Dell's case: the build-to-order business model

Résumé du document

Michael Dell founded the company in 1984 while he was at the University of Texas at Austin. He began by selling improvements of IBM-compatible PCs and started to sell his own brand of PCs one year later (the Turbo). The concept was very simple: from the beginning Dell's business model was based on direct sales. Taking order by telephone or today thanks Internet, PC's fitted exactly customers' needs by selling computers directly to customers at very competitive prices. This direct business model eliminates retailers that add unnecessary time and cost, or can diminish Dell's understanding of customer expectations.
« At Dell, our approach to innovation focuses on customer requirements. Customers define what is important. Dell innovates internally and through collaboration with others in the industry. Many of Dell's innovations are shared through standards, rather than locking customers into proprietary solutions. Customers gain flexibility and real value. This approach is direct, customer-driven innovation." Kevin Kettler, Chief Technology Officer.
Dell also introduces the latest relevant technologies much more quickly than its competitors. For example, in 1987, Dell was the first computer systems company to offer next-day, on-site product service. Moreover, in 1996, Dell launched its website www.dell.com and customers started buying computers online.

Extraits

[...] Thus Dell was the first among PCs' sellers to use Internet as a distribution channel. This new way of distributing requires changes in the whole organization. Here it is important to use the concept of value chain developed by Porter and Millar (2001), system of interdependent activities which are connected by linkages Information technology transforms the value chain. Direct PC value chain: Dell's hardware delivery system* * from The disintermediation was of course not new but the use of IT and Internet is permeating the value chain at every point, both primary and support activities are efficiently affected. [...]

[...] We can here highlight the paradox between Dell's low cost business model and its high innovation rate. I found an explanation of this paradox in an interview of CIO Randy Mott arguing that the company has gradually decreased the number of IT staffers who maintain and support IT systems and those people work in developing new software and new products. So the Dell's business model shows that innovation can be costless just by reallocating more efficiently resources within the organization. [...]

[...] Dell's use of IT technology has been a key point in implementing its business model, build-to-order process and direct sales. Then I will discuss Dell's business strategy and its linkages with technology as a conclusion and syntheses of the case. Dell and the technology complex: the build-to-order business model Dell's build-to-order production (BOT) applies the principles of the lean production and just-in-time which were first developed in Japanese manufactures, like for instance Toyota. It seems to me interesting here to use the technology complex in order to have a holistic approach of all elements that compose the BOT business model. [...]

[...] Today Dell is one of the three PCs' vendors with Compaq and IBM, its main competitors in the PC industry and in 2006 it announced having sold more than 10 millions computer systems in a single quarter for the first time in its history. How can we explain Dell's success? How does IT technology allow the company to get and to maintain a competitive advantage? What are the strategy-technology relationships? First I would like to focus on the role and the use of technology in Dell's business model. [...]

[...] As a computer is built only after being ordered, excessive and obsolete inventory can be avoided. Moreover Dell set up an original way to reduce inventory costs: Dell takes possession of the components only when they cross a white painted line at the entrance to the manufacturing lines. Dell has improved its own supply chain using i2 solutions (in fact there are two technologies software) to plan orders and signal suppliers every two hours, which enables Dell to manufacture and deliver exactly what its customers want. [...]