Course: Management Information System

DELL LEVERAGES THE INTERNET

When Michael Dell started Dell in 1984, personal computers were sold only in retail stores. Manufacturers shipped to wholesalers, who shipped to retail stores, which sold to end users. Companies maintained expensive inventories at each stage of the supply chain. Dell thought that if he could eliminate the retail channel by selling computers directly to consumers, he could dramatically reduce the machines' prices. In 2004, while speaking to a group of students in New York City, he recalled,

"I was inspired by how I saw computers being sold. It seemed to me that it was very expensive and it was inefficient. A computer cost at the time about $3,000 but there were only about $600 worth of parts inside the computer. And so I figured, hey, what if you sold the computer for $800? You don't need to sell it for $3,000. And so we changed the whole way computers are being sold by lowering the cost of distribution and sales and taking out this extra cost that was inefficient."

"Now, what I didn't know was that the Internet would come along and now people can go on the Internet and they can go to www.dell.com and buy a computer that makes it a lot easier."

"I'd say the most important thing we did was to listen very carefully to our customers. We asked, what do they want, what do they need and how can we meet their needs and provide something that's really valuable to them? Because if we could take care of our customers, they'll want to buy more products from us, and they have."

Indeed, they have. In 2008, Dell's revenue topped $61 billion, representing over 17.5% of the computer hardware market. Dell employs over 50,000 people worldwide, and its investors have benefited as well. A share of Dell purchased for $8.50 in the initial public offering would be worth over $2,400 in 2008 (allowing for multiple stock splits over the years).

Eliminating retail stores not only recued costs but it also brought Dell closer to the customer, enabling it to listen better than the competition. It also eliminated sales channel inventories, which allowed Dell to bring new computers with new technology to the customer. This eliminates the need to recycle or sell off pipeline inventory whenever a new model is announced. In fact, today Dell builds every computer system to order. Every computer in Dell's finished goods inventory has already been sold off! Additionally, Dell focused on its suppliers and has one of the most efficient supply chains in the industry. Dell pays close attention to its suppliers and shares information with them on product quality, inventory, and related subjects via its secure site valuechain.dell.com. According to its Web site, the first two qualities Dell looks for in suppliers are (1) cost competitiveness and (2) an understanding of Dell's business. Dell listens to its customers, and it expects its suppliers to do the same in return.

In addition to computer hardware, Dell provides a variety of services. (1) It provides basic technical support with every computer, and customers can upgrade this basic support by purchasing one of four higher levels of support. Additionally, (2) Dell offers deployment services to organizations to configure and deploy Dell systems, both hardware and preinstalled software, into customers' user environments. Dell offers additional services to (3) maintain and manage Dell systems once they have been deployed.

QUESTIONS

(a) Discuss whether selling directly to the consumer has given Dell competitive advantage.

(b) Discuss four (4) other strategic business objectives of information systems identified in this case study.

(c) What information system, platform, or technology is used by Dell in order to sell directly to the consumer?

(d) The internet has allowed for disintermediation, which removes intermediaries from the supply chain, thereby eliminating the "middle-men" (such as distributors) from transactions. Discuss (i) what disintermediation is; as well as (ii) two (2) of its advantages and two (2) of its disadvantages as identified in this case study?

(e) Besides selling directly to the customer, identify (from the case study) and briefly discuss two (2) other programs that Dell created that contributed to the company gaining competitive advantage over its rivals. Do you think Dell can maintain competitive advantage over its competitors? Why or why not?