Dell Computer: Organization of a Global Production Network

Essay by ansquareB-, October 2007

download word file, 26 pages 5.0

Downloaded 180 times

INTRODUCTIONIn 2001, Dell Computer became the world's largest personal computer vendor, continuing togain market share and post profits in an industry struggling with slumping sales and billions ofdollars in losses. Dell sells 90% of its PCs directly to the final customer, largely bypassing thereseller channel that accounts for most of the world's PC sales. This direct customer relationshipis the key to Dell's business model, and provides distinct advantages over the indirect salesmodel. Dell's direct relationship with the customer allows it to tailor its offerings to customerneeds, offer add-on products and services, and use the Internet to offer a variety of customerservices. In addition, Dell's PCs are built to customers' specifications upon receipt of an order,giving Dell additional advantages over indirect PC vendors who must try to forecast demand andship products based on those forecasts. Dell's direct sales and build-to-order model has achievedsuperior performance in the PC industry in terms of inventory turnover, reduced overhead, cashconversion, and return on investment (Kraemer, et al.,


Dell's business model is simple in concept, but very complex in execution. Building PCs toorder means that Dell must have parts and components on hand to build a wide array of possibleconfigurations with little advance notice. In order to fill orders quickly, Dell must have excellentmanufacturing and logistics capabilities supported by information systems that enable it tosubstitute information for inventory.

The demands of Dell's model have led it to adopt a new organizational structure referred to as avirtual company or value web (Figure 1). It is marked by a focus on a few key strategicactivities, and extensive outsourcing of non-strategic activities. Dell works closely with externalpartners to produce its PC products and to offer its customers an array of additional products andservices that add value and allow Dell to capture a larger share of the customer's IT...