. was founded by Michael Dell in the early eighties. It is an American private multinational
computer technology company that develops, sells, repairs and supports computers and other related
products and services. It is currently one of the largest technological corporations in the world,
containing more than 103,300 people worldwide. The company is well known for its innovations in
supply chain management and electronic commerce, particularly its direct-sales model and its
“configure to order” approach to manufacturing, which delivers individual PCs configured to the
customer’s specifications.
In order for us to fully understand Dell’s direct value chain, we first need to understand what the value
chain is. As stated by The Economic Times, “A value chain is the whole series of activities that create
and build value at every step. The total value delivered by the company is the sum total of the value
built up all throughout the company.’’ The Primary Activities involve, inbound logistics, which is
basically getting the material in for adding value by processing it, operations, which are all the
processes within the manufacturing, outbound, which involves distribution to the points of sale,
marketing and sales, which is in charge of selling it branding it and promoting it, and service which
maintains the functionality of the product, post sales. The Support Activities which reinforce all the
primary ones, are the firm infrastructure, such as MIS, Human Resources, etc.
Primary Activities
Inbound Logistics Dell Inc. has adopted Just-in-the-nick-of-time, for inbound logistics. The parts
needed to assemble a PC are delivered by suppliers every couple of hours
and double-decker conveyor belts serve each assembly point. They are
aiming to reduce the inventory turnover time; the reason for this is the rapid
advancements taking place in the computer components field. Their success
in this matter can be proved with the fact that in 1998 their inventory turnover
was seven days whereas the inventory turnover of the industry leader at that
time, Compaq, was twenty three days.
Operations Until 97’ each worker performed a particular task in the assembly lines.
However, after reorganization Dell shifted to “Cell Manufacturing” where a
team of workers assembled the entire PC to consumer specification, then it
was also dropped in favour of a more improved assembly line. As consumer
specifications vary for only some components, the company’s latest
innovation is to pre-assemble a mixture of configurations that are commonly
ordered.
Outbound Logistics After assembling the PC’s are transferred to the shipping department, where
they are packed and shipped. The delivery of these PC’s takes three to five
business days. The major output of the company is built to customer orders
having a small inventory being produced to cater to the needs of retailers and
wholesalers.
Marketing And Dell sales are a mix of sell-direct-to-customer strategy and selling through
Sales retailers. They sell their products through their website, toll free lines and in
case of corporate clients, etc. When the sell-direct-to-customer strategy failed
they installed Kiosks in some electronic stores for the customer to physically
check the product and then place an order. Unlike other manufactures Dell
Inc.'s marketing efforts are focused towards the end users. Advertising is a
major emphasis in the company; their strategy includes TV promotion,
magazine ads, online promotion etc.
Service The company has a lot of initiatives to provide after sale service and support
to their customers. Some of these initiatives are premier pages, product
design services, value-added services for customers and after sale services,
etc.
Support Activities
Product R&D, Dell Inc.’s R&D group employed four thousand engineers and had a budget
Technology And of six hundred million dollars in 2008. They have high standards of quality
Systems control in it plants. They have various tests and quality control process to
Development check the quality of parts, components, and finished products.
Procurement They work very closely with their suppliers to maintain the quality of their
components. Their long term relationship with their suppliers has brought
them some advantages, such as, the supply of enhanced quality
components, the timely delivery of components, suppliers’ engineers are
stationed at the company’s plants for development and launch of new
products and also adapt new ways to reduce costs out of the supply chain.
Human Resource The company has 88,200 employees worldwide. 57% percent of these
Management employees are in customer facing and frontline roles.
General Dell Inc. has formed alliances with local service providers to provide on-site
Administration services to their customers. They have also formed a strategic alliance with
Lexmark to make printers and cartridges under the Dell label.
Submitted by: Harsha Bharuka - 38

Chirag Jain - 39

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Subject: Strategic Cost Management

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