Dell Analysis

An analysis and description of the Dell's current business model:

Currently Dell, a direct computer systems company, is the market leader in the PC business. Dell, created a cost-efficient way to sell their computers by "cutting out the middle man" and selling their computers directly to their customers. This direct sell method saves Dell three to five percent in inventory costs which would have otherwise been paid to retailers. Computer component costs are steadily decreasing so it is not beneficial for a computer manufacturer to keep volumes of inventory in stock over a long period of time. For example, if you buy a Compaq computer from a store, it may have been assembled with components that were in stock for three or more months. More than likely the Compaq computer will cost more than a Dell computer because its components were bought at their market price three months ago, whereas a Dell computer will cost less because its components will be bought at their current market price.

Dell produces a computer only when the customer requests and pays for the item. In essence, customers' funds are used to finance the transaction and this saves Dell millions of dollars in financing costs. The direct sell method is advantageous for Dell because the company maintains two days worth of inventory and this helps to save several million dollars in inventory holding costs.

Computer technology has been undergoing significant technological changes. Since many computer manufacturers maintain three to four months of inventory, they have to wait three to four months to bring new models to market. Manufacturers are also forced to mark down prices to sell older computer models. Dell on the other hand, can introduce a new model within a day or two and will not face losses like other computer manufacturers due to obsolescence.

Tailoring their computers to their customers' specifications