DELL’s Competitive Advantage

Overview of Dell Computer 

     Michael Dell took the only $1,000 as capital, along with perseverance, hard work and innovation, created what is today a multi-billion dollar information technology empire. Dell started selling personal computers as a freshman at the University of Texas in Austin. Dell sold them by mail order to those customers who did not want to pay the higher prices. Dell used low-cost direct marketing to sell their product. Dell's computers became the top brand name in the direct mail market.

Goal of Dell Computer  

Dell’s ultimate goal is to drive all inventories of the supply Chain. To achieve the goal – 
-  Make coordination between suppliers and Dell. 

-  Always try to effectively replacing inventory with real time information. 
-  Although Dell has not yet achieved goal, it able to reduce their cost of inventory in the industry.

What is Competitive Advantage 

Competitive Advantage is an advantage over its rivals when its profitability is greater than the average profitability of all companies in its industry. It has a constant competitive advantage when it is able to maintain above average profitability. 

How a Company Get Competitive Advantage

Efficiency

Efficiency is measured by the cost of input required to produce a given output. The more efficient company, the lower is the cost of inputs.

Quality

A product can be thought of as a bundle of attributes. A product is said to have superior quality when customers perceive that its attributes provide then with higher utility than the attributed of products sold by rivals.

Innovation

Innovation refers to the act of creating new products or process. There are two key types of innovation- product innovation and process innovation. Product innovation is the development of products that are new to the world or have superior attributes to existing product. Process innovation is the development of a new process for producing products and delivering them to the customer.

Responsiveness to Customer

Achieving superior quality and innovation is the integral to achieving superior responsiveness to customers. An aspect of responsiveness to customers that has drawn increasing attention is customer response time; the time that is takes for goods to be delivered or a service to be performed. 

Competitive Advantage of Dell Computer 

Dell computer has a sustained history of very high profitability. Between 1998 to 2003 average return on invested capital was a staggering 39% which was far ahead of the profitability of competing manufacturers of personal computers. 
Dell managed to maintain a very high ROIC even in tough selling environment for personal computer in 2001 to 2003 while the profitability fell sharply during this same period. Clearly Dell has a sustained completive over its rivals.

Graphical Presentation on ROIC

How Does Dell Face Competitive Advantage?

This answer can be found in Dell’s business model. 

Selling Directly To Customer:

-  Cutting out wholesaler and retailers which obtain the profit.

-  Receive and give part of those profits to customers in the form of lower price.

-  Dell sold directly through mailing and telephone contacts.

-  In the mid 1990s most of its sells have been made through its website and 85% of Dells sells were made through the internet.

-  Dells interactive website allows customers to and match product feature and it helps to customer coming back to Dell.

-  Strong customer loyalty helps to drive sales up to a record $41.5 billion in fiscal 2004.

    Minimize The Cost Structured:

-  Cost of Holding Inventory, it can still build a computer to individual customer within only 3 days.

-  To feed actual time information about order stream to its supplier, Dell uses the internet.

-  Up-to-Date Information about demand trends for the components.

- Dell Supplier uses information to adjust their own production schedule by the most appropriate method for production.

- Dell made a tight coordination between its suppliers and biggest suppliers which is pushed back even further down the supply chain because of their share.

For Example –

Selectron Technologies build motherboards for dell that incorporate digital signal processing chips for Texas Instruments. To coordinate the supply chain, dell passes information to both Texas Instrument and Selectron. Texas Instrument then adjusts its schedules to Selectron’s needs, and Selectron adjusts its schedule to fit the order data it receives from dell. All of these coordination results the lower cost in the supply chain.

    Lowest level of cost of inventory

Lowest level of cost of inventory is a major source of competitive advantage in the computer industry, for this component cost account6s for 75% of revenue and gradually fall 1% per week due to rapid obsolescence

 

 Conclusion 

Dell’s competitive advantage is based on a direct selling model that eliminates wholesalers and retailers

and allows the company to lower prices. It combined with strong customer loyalty and strong internal

operation especially in supply chain management. Dell make their cost structure lowest in the industry and

gain cost leadership position when demand for personal computers fell in 2001 as well as cover the market

share.