Solutions for Dell: Raise inventory? Increase selling through retailers?
August 15, 2006 by SwizStick
Filed under Uncategorized
Dell has long been a champion of the direct-to-consumer business model and is widely known as an innovator of the lean supply chain. However, Dell’s stock value has dropped considerably over the past 12 months and according to William Trent over at Seeking Alpha, perhaps it is time Dell revamped its vaunted direct-to-consumer supply chain model. One of the solutions he subscribes to involves doing the exact opposite: selling through retailers:
For one thing, ever-lower average selling prices mean that the shipping costs constitute a larger percentage of the total price. Shipping many units to a few retailers (rather than to many customers) may now be the more efficient option.
I don’t know about that. One of Dell’s greatest successes has been their optimization of the direct-to-consumer model. This is one of Dell’s core competencies and you don’t reverse or drastically change a company’s core competency just because they had a bad year. More often than not companies fare poorly when they abandon or significantly alter their core competencies. While Dell should certainly take a close look at their core competencies and find out if there is room for improvement or changes that need to be made, they shouldn’t pursue an alternate retail strategy that is so strongly at odds to their basic business model. And I don’t buy the reasoning about shipping costs. I just don’t see people avoiding computer purchases simply because the relatively fixed shipping cost is now a larger percentage of the reduce selling price.
The second solution he proposes? Increase inventory:
First of all, the obvious comment is that DELL did not rapidly introduce the latest relevant technology from AMD (AMD), and paid dearly for its allegiance to Intel. Secondly, is customization really all it’s cracked up to be? We went online recently and chose one of the basic configurations presented (as we suspect many do) and were told the estimated ship date was two weeks in the future. At CDW (CDWC), a similarly equipped computer was more expensive but shipped the same day. While DELL may be better for companies with plenty of time to plan orders, what about the guy that needs a new notebook NOW? Would it really kill DELL to have a whole week’s worth of inventory, with the extra couple of days being pre-assembled commonly-ordered systems?
This solution is a bit more reasonable. Dell created the ideal direct-to-consumer customized PC business model and now everybody has copied it. Name a PC manufacturer today who doesn’t have a Dell-like direct-to-consumer model where customers can order their own customized PC online or via toll free number. And I know from my own personal experience – like the author’s – I would much rather pay slightly more via a competitor to get the PC or notebook I wanted shipped today rather than wait 1-2 weeks as is sometimes the case with Dell. There are literally dozens of previously unknown custom PC companies who have capitalized on copying the Dell sales model except with flashier, higher performance parts and accessories and faster turnaround times. Dell should improve inventory to fulfill orders quicker and keep the impulse buyer happy.
On a non-supply chain note, Dell also goofed big time with its stubborn loyalty to Intel. Being late to the game with the latest technology from AMD only hurt Dell’s standing with hardcore computer enthusiasts and PC gamers – who simply turned to one of those fledgling PC companies I mentioned earlier who offered fully customizable AMD-based systems with hotter parts and accessories with a faster turnaround time.
Trent on Wed, 16th Aug 2006 6:59 am
Thanks for the mention. To clarify the first point, I wasn’t actually proposing that DELL go to the retail channel. Rather, I believe that shipping efficiencies may have turned the tables on DELL – at least temporarily. What used to be its competitive advantage may now be serving as a disadvantage and accounting for some of DELL’s underperformance. It was an explanation of the performance rather than a proposed solution.
DELL is, in fact, opening retail outlets. But stubbornly they are using them only as storefronts to try out and order a computer that will be delivered in a couple of weeks. Here especially they should have enough inventory to cover common system configurations on the spot.
3plwire on Wed, 16th Aug 2006 3:26 pm
Thanks for the clarification and yes, I am aware that Dell is opening retail outlets but I don’t really consider them true “retail” since, as you said, they will basically just be storefronts for people to order computers that will arrive later. I too think this is a stupid move. Why waste the money and resources to open brick and mortar stores so that people can order a computer to be delivered in the future – when they can already do so online and via the phone? It makes no sense.