Matching Dell
...ir switching costs. Customization created space for innovators, but further increased the manufacturers’ costs and hence depressed the average profit level. 4. Intense rivalry with existing competitors Popularization of network and email applications stimulated the demand for PC, and the whole industry experienced high growth and attracted many entrants. The severe price wars posed a negative impact on the firms’ profitability. Huge expenses on marketing and sales occurred when companies tried to differentiate their products to occupy greater market share, which inevitably further hurt the procurement. 5. High threat of substitute products As processing costs declined, the lines between PCs and other devices blurred. At the lower end of the processing and memory spectrum, handled electronic organizers had begun to compete with the personal computer for applications such as electronic mail and portable computing, so PCs were facing the competition from the low end of the workstation market. Based on the Five Forces analysis, the personal computer market displayed high competition, but still embraced great potential opportunities. Internal Analysis Under the full-scale monitoring of the improved firm infrastructure, Dell had implemented cost leadership strategy that made it the most efficient PC manufacturer. The superior cost structure and supply chain management had been the competitive advantage for Dell to achieve the lowest inventory turnover (7 days) in the industry and add margin to its value chain despite the low average profitability. 1. Direct distribution channel Dell took order directly from customers, and over 70% percent of them were corporate users. From cost perspective, this incurred low cost of inventory, facilities and handling due to aggregation, and left no make-up portion for retailers. From service perspective, high response time and direct information enhanced Dell’s ability to guarantee quality service and achieve better customization . 2. Faster production process Dell worked closely with suppliers to arrange just-in-time delivery of parts, and encouraged suppliers to locate warehouse and production facilities close to its assembly operations. Therefore the assembly commenced only after receiving the orders, which kept the inventory low. This not only lowered the cost to increase margin, but also enabled the flexibility to the manufactures, especially when some of the key components, such as processor, were of high value and updated so fast (Appendix 1B). 3. Customer orientation Dell segmented customers into two large groups: relationship buyers and transaction buyers, and subdivided them into finer and finer categories along with its growth. Dell targeted mainly on corporate buyers who tended to be simple and repetitive. To support its product, Dell provided online, call center and on-site visit to answer enquiries and fix the problems. Working with service providers, Dell created measures of service quality to improve the flow of data in-between, and also conveyed information concerning defective parts back to its suppliers. The high standard customer services made Dell stand solid in the highly competitive market. Recommendations Price war was definitely not a good solution in such a low average profitability industry. Therefore Dell not only had to maintain its core competence, but also explore new competitive advantage in the marketplace. ...