Dell: to Hell and Back Again?
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Dell, a company ranked in February 2005 as the “Most Admired Company” in the world by
Fortune Magazine, is experiencing problem after problem these days. In the wake of recent scandals surrounding exploding laptops, lack luster technical support, declining market confidence, shrinking market share, the sudden removal of CEO Kevin Rollins, a class action investor-driven lawsuit, kickbacks, stock backdating and the return of the venerable Michael Dell, can the mammoth computer manufacturer recover and return to the top of the mountain it has just so recently tumbled down?
Dell started its life as PC's Limited from an off-campus dorm room inhabited by the young Michael Dell. With a simple mantra of using available off-the-shelf components to build mass-produced personalized systems in a direct-to-customer retail model Dell quickly grew his company from its humble beginnings into a force to be reckoned with in the computer industry. Dell started with barely $1,000 in his pocket when he started building his first computer and in a real tale of business success Dell currently employs more than a million people in dozens of countries.
The success of the Dell formula lay in its ability to speak directly to the end-user through its website and toll-free numbers and to efficiently manage its supply chain in order to produce a product at its absolute lowest cost. Dell early on rejected the traditional marketing method of operating through various retailers in order to deliver its product from its factory to the consumer and, through the years, has turned its direct sales model into an envied and admirable model of efficiency and production speed.
The greatest success of Dell's direct sales model is that it allows the company to operate in a negative cash flow cycle: the ability to take payment for the product before it ever pays for the materials involved in its production. Utilizing a method widely employed by the automotive industry called "just-in-time" (JIT) delivery Dell orders the components needed for production as it needs them. This means that the concept of maintaining an inventory of components as most traditional businesses do is anathema to the Dell manufacturing process. Many manufacturers in the computer industry, including Gateway and Hewlett-Packard, have attempted to adopt this method but none have ever succeeded at it in the same way that Dell has.
This savvy manufacturing method, while not the only factor, has proven to be Dell's greatest strength and may, ultimately, be its downfall.
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