Dell’s Direct Model

Touted as a "brilliant managerial model" and an innovation in the

distribution business, the Dell direct model is what makes Dell distinct among

the motley of PC manufacturers. Essentially, the model is different because, the

products are shipped directly from the manufacturing factory to the customer,

eliminating the need for intermediaries. A customer logs on to the company’s

Web site, and orders a PC or multiples of the same, with the specifications. And

as soon the order is received, it is "built-to-order" at Dell’s

factory using the supply stock reserve and delivered to the customer the same

day, or within a maximum of 10 days from the date of ordering the system. Dell,

a $25-billion dollar company, has used this model for large corporates and for

the single PC-requiring homes in the consumer segment. The company passes on the

cost benefit to the customer as there are no retailers or resellers adding to

the cost and time in the supply chain. This not only makes the customer happy

but also the company very profitable. Says Chip Saunders, president, Dell,

Asia-Pacific, "We have about 50% of the profit pool of the whole PC

industry."

Dell started the commercial launch of the direct model as early as 1996 in

the US, which proved to be an instant success. In less than a year of

introducing this model, the company’s worldwide market share for PCs went up

to number three from the earlier number eight position. In 1996 and 1997, Dell

was the top performing stock among the Nasdaq100, and represented the top

performing US stock on Dow Jones. The company’s financial performance and

higher market share was unbeatable by competitors. Because of its adopting this

model, the company has no need for price protection, and does away with

inventory pile-up or technology obsolescence, key issues to determine the

success in the distribution business. The company addresses five issues in the

direct business model, which include price for performance, customization,

service and support, latest technology, and superior shareholder value. At one

of the annual general meetings with the stockholders, Michael Dell, CEO, Dell,

made a presentation with just one slide about Dell stock performance. That’s

all I have to say, he concluded much to the astonishment of the stockholders.

Direct in Asia



While Dell’s model was a roaring success in the US, thanks to the
well-developed infrastructure, high penetration of computers and a good chunk of

Internet users; Dell’s challenge was to execute the model in rest of the

world. Dell launched its direct model in Asia a few years ago. While skeptics

had their doubts, Dell has successfully replicated the direct model in several

countries across the Asia-Pacific. The company, nevertheless, had to "sell

the idea" to the corporate in these countries through sales force, by

getting the top brass to order the PCs on the Internet. Again, unlike in the US

market, Dell is not competing to make it to the number-one slot in the Chinese

market. Also, the company’s entire focus is on the huge corporate segment and

not the less-affluent home segment. The company started off by wooing large

corporations and public sector units, such as insurance companies, banks and

government organizations with factors of "speed, convenience and

service". The key advantage is its manufacturing plant in Xiamen, where the

assembly of the PCs takes place, soon after receiving the order. Care is taken

to deliver the goods before the tenth day of the date of order placement.

Although the degree of profitability is not known, notably in the first year of

introducing the Dell direct model in China, the company made its way into the

top ten PC vendors, at number eight position, despite its premium price when

compared to Chinese brand PCs in the market.

India is its latest target. Recently, Dell launched the Direct Dell in India.

Processes have already been set in place for Dell to invoice customers in the

local currency. The company has also set up toll free numbers for customers in

India for direct sales, service and technical support. If other companies try to

replicate the Dell model, then it could mean the end of the channel players.

Luckily for the channels, efforts by other vendors have not been successful.