There are many reasons that Dell Inc. has been successful over the years. Two of the most compelling reasons are its direct sales model and its ultra-efficient global supply chain. While a start-up can’t quickly emulate what Dell has done, there are lessons to be learned from Dell’s experiences that any start-up can benefit from. Historically at least, Dell’s approach to business made it the preferred computer brand for many businesses and consumers. Additionally, the business approach has sweetened Dell’s financial statements and its ability to make money.

Dell’s Hybrid Sales Approach (Combining Direct Sales and Retail Sales)
Dell was founded in 1988 touting a direct sales model. Rather than selling through stores, like Sears and Circuit City, Dell sold direct, first over the phone and then via the Internet. Its business model not only allowed businesses and consumers to “customize” their computers, but had profound positive effects on Dell’s supply chain and financial activities. Other PC manufacturers had to forecast demand, build computers, ship them to retailers, hope they’d sell, and then wait 30 days or more for payment. Dell sidestepped all of this via its direct sales model. It received orders, built computers, and then shipped them to the buyers via UPS or FedEx. There was no “forecasting” of demand because demand was determined in real time, and Dell never got stuck with outdated computers because it maintained no inventory.
Its customers also essentially financed its operations by paying in advance.
Dell maintained this business model from 1988 until 2007, when it shifted its sales strategy. Rather than selling exclusively direct, it decided to transition to a hybrid model, where it would continue to emphasize direct sales, but also sell a portion of its product line through retailers like Best Buy, Staples, and Walmart.
The main reason for the change was that Dell was shifting its emphasis from targeting businesses to targeting businesses, consumers, and international markets. The thinking was that it needed to have its computers side-by-side with its competitors in consumer channels, if it hoped to become the preferred computer vendor for consumers along with businesses.
It was also problematic to sell exclusively direct in some international markets.
Dell doesn’t disclose the percentage of its sales that originate through its Web site or over the phone (its original direct sales model) versus the percentage of its sales that come through retail outlets. It’s clear though that a significant portion of its sales now occur online and over the phone and an increasing percentage of its sales are generated through retail outlets.

Discussion Questions
1. Investigate the financial ratio of inventory turnover. Find current information about Dell (www.hoovers.com is a good starting place) and report whether its inventory turnover is still as impressive as the number mentioned in the case. How does Dell’s current inventory turnover ratio compare to that of its direct competitors? Do the same for Dell’s asset turnover ratio.
2. Locate Dell’s most recent 10-K report and either locate or compute what you believe are the three most important financial ratios for Dell. Are the ratios impressive or do they provide you reason for concern?

3. If you were the CEO of HP, how would you respond to Dell’s hybrid sales approach?
4. What lessons can a young entrepreneurial firm learn from Dell’s experiences?

Application Questions
1. Find an example of a start-up that is emulating Dell in one or more ways as it pertains to the topics in this case. Provide a brief description of what the company is doing, and how what the company is doing resembles either Dell’s hybrid sales approach or its approach to supply chain management and manufacturing.
2. Write a brief analysis of what you believe the future holds for Dell. Include in the analysis whether you think Dell will be able to maintain its edge in supply chain management and manufacturing excellence, or whether you think switching to a hybrid sales model will result in Dell starting to resemble other computer companies, rather than remaining unique.