DIFFERENCE IN
VALUE CHAIN
BETWEEN DELL AND
COMPAQ
DeLL
1984: 18-yr old Michael Dell upgrades IBM clones
selling them at less than 40% price
1985: Michael Dell starts manufacturing Dell
branded PCs
Revenues started rising with primary customers as
corporate clients
Business Strategy
Took orders directly from customers
Team of special sales representatives assigned to repeat
buyers
Subdivision of customer base into finer categories
○ Helped identifying unique opportunities
○ Economics
DeLL: Production Model
All orders taken based on customer
demands
No inventories
Five-person manufacturing cell
Process Flow
Hardwa
Softwar Shippin
re
e Burn in g and
assemb
loading delivery
ly
Supplier and production facilities located
near to each other
Direct shipment from supplier to
customers
spare parts/ standalone products
Product Offering
Reliable & stable series Latest technology series
Desktops Desktops
Laptops/Notebooks Laptops/Notebooks
Network Servers Network Servers
Workstations Workstations
Dell: Customer Base
Compaq: Timeline
Founded in 1982
Surpassed IBM as largest makers of PCs in
1994
In 1997 acquired Tandem computers for 3 billion
dollars
Sales and support staff doubles to 8000 heads
Corporate data centers has a new customer base
Acquired DEC for 9 billion dollars in 1998
Instant rise of manpower close to 22000
Access to highly reputed servicing and consulting
business
Business Model
PC business
Distribution
○ 67% through distributors and resellers
○ 25% through retailers
○ 4% through direct sales
○ 4% through miscellaneous channels
Maximum profit earner
○ Suffers heavily as IBM cuts PC server prices
○ Suffers a net loss of $ 2.7 billions
Compaq: Distribution Model
Launched a new production system in 1995
Based on forecasting by channel partners
Reduced inventory from 60 to 30 days
Launched ODM in July 1997
PCs built only after orders are received
○ Standard models
100% assembled at company plants
Delivered ready for installation to resellers
○ Customized machines
Stripped down version shipped to channel partners
Final assemblage done by them
○ Corporate PCs
80% at company plants
20% at channel partners
Price protection reduced from 7 weeks to 2 weeks
Inventory reduced from 65 to 45 – 50 days
Launched Direct Plus Program in Nov 1998
Meant for small SMEs
○ Support services, software modules & leasing programs
Direct placement of orders with company through
telephone and internet
Prices lower than those offered by the resellers
6-7 % referral fee for resellers on passing on orders
Average shipping time 5 days
Comparison: Value Chain
Comparison: Delivery Time
Comparison: Customer Interface
Compaq: Direct Plus Program
Dell: [Link]
50,000 Premier Page Extranets for corporate and
small business customers in 13 languages around
the world.
17 Premier Pages are customized for each customer
Pages include capabilities for procurement, asset
management, software upgrading, and technical
support.
Dell also provides tools for customers to create their
own pages.
Comparison: Customer Service
Dell decided to withdraw from the retail market and return to its roots
as a direct seller,
Helped the company’s profitability but also enabled it to put all of its
efforts into executing the direct model.
Dell also brought in a new chief operating officer Mort Topfer from
Motorola.
Topfer led Dell’s efforts to redefine its internal operations and tighten
its integration with suppliers and business partners.
Dell has focused on improving service and support to its large
business customers
by installing custom software,
keeping track of customers’ PC inventory,
allowing individual business users to order PCs directly
allowing electronic payment via the Internet.
Compaq
Direct Plus Program along with retailer and reseller model
Antagonized partenrs MicroAge and CompUSA