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DELL COMPUTER CORPORATION A case study

Introduction

Dell Computer Corporation (DCC) founded in 1984


DCC came with innovative marketing strategies pioneered the culture of selling personal computers directly to the customers Dell designs, builds and customizes products and services to satisfy the end-user requirements

DCCs Mission

Dell shall be the most successful computer company in the world


DCC emphasizes on

Purpose: provide customers with superb value technology Business: high quality, relevant technology, customized systems Values: superior service and support, easy to buy, easy to use

DCCs Vision

Effective and strategic partnership with communities to provide basic technological access needs in the digital world
With power of direct and Dells talented team, the company is able to provide customers with superb technology, product, service and support Whatever changes the future may bring our vision

Strategic Formulation

Believes in centralization of its decision-making instead of trying to control everything from the United States
DCC operates on assemble-to-order system relying on inventories of components (monitors, processors, hard drives and chips) from the suppliers. Dell would use the SWOT analysis in its strategic management process to review its long-term The long-term objective shall emphasize efficiency in procurement, manufacturing, distribution.

Strategic Formulation continued

DCC business strategy should be focused on mass customization and just-in-time manufacturing.
Acquisition of companies of interest. Acquisition of experienced, sound, and quality leaders into the management of Dell Computer. Device ways that will help the organization in keeping the existing customers while setting strategies that will also opendoors for new customers.

Financial Position

Dell accrued revenues in January of 1994, 1995 and 1996 of 2,873 million dollars, 3,475 million dollars, and 5,296 million dollars respectively. This amounts to 20.9% and 52.4% increase in revenue annually to the company.
Dell had net operating cash income of 377 million dollars at as January of 2006 and total net income of 272 dollars for the same period. Dell should invest more in research and development and also direct its strategic management processes.

Conclusion

Dell Computer Corporation will have a brighter future if financial resources can be invested in recruiting qualified managerial staff to assimilate the strategic planning processes by streamlining the structure, revising its mission and vision and defining a clear set of values for the organization.

The Questions :

How was Dells working capital policy a competitive advantage? How did Dell fund its 52% growth in 1996?

The Questions :

Assuming Dell sales will grow 50% in 1997, how might the company fund this growth internally? How much would working capital need to be reduced and / or profit margin increased? What steps do you recommend the company take? How would your answer to the above question change if Dell also repurchased $500 million of common stock in 1997 and repaid the long-term debt?

Q 1. WORKING CAPITAL ADVANTAGE


Working Capital DSI reduced ( exhibit 2 ) Conservation of Capital ( Table A & exhibit 4 ) Low inventory Cost ( page no. 54 , ex.4 ) Build to Order Just in Time Quick adoption of New technology

Working Capital ( W.C.)


W.C. = Current Asset Current Liability Current Asset = Inventory , B.R., Debtors ,Cash Current Liability = B.P., Creditors , Loans & advance Goal of Company = Optimum Level of W.C. Excess W.C. = Carrying Cost, Interest on cost Shortage W.C. = Disturbance in production run , loss in revenue , loss of goodwill Winning Situation = Optimum Level of W.C.

Intersection of CC & SC

DELLs Competitive Advantage

Conservation of capital due to Lower Inventory holding

Compaq

Dell

DSI in 1995 73 32 ( Table A ) Cost of Sales of Dell in 95 = $2737mn. ( Ex.4 ) Additional inventory at Compaqs DSI = $ 2737 * ( 73 32 ) / 360 = $ 312 million

DELLs Competitive Advantage


Lower inventory cost

Component cost can reduce by 30% a year as new technology is introduced. Inventory as % of COS Dell (8.89%) and Compaq (20.28%) Inventory loss due to 30% reduction in price Dell (2.67%) and Compaq (6.08% of COS) Comparative increase in profit in Dell in 96 = $2.7 billion *(6.08%-2.67%) = $93 million ( pl. find the excel file for explanation Q1.)

DELLs Competitive Advantage

Build to Order Just in Time Quicker adoption of New technology : Compaq had to market both new and older systems due to high levels of inventory, Dell could offer new and faster systems quickly due to low inventory and build-to-order models

Question 2
Funding 52% Growth in 1996 Facts

95-Total Assets = 46 % of Sales 96-Total Assets = 41% of Sales

95- St investments = 14 % of Sales 96-St Investments = 11 % of Sales

Funding 52% Growth in 1996

95- Operating Assets = 32 % of Sales 96-Operating Assests= 29 % of Sales 95- Net Profit = 4.3% of Sales 96- Net Profit = 5. 1% of Sales

How Dell Funded 1996 Growth ?

Higher asset efficiency


Reduced cash, receivables, inventory and other current assets