DELL COMPUTER CORPORATIONA case study

Introduction Dell Computer Corporation (DCC) founded in 1984

DCC came with innovative marketing strategies

pioneered the culture of selling personal computers directly to the customers

Dell designs, builds and customizes products and services to satisfy the end-user requirements

DCC’s Mission Dell shall be the most successful computer company in the

world

DCC emphasizes on Purpose: provide customers with superb value technology

Business: high quality, relevant technology, customized systems

Values: superior service and support, easy to buy, easy to use

DCC’s Vision Effective and strategic partnership with communities to

provide basic technological access needs in the digital world

With power of direct and Dell’s talented team, the company is able to provide customers with superb technology, product, service and support

Whatever changes the future may bring our vision

Strategic Formulation Believes in centralization of its decision-making instead of trying to control

everything from the United States

DCC operates on assemble-to-order system relying on inventories of components (monitors, processors, hard drives and chips) from the suppliers.

Dell would use the SWOT analysis in its strategic management process to review its long-term

The long-term objective shall emphasize efficiency in procurement, manufacturing, distribution.

Strategic Formulation continued…

DCC business strategy should be focused on mass customization and just-in-time manufacturing.

Acquisition of companies of interest.

Acquisition of experienced, sound, and quality leaders into the management of Dell Computer.

Device ways that will help the organization in keeping the existing customers while setting strategies that will also open-doors for new customers.

Financial Position Dell accrued revenues in January of 1994, 1995 and 1996 of 2,873

million dollars, 3,475 million dollars, and 5,296 million dollars respectively. This amounts to 20.9% and 52.4% increase in revenue annually to the company.

Dell had net operating cash income of 377 million dollars at as January of 2006 and total net income of 272 dollars for the same period.

Dell should invest more in research and development and also direct its strategic management processes.

Conclusion Dell Computer Corporation will have a brighter future if

financial resources can be invested in recruiting qualified managerial staff to assimilate the strategic planning processes by streamlining the structure, revising its mission and vision and defining a clear set of values for the organization.

The Questions :The Questions :

How was Dell’s working capital policy a competitive advantage?

How did Dell fund its 52% growth in 1996?

The Questions :The Questions : Assuming Dell sales will grow 50% in 1997, how

might the company fund this growth internally? How much would working capital need to be reduced and / or profit margin increased? What steps do you recommend the company take?

How would your answer to the above question change if Dell also repurchased $500 million of common stock in 1997 and repaid the long-term debt?

Q 1. WORKING CAPITAL ADVANTAGE

Working Capital DSI reduced ( exhibit 2 ) Conservation of Capital ( Table A & exhibit 4 ) Low inventory Cost ( page no. 54 , ex.4 ) Build to Order Just in Time Quick adoption of New technology

Working Capital ( W.C.) W.C. = Current Asset – Current Liability

Current Asset = Inventory , B.R., Debtors ,Cash …Current Liability = B.P., Creditors , Loans & advanceGoal of Company = Optimum Level of W.C.

Excess W.C. = Carrying Cost, Interest on costShortage W.C. = Disturbance in production run , loss in

revenue , loss of goodwillWinning Situation = Optimum Level of W.C.

Intersection of CC & SC

DELL’s Competitive Advantage

Conservation of capital due to Lower Inventory holding

Compaq Dell DSI in 1995 73 32 ( Table A ) Cost of Sales of Dell in 95 = $2737mn. ( Ex.4 ) Additional inventory at Compaq’s DSI = $ 2737 * ( 73 – 32 ) / 360 = $ 312 million

DELL’s Competitive AdvantageLower inventory cost Component cost can reduce by 30% a year as

new technology is introduced. Inventory as % of COS – Dell (8.89%) and

Compaq (20.28%) Inventory loss due to 30% reduction in price –

Dell (2.67%) and Compaq (6.08% of COS) Comparative increase in profit in Dell in 96 = $2.7 billion *(6.08%-2.67%) = $93 million

( pl. find the excel file for explanation Q1.)

DELL’s Competitive Advantage

Build to Order Just in Time Quicker adoption of New technology : Compaq had to market both new and older

systems due to high levels of inventory, Dell could offer new and faster systems quickly due to low inventory and build-to-order models

Question 2Funding 52% Growth in 1996Facts 95-Total Assets = 46 % of Sales 96-Total Assets = 41% of Sales

95- St investments = 14 % of Sales 96-St Investments = 11 % of Sales

Funding 52% Growth in 1996

95- Operating Assets = 32 % of Sales 96-Operating Assests= 29 % of Sales

95- Net Profit = 4.3% of Sales 96- Net Profit = 5. 1% of Sales

How Dell Funded 1996 Growth ?

Higher asset efficiency

Reduced cash, receivables, inventory and other current assets