Matching Dell Case Analysis Essay

The PC industry can be analyzed using Porters Five Forces. The prototypal force is threat or barriers of entry. Here, the threat is high and barriers are low. Although certain brands induce the majority of the securities industry, the costs to manufacture are extremely low, and the prices of these components are declining annual at 25% to 30%. The capital required is relatively inexpensive, as well. Also, unbranded white box PC makers have become prevalent foreign showing anyone who can make a PC could make sales. In Buying Power, consumers have great power. There are a high proceeds of users but consumers have a wide variety of brands to choose from and have put much pressure on companies to make satisfactory products at safe(p) prices. Customers also have low switching costs. This force along with high demand was also partly responsible for the vigorous price war as many companies cut prices to match one another(prenominal) and satisfy consumers.Supplier power was also high. Intel and Microsoft ran near-monopolies in supplying microprocessors and operating systems, respectively. By 1998, 96% of completely PCs ran on Wintel. These two suppliers drew profits from all PC companies and minimized differentiation, as there were few substitutes and little options of switching to another supplier. The industrys degree of rivalry reflected its fierce competition. As computers became more common, demand rose, prices decreased, and demand grew stronger, boosting competition between manufacturers. This rivalry is essentially what sparked dingles competitors to try to simulate their business set and attempt to gain a rivalrous advantage for the future. Lastly, the threat of substitutes was low but growing. Consumers were becoming reliant on PCs as they became commodities but new technologies such as laptops, PDAs, and smartphones among others were slowly emerging. Business exampleAlthough Dell sold to a divers(prenominal) range of customer segments, they gen erally targeted the educated consumer, people knowledgeable about computers. Dell targeted them and wanted to avoid the inexperienced Transaction buyer. Because Dell sold customized PCs civilizely to the customer, they needed to know each computers specifications, thus making it difficult for inexperienced users to specify their needs. Dells stringent place to its suppliers sufficed as a large advantage. Dell arranged for suppliers tolocate their production facilities close to Dells to maximize the efficiency of operations. This allowed Dell and suppliers to cause closely with one another, integrating the organization and minimizing buffers. Dells unique production process is the part of the model that may deter most imitators. Dell had the advantage of handling fast and large orders and even having suppliers send shipments straight to customers in some cases. PerformanceDells success with the Direct Model led to rankings among the top of its competition in user ratings (Exhibi t A), a ranking first in ratings for high-end PCs, and allowed them to obtain the second and third spots for market share in the US and world, respectively. The financial statements that best measure Dells advantage are their inventory level ratios. Specifically, Dells age of inventory is significantly lower than competitors. Their low days of inventory ratio correlates to a very high return on invested capital and return on equity. Comparisons with competitors can be seen in the appendix (Exhibit B). Principal IssueDells success in financial returns and rapid growth has caused rivals to try to emulate their Direct Model in attempt to gain a competitive advantage and similar success. What is difficult to emulate in Dells model and how can they keep itself in this position and leverage sustained growth for the future using this model? AlternativesDell is the originator of the direct model and knows the form for success. Dells integrated production process with suppliers on a global scale, sole focus on distributing directly to customers, ability to effectively work a diverse customer base, and ability to provide high quality PCs at relatively low prices, has put them in a strong position ahead of competitors. Dell knows their capabilities, their customers, and knows exactly to focus on direct diffusion. IBM ranks alongside Dell in domestic and worldwide market share. As the first to recognize Dells threat of distribution, they took initiative immediately, responding with a joint operation with distributors and resellers called AAP. Many major distributors and resellers each invested tens of millions of dollars intothis program, which could result in the right way partnerships if successful. Compaq owned the largest market share in the industry for some time and are reliable to a number of segments.They also responded with their own model, ODM, which is also in conjunction with distributors and resellers similar to IBMs, and DirectPlus, selling directly to small and midsize companies. The company also recently acquired DEC, in which they would leverage their relationships to sell directly to DEC customers and accounts. HP created their own direct model with ESPP. Although their model was similar to IBM and Compaqs involving distributors and resellers, they specifically aimed to please these partners. HP offered incentives and would make resellers and distributors a larger part of the process. In result, 59% of resellers inform they were more willing to promote HP products than IBM and Compaq. Gateway may have been Dells largest threat as the worlds second largest direct seller arse Dell. They even briefly surpassed Dell in sales in 1994 and their days of inventory was at 10 days, only 3 behind Dells 7 in 1998. Gateway served mostly personal users but began serving large corporate accounts with Gateway Major Accounts, Inc. in 1997. yet in 1998, the company scaled this operation back as they could not afford to keep it up. CriteriaDe lls Direct Model had a competitive advantage rivals could not easily emulate through their relationship with large enterprise customers and their unique production process that involves a close relationship and location with suppliers. RecommendationDell is in a strong competitive position against its rivals because of the criteria of advantages in their model. Dells production process and close location and collaboration with suppliers on a global scale is a standard that is very difficult to emulate. IBM, Compaq, and HP tried their own versions of direct distribution models but failed to set off anywhere near the same efficiency with financial returns as Dell (Exhibit B). Also, these companies attempted to branch into Dells lane while continuing sell sales, which showed it is difficult to focus on both methods and see the same success. Gateway was arguably their biggest threat but could not compete due to their inability to serve large enterprise customers similarto Dell. Plan o f ActionDell should continue to focus on relatively low cost, quality customized products through direct distribution. As technology and computers evolve with more computer alternatives, they should adapt to producing a more diverse product line but continue the same production and distribution process that has brought the firm so much success thus far.