DELL’S WORKING CAPITAL Harvard Case Solution & Analysis

DELL’S WORKING CAPITAL Case Study Solution

Company background

The computer corporation named DELL Company was founded by Michael Dell in 1984. The company used to manufacture and service best performing personal computers which were compatible with the industry standards. In the start, the company did not have any manufacturing because it used to sell the IBM computers to businesses by receiving a mail order. However, in the later years, the company began to manufacture its own personal computers which aresold under the brand name of Dell.The company started taking orders over atoll-free telephone line and by shipping to customers without any intermediary. This led to low-cost operations for the company as there was no intermediary.

The company has the strategy of direct sales to the customers and the advertising campaign launched by the company includesadvertising in computer trade magazines and in a catalog. Dell isusing this cheap method of marketing which leads to lower costs being incurred on marketing the products and generating enough sales for the company. On the other hand, the production cycle used by the company isthat the company does not produce any component until an order is received from the customer and as soon as the order is received, the company tries its best in order to sell the personal computer demanded by the client. The company named this model as abuild to order model as the product issupplied when the order isreceived from the customer.This led to a competitive advantage for the company as relatively, this method gave two key benefits to the company. Firstly, the company doesnot have to maintain an inventory level and secondly, the company can customize the product accordingly to the customer. This provided a competitive advantage to the company and led to a high market share and a high level of sales for the company. Dell was the first company in the computer manufacturing industry to launch a toll-free number which can be used by the customers to service their products or to order and this was due to the fact that the company wanted to differentiate itself from its competitors. This differentiation strategy combined with the build to order model helped the company grow in the initial years as the industry had big giants operating from a number of years and it would have been difficult for the company to compete if it did not have any differentiation strategy.The build to order also made the company closer to the customers as any company which is closer to the company would know the customer’s preferences better than other companies and hence the chance of failure or losses is reduced by the company in this way.

SWOT ANALYSIS

Strengths

The company has a build to order model which leads to the company manufacturing those products which are customized and are made when the customer orders to purchase the product.

The company maintains the lowest levels of inventory if compared with the industry as the company only orders the inventory when needed and maintains a small inventory stock in the warehouse.

The toll-free telephone numbers are given to the customers so that they can order or get the service free from the company.

The company has a well-established brand in the market as opposed to its competitors

DELL’S WORKING CAPITAL Harvard Case Solution & Analysis

 

Weaknesses

The company has a declining gross profit margin which is 32% in 1992 and 20% in 1996.The gross profit margin was continuously decreasing each year and in 1996 it became 20%.

The company had a declining net profit margin in 1992 which is6%, whereas in 1996 it became 5%. The company has avolatile net profit margin as it is declining in some years and increasing in some years.

The relationship of the company with the computer retailers is not thought to be good and this is not good for the company.

Opportunities

The company has the opportunity to charge premium prices for its products as those new technology products are first launched by Dell and then by acompetitor. The company can adopt market skimming pricing strategy.

The company can expand in other countries as its competitors have expanded in other areas of the world.

The company has the opportunity to introduce new products in the market.

The company can sell the products through websites to the customers in future and this will save the telephone bills incurred.

Threats

The large established competitors such as Compaqcan make it difficult for the company to survive and have a good market share of the overall market.

The new companies can enter the market which can increase the level of competition for Dell in future.

The competitor can make the products and can compete with Dell as Dell does not manufacture many products.

The competitors can have price wars against the company in order to win customers and increase market share.

Porter five forces

Bargaining power of customers

The negotiating power of customers is high as there are numerous suppliers of the same product in the market and this leads to wide variety choices for the customer, so they can easily switch from one supplier to another.The reason for this is that there is little or no difference in the products of the competitors and Dell. The buyers of Dell have a higher price elasticity of demand and hence their bargaining power is high......................

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