On a recent trip to Limerick, Ireland, I had the opportunity to see how one of the world’s largest PC manufacturers is doing it right. Dell has, over the past 10 years, chipped away at the market share of many of the largest PC vendors through the successful implementation of a model that was, according to the rest of the industry, destined to fail.
Dell sells its PCs over the Internet, over the phone and, occasionally, through a sales consultant.
So how, when the odds were stacked against it, has this company managed to make a success of its business? Simple — outsource your risk.
The company has a model that turns most low-margin, high-risk businesses green with envy. PCs are only built to order, no stock is kept and there are no middlemen. However, the company has also managed to minimise its risk by placing it in the hands of its suppliers.
Being a cynic I have often looked at the company and wondered what makes it tick. Surely the household names like IBM and HP, with established brands, huge research and development facilities and thousands of staff members, would eventually crush a small “Internet-based” company that was started by a college boy trying to earn a few extra bucks.
But Michael Dell has proved the world wrong and is now one of the richest men under 40 as well as one of the longest-serving CEOs on the Nasdaq. Dell has followed a few basic principles that have simply made good old business sense.
Firstly the company does not actually invent any technology, it takes tried-and-tested technologies and builds these into its offerings. This does not, however, mean that it is not an early adopter — the company has aligned itself with strategic partners worldwide who stay ahead of the techno-race. When the company feels the technology is right it implements that which is already tested by partners.
Secondly, manufacturing facilities are in countries where labour is cheaper, tax is an incentive and governments bend over backwards to get the business. The facility in Limerick is perhaps the best example of this. Walking through rows upon rows of workers “building” machines is an experience of a lifetime. Everything is done by hand, the facility carries a maximum of four days of inventory and, as each PC is boxed, it is placed directly into a waiting UPS van.
Thirdly, the risk element. What risk? Dell’s low inventory and incentive-driven business leave little room for this. In fact its suppliers sit with the headaches — if stocks are low and orders are backing up the company simply gets someone else to deliver the required parts.
And, fourthly, the company has managed to use technology to its advantage. All orders, even if telephonic, are placed in its central database over the Internet. These are then fed into the factory planner system, which plans what stock it needs on the shelves to complete any given order, no more than four hours ahead. This model, if anything, should have huge risks, but perhaps the economic downturn and businesses’ hunger for business has had something to do with the fact that the company has experienced few disasters and, according to David Kelly, head of the Dell Limerick facility, no serious ones.
One of the most attractive things about the company’s model is not the price of its machines, the cutting-edge technology or the speed of its delivery, but the quality of its customer database. What sets this apart is that every customer, no matter how small, is entered into the system and tracked. The database also records the exact configuration of every machine ordered and who ordered it.
Now if we all had that kind of view of our customers where would we want to take our businesses?
Charlene Carroll edits Domain. She can be reached on [email protected]