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Case Study: Dell’s Competitive Advantage
Dell Computer is a leader in the e-commerce computer hardware market. It is an established brand that
leads personal computer manufacturers both in U.S. sales and overall online sales. Its trademark
method of selling products to customers, corporate and individual consumers, originates from the Dell
Direct model, a Web-enabled infrastructure that allows customers to customize their PCs and order
other products they need or desire. This virtual integration structure eliminates the need to
manufacture everything, and instead uses the power of the Internet to share and exchange information
with suppliers and vendors to build a truly superior supply chain that keeps inventory turnover low and
costs to a minimum.
Dell's Competitive Advantage Case Study
The primary method Dell uses in order to achieve and sustain their competitive advantage is a unique,
direct to customer business model. The model is known as Dell Direct, referring to the relationship
between the company and its customers as being “direct.” This model helps Dell focus on price for
customization, service and support, performance, latest technology and superior shareholder value.
Additionally, Dell is able to distinguish itself from its competitors with its customized on- demand
manufacturing. Through customization of the products manufactured by dell, the company has the
ability to offer more value for the money of its customers due to the removal of the intermediaries in
the manufacturing, procurement and distribution processes of Dell.
Dell’s primary resources include the most advanced technology, which allows the company to
successfully move along their superior supply chain and achieve the value they strive for. Dell’s value
chain allows Dell and its suppliers to exchange information and interact with each other. The Internet,
Dell’s important IT factor in its success, results in lower costs to customers than other retailers, the
customers tell Dell exactly what they want and Dell creates products for the consumer without
experiencing wasteful resources in production.
Overall, it is evident that Dell’s competitive advantage lies in its Direct model success. Through Dell’s IT
performance, which combines its resources, its relationship with suppliers and its consumer
communication capabilities, Dell has attained a big advantage over its competitors.
Analysis of Dell’s Business Model
The four markets within an industry are defined as Business to Business, Business to Consumer,
Consumer to Business, and Consumer to Consumer. Dell focuses on Business to Business and Business to
Consumer commerce to satisfy their business and individual customers. Dell differentiates between
classes of customers because the needs of their business customers, who buy large quantities of
computers, are different than the individuals who want to configure a single unit. Dell’s business model
is no secret, of course, and it’s been emulated with considerably less success by many of its competitors.
Dell’s initial success was due to its early implementation of the internet as the means of sales and
marketing. Dell’s direct-to-the-customer strategy presents a highly attractive cost advantage that’s
tough to ignore. Their direct interaction with their customers continues to be a key driver in sales for the
quarter. Dell’s early work with using the internet helped them get a jump on their competition while
their competition was finding it difficult to conduct successful Business to Business operations online
since exchanges are still in their infancy and many haven’t even gone live yet. Matching customer ease
of ordering and direct interaction through the internet proved successful because Dell believes that it is
the customer that drives the business model.
Dell recognized the challenges in dealing with the customers and fragmented them into two distinctive
groups with different needs, dealing with the business customers (like corporations) and dealing with
individual customers. Dell has done a remarkable job managing these two different types of consumers
thus far. In the last couple of years, Dell decided to split their operations into two different websites
with separate B2B sites. With separate sites, Dell planned to simplify the Internet procurement process
for businesses and institutions of all sizes, generating savings that can range to millions of dollars
annually for large customers. However, this idea failed, and Dell had to shut down its B2B site, four
months after it launched. Dell said that the site failed to attract more than three suppliers.
Analysis of Dell’s Competitive Advantage
Dell carries the tag of being, one of the best computer systems company in the world. Dell is able to
sustain a competitive advantage over competitors in the computer industry because of an extremely
efficient supply chain/distribution system. Dell is able to achieve superior profits in the industry because
they are a knowledgeable user of information, communication, e-commerce, e-business, internet, and
web technologies.
Dell implements a Just-In-Time inventory system which operates on only 6 days of inventory. Dell is able
to achieve greater profit margins and increased profits because of their inventory system. Inventory and
labor are the highest liabilities of a firm. Operating only with 6 days of inventory, allows Dell to reduce
its expenses on hiring people to track and maintain inventory, warehousing, and holding on to obsolete
technology. This allows Dell to free up cash flow to invest in other value adding activities.
The direct Model strategy compels the company to use a JIT inventory system, as the customers are only
allowed to order directly from Dell. Dell uses their website [Link] to take customer’s orders. The
organization focuses on direct sales, cutting out other distribution channels entirely. This allows for a
deeper relationship with the customers whereby Dell can offer their customer’s better service, savings,
convenience, and efficiency.
Dell’s use of the internet has revolutionized the company. Dells extremely consumer friendly website
offers the customers to place their orders with ease. The separate “Premier Pages” on Dells website
designed for Dell’s large accounts like corporation, educational institutions and Government, delivers
easy navigation, dynamic price upgrades and wide range of available options. Customer relationship
management software keeps close tabs on the types of computers that customers are buying.
Not only does Dell use the internet to make the customer ordering process easier. They also use the
internet to build better relationships with their suppliers. In order for Dell to work off of 6 days of
inventory, their suppliers have to be very involved in the company to make sure superior service is met.
The use of state of art production planning programs assist in predicting the quantities of components
needed to build the computers. The forecast is passed to the supplier, who respond with cost estimates
and plan their production as a result.
Dell’s e-commerce is a huge part of their competitive advantage. Their e-commerce internet
infrastructure is so advanced and knowledgeable that by using it to determine trends and demands of
their products, they have gained superiority over their competitors.
Dell has set up strategic alliances with other companies to have their products sold on Dell’s direct
selling distribution channel. Back in 2000, Palm, Inc. made an agreement with Dell to offer an expanded
line of handheld Palm products and accessories. This agreement allowed Dell to drive momentum for
the Palm operating system market. Along with Palm, Xerox also partnered with Dell to take advantage of
Dell’s e-commerce. Advantages to Xerox were increased profits by offering the printers with the Dell
computers. Advantages to Dell include selling high quality printers along with their computers, but more
importantly, it allowed Dell to be involved in the customer buying process for printers. Being involved in
the decision making process is the key to Dell’s success because they see directly what the customers
want and determine their production schedule from that information.
Dell achieves its competitive advantage over other firms in the industry by having superior supply chain
management. Dell utilizes technology to interpret information. By being involved in the customer buying
process they are able to determine their customers’ needs. This allows Dell to streamline production
and have close relationships with their suppliers which results in getting timely deliveries in order to
mass customize customer’s computers.
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