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MBA Assignment- A Case Study on DELL



What are the advantages to Dell of having manufacturing sites located where they are? What are the potential disadvantages? and more..............
Table of Contents
What are the advantages to Dell of having manufacturing sites located where they are? What are the
potential disadvantages? .............................................................................................................................. 2
Why does Dell purchase most of the components that go into its PC from independent suppliers, as
opposed to making more itself? (Dell does little more than final assembly of components into PC) ......... 6
What are the consequences for Dell’s cost structure and profitability of replacing inventories with
information? ................................................................................................................................................. 8
Do you think that Dell’s model can be imitated by other PC manufacturers and manufacturers in other
industries? ................................................................................................................................................... 10
What factors might make it difficult for other PC companies to adopt Dell’s model?............................... 13
What is the source of Dell’s competitive advantage? How secure is this advantage? ............................... 14
What are the potential risks associated with Dell’s global supply chain strategy? How can these risks be
mitigated? ................................................................................................................................................... 16
References .................................................................................................................................................. 18
Bibliography ................................................................................................................................................ 20
Every day, thousands of Dell engineers and product development groups are hard at work around the globe
aggressively pursuing new and better answers to customer technology challenges. The result of their work is
often first-to-market products that guide innovation industry-wide. While its principal headquarters and design
centers remain in Austin, Texas, Dell has expanded its operations over recent years. The company has
established innovation facilities throughout the world, each with its own areas of specialization:
What are the advantages to Dell of having manufacturing sites
located where they are? What are the potential disadvantages?
Companies generally drive to multi country manufacturing and expand into different countries
in order to achieve advantages such as reduce transport and distribution costs ,avoid trade
barriers or non-tariff barriers ,Secure supplies of raw materials or markets and last but not least
the low labor costs. These will ultimately result in Cost advantages on manufacturing. Therefore
it is evident that Dell too enjoys a mix of above advantages, taking into consideration of their
locations. In the Dell’s case, its manufacturing sites have provided them the location advantage
to meet its core operation strategy to pioneer in the "configure to order" approach to
manufacturing and delivering individual PCs configured to customer specifications.
The Location Strategy and Production model (Hill, C.W.L and Jain, A.K. 2007, p 692) under
Product Factors suggests that, when the value to weight ratio is low of an industry it favors the
decentralized production thus Dell gains the advantage on logistics by having the sites located
where they are.
Dell’s strategy helped minimize delays between purchase and delivery. Therefore Dell has a
general policy of manufacturing its products close to its customers which give them obvious
advantage. This also allows for implementing a more realistic and reliable “just-in-time (JIT)
manufacturing approach, which minimizes inventory costs. Low inventory is one of the core
success factors of the Dell business model. The locations facilitated an effective use of JIT
concept to Dell thus is successful in achieving many advantages, such as,
Lower holding costs helps, fund that were tied up in inventories be used for expansion
and improvements of the firm. For an example the information flow between the
customer, supplier and the firm play a critical role in the Dells’ case. More investments
were possible in the ICT Information Communication Technology due the heavy saving
on inventories. Fully automated high tech assembling facilities were commissioned from
the funds that otherwise would have been spent on keeping high inventories. On the other
hand, the areas previously used to store inventories were used for other more productive
Throughput time is reduced, resulting in greater potential output and quicker response to
Defect rates are reduced, resulting in less waste and greater customer satisfaction.
Another advantage of Dell’s location is that it improves Cash Flow, because inventory is
immediately used. While companies usually are able to invoice quickly and get paid faster,
Dells order from customers is placed even before the inventory is supplied thus company gets
paid double quick time. Essentially, they receive payment from their customers at the same time
they can pay their own suppliers.
The governments wherever they are usually extend the maximum support for Dell due to above
Firms are likely to be viewed more favorably if they contribute to the local economy.
(Doole, I and Lowe, R., 1999)
In order for successful operation under the given Dell’s model in different locations, it requires a
committed workforce with the tools to immediately solve any delays or delivery problems.
Having the workforce from each location facilitates a smooth process eliminating language,
cultural and other social barriers and even time zone differences.
Dell’s Push Pull supply chain approach is predicated on having key suppliers within close
proximity to their production line. This allows them to turn around orders with minimal
lead times by only pulling in those parts and materials needed to complete the job. It’s a
form of JIT but with the added benefit of being able to provide a custom made part with
immediate delivery. Johnson, I. (2010)
Most companies find, however, that simply reducing inventories is not enough. To remain
competitive in an ever changing and ever competitive business environment, must strive for
continuous improvement and expansions. Dell’s manufacturing sites are in Brazil, China,
Malaysia, Ireland, India, Poland and the U.S and their country ranking in the GCI- Global
Competitiveness index 2010-2011 are 58,27, 26,29, 51, 39 and 4 respectively. Advantages of
these locations are that some of them are low cost (Brazil, China, Malaysia and, relatively,
Ireland), they have educated work forces that are highly productive, and they are near large
regional markets.
While it is not possible to justify the locations merely based on the GCI alone, there are other
critical factors that Dell may have considered beneficial. A country wise analysis is given below
that highlights the sources of advantages that Dell derives.
Brazil holds the lowest position of 139 among 139 countries in the GCR- Global
Competitiveness Report 2010-2011 “Burden of government regulations” under pillar one-
Institutions. It also ranks the 31st position under business sophistication. Also the market size is
ranked at 10 which is a positive factor when considering the Dell’s strategy of “Being Direct”.
Ireland holds the top position with regard to the component of FDI and Technology transfer in
the above GCR and also placed very strongly under “Strength of investor protection” at fifth
rank. The extent of staff training is also comparatively strong and holds the 23rd rank which is
obviously necessary given the type of industry they are in.
The 10th pillar of GCR reveals the market size where China holds the rank two which is another
advantage Dell derives from the choice. China also ranked number seven with regard to buyer
sophistication thus Dell should be gaining its due advantage for the company.
Similar to China, India is ranked at a very lading position of 4th place with regard to market size
while holding 15th position with regard to “Availability of scientists and engineers” another vital
factor in the computer industry.
Poland holds the lower position of 111 among 139 countries in the GCR- Global
Competitiveness Report 2010-2011 “Burden of government regulations” under pillars one-
Institutions and maintains 50th rank with regard to business sophistication.
Malaysia is strongly positioned in the fourth rank for “strength of investor protection” and sixth
rank with regard to “pay and productivity” countries business sophistication is ranked at 25th
among 139 world economies while responsible for the 29th place for the market size.
The reason that may could have been taken into consideration by Dell in choosing
Malaysia as part of its globalization are the following: 1. China may have been a part to
the success of the company, the fear of the Company to the image of China in
infringement of intellectual property; 2. It chose Malaysia, to have a more extensive
branch working in the South Eastern part of Asia and 3. Dell has been recognized by the
Prime Minister for its Hibiscus Awards. (Source: Thinking made Easy, 2010)
Dell faces over dependency on one product, leaving aside the extensive customization of that
product. If the firm has centralized operation, more different products can be manufactured in
one location. When the plants are dispersed, the number of different product that can be
manufactured in a given location, potential of gaining economies of scale, will be less.
There can be issues related to repatriation of profits with regard to some domestic policies of
those locations and exchange rate fluctuating risks associated even if there are no legal
Krugman,P.R and Obstefeld,M (2003) suggest that The theory of location is not a
difficult one in principle. The factors that determine a multinational corporation’s
decisions about where to produce are probably not much different from those that
determine the pattern of trade in general.
Possible failures to effectively scan the international environment
failure to manage and resource both market and operations expansions can be another
Although still considered a leader in logistics and low-cost manufacturing, Dell began to
see its market share erode in 2005 because of complaints about poor customer service,
among other factors. (Kanellos, M., 2008)
Therefore, common disadvantages of decentralized manufacturing such as potential
communication barriers building up as a result of present geographical locations such as
language, culture and social issues. Intellectual property issues as explained under
China/Malaysia as well as uncertainties on the political climate in all the locations should not be
Why does Dell purchase most of the components that go into its
PC from independent suppliers, as opposed to making more
itself? (Dell does little more than final assembly of components
into PC)
In order to compete globally, Dell should look at efficiency and cost containment. Unlike certain
companies who strictly focus on revenue increases; Dell has made use of emerging concept of
outsourcing even at early stage while adding value to it through the advanced ICT.
As companies seek to enhance their competitive positions in an increasingly global
marketplace, they are discovering that they can cut costs and maintain quality by relying
more on outside service providers for activities viewed as supplementary to their core
business. (Monippallil, Matthew M. 1998)
Firms usually derive two main advantages by outsourcing; i.e. strategic flexibility and lower
costs. Dell outsources because it enables Dell’s business model to be successful. Dell believed
that their comparative advantage is in pricing, customization and rapid order fulfillment. They
also realized that they can explore more advantages through supply chain management and
logistics than focusing on manufacturing of components. It may be true that Dell does little more
than final assembly of components into PC under such concept but the fact remains that it
facilitated Dell to focus on the most critical factors in customer satisfaction and retention. Dell
very correctly focused on core areas where they are good at while allowing their suppliers to do
the rest in other areas of the process.
Outsourcing, in general has become one of the most important and popular strategies in an
increasingly competitive marketplace. This concept has proven results for Dell considering their
global success which is a prime result of development of and recommitment to the core
competencies of the company. Dell was able to do this by delegating most of work to their
suppliers who independently contributed their share in completing “Dell total product for
mutual benefits. Because Outsourcing allows companies to focus only on their most successful
work and enjoy the benefits of allowing their outsourcing partners to do the same in whatever
their core areas.
According to the Outsourcing Institute, companies are realizing a 9 percent cost savings
and a 15 percent increase in capacity and quality, on average, through outsourcing. There
is enormous pressure on major corporations to establish competitive positions in a global
marketplace. Monippallil, Matthew M. (1998)
Through this concept, Dell eliminated the risks connected to inventory such as obsolescence,
maintain flexibility in its manufacturing, and Dell has lower coordination costs than if it were
vertically integrated, producing its own parts.
Dells, outsourcing relationships have been focused from cost savings to multidimensional
partnerships that support the core business of client corporations. This type of outsourcing
relationships have delivered lucrative results for Dell to engage in more and more outsourcing
activities as partnerships. Therefore Dells /component providers are taking increasing
responsibility in improving service standards. Dell is so big that the suppliers want to be
associated with them badly thus they revisit their corporate strategy, information management,
business investment, and internal quality initiatives to be on par with Dells needs.
Accordingly, in consideration of several advantages that Dell gains through purchasing most of
the components from independent suppliers, it can be concluded that outsourcing allows Dell to
focus on what it does best and leave their component suppliers to do the rest at their best for
What are the consequences for Dell’s cost structure and
profitability of replacing inventories with information?
As Michael Dell has said: “Just as the internet increase customer intimacy, it can also be
used to enhance supplier intimacy”. And “The link between the day-to-day demand trend
and the incoming material is absolutely critical to your success- so the shorter you make
that link, the better off you are.” (Holzner, S., 2006)
Dell has been able to achieve the lowest inventory levels in the industry. In 2004, that was only
three days of inventory on hand, compared to 30, 45, or even 90 days’ worth at competitors. This
is a critical advantage in the computer inventory because it is estimated that approximately 75%
of the revenue is spent on the components. Suppose a machine gives revenue of USD 500 to the
firm; considering the disparity on the obsolescence between Dells who keeps one week inventory
versus other companies that holds four weeks inventory, following can be observed.
The case of one unit
Value of Components at purchase
Usd 375
Usd 375
Value of Components at the time when
sales of computers are effected
Usd 371.25
Usd 360
Value written off for 100,000 units
Usd 375.000
Usd 1,500,000
Replacing inventory with information has contributed greatly to Dell’s business model; it is the
cornerstone of their cost structure. Reducing inventory also reduces the need for working
capital. Therefore replacing inventory with information boosts profitability.
The contributions of Dell’s IT investments to the firm’s performance are difficult to
disentangle systematically from the other inputs to production and from the many
process innovations continually made at all stages of the value chain. However, it is
clear that IT and the information it provides, along with process improvement, have
contributed to Dell’s exceptional performance. (Kraemer, K.L., Dedrick, J., Yamashiro,
S. 2000)
Dell accordingly maintains a two percent advantage on the bottom line against competitors. They
neither take the risk of finding buyers after the manufacturing of PCs, nor buys components
before the order is placed by the customer. This concept permits it to be called as “replacing
inventories with information facilitating the cost advantage that may have resulted through
Dell surpassed its industry peers as they offer its customers a better deal compared to the deals
available from its competitors using a lower cost structure.
Kraemer, K.L., Dedrick, J., Yamashiro, S. (2000) reveals consequences on the concept under
four parameters. I.e., procurement and inventory, manufacturing, cash management, and
administrative overhead.
Procurement and inventory: Dell’s days of the inventory dropped from 32 in 1994 to just
6 end of 1998.This inventory level is the lowest in the industry.
Above table reflects the aggressive supply chain management strategies noted earlier.
These strategies are made possible by the on-line, real-time sharing of information on
orders and production throughout Dell’s supply chain. This extensive and timely sharing of
information through linked computer systems for procurement, supply, and order
fulfillment essentially enables information to substitute for inventory.
Manufacturing: Dell’s production cycle time is 7 hours, on average, while its order
turnaround Time is 7 days, on average. The automation of production processes
contributes to the speeded-up cycle times.
Cash management: According to CFO Thomas Meredith, Dell has a cash conversion cycle
of - 8 days. This is because Dell often receives payment from a customer on an order
before it pays its suppliers for parts used to fulfill this order. On average, Dell converts a
sales transaction into cash in less than 24 hours (McWilliams, 1997). In con-trast, indirect
PC sellers must buy components to produce PCs, then push the PCs into the channel and
wait for payment.
Administrative overhead: While Dell has grown tremendously in revenues, it has
continually reduced its administrative overhead, de fined as SG&A, such that it is among
the most efficient firms in the industry.
(Source: Kraemer, K.L., Dedrick, J., Yamashiro, S., 2000)
Do you think that Dell’s model can be imitated by other PC
manufacturers and manufacturers in other industries?
The simple answer to above question is, yes. Dell’s model can be imitated, but the managerial
skills that require operating the model are difficult to build. Dells model is not something that a
consultation team developed for his company to overcome a management issue, but rather it is
part and partial of the entire firm’s existence today. There are so many associated factors that
made possible the Dell’s success through the model.
Many text books explain how the Dell’s model emerged and the vast knowledge personally
gained by Michael Dell himself while it is being administered and regarding hands-on
experience on how the model could put in operation with least breakdowns.
As a college student, Dell began selling computers out of him dorm room. First he looked
at the way computers were sold and saw that by the time a computer passed through the
hands of a manufactures, s distributor, and a retailer , a machine that contained only about
$600 worth of parts cost the customer $2000. Second he realized that it was impossible to
buy a computer with that latest technology because it took about a year for a new
technology to be integrated into the computers that were sold in stores.(Barringer,B.R.
and Ireland, R.D. ,2006, p 99)
Therefore a lot of hard work at grassroots level would have done by Michael Dell by himself in
developing this model thus anyone else imitating it better than him is rather unusual. The
mistakes that he would have done when the company operates at small scale may have provided
him with strong structural foundation to avoid similar mistakes when Dell operates at lager scale.
Another firm who imitate this model will naturally make similar mistakes at a greater scale
causing possible blunders.
Therefore, it would be worthwhile to compare the traditional model used by other PC companies
with Dell model to assess the validity of above conclusion made at the beginning of the answer.
Dell’s approaches to selling PC versus Traditional manufactures’
Traditional Manufacturer
(E.g. Hewlett-Packard or IBM) Dell
Source; Barringer, B.R. and Ireland, R.D., (2006)
If the Dell model to work successfully it needs the corporation of its supplier’s shippers,
customers and many other parties’ commitment and cooperation and holistic approach. If the
suppliers aren’t willing to up-to date parts to the company on a just in time basis the company
adopt this model will be compelled to have higher inventory cost and would fail in delighting the
customer by delivering the customers state of art product. The company consequently will not be
price competitive as well.
Forecasts demand
Obtain subcomponent from suppliers
Makes basic components
Assembles complete PC
Stores PCs in warehouse
Ships PCs to retailer
PCs sit on retailers’ shelf until sold
In hands of consumer
At different times other firms (e.g. Gateway) have tried to imitate Dell’s business
model. But to date no company has been able to come close to doing so.
(Barringer, B.R. and Ireland, R.D., 2006, p100)
Other Industries
From the outset it is a rather simple approach to inventory management that takes control of both
the supplier of parts and the end customer with finished product. It focuses on only purchasing
what is guaranteed to be used and sold so that it doesn’t remain in inventory for extended
periods. Therefore theoretically the model may be imitated by any industry. However the context
in which the industry operates play a significant role on how well it suits and provide better
results to other industries. Other manufacturing companies wish to use the model should assess
whether all the benefits that Dell gets can be derived by that particular industry also. For an
example, Dell gains a substantial competitive edge due to obsolescence of stocks which may not
be the case for some other industry. Sometimes not having inventories of raw material may lead
to financial disadvantages for an industry that raw material prices are in the increasing trend.
What if the raw material prices are volatile and always have an upward tendency? Such industry
may not necessarily provide a competitive edge like in the case of Dell.
However other companies such as Wal-Mart, Target, Best Buy, and Circuit City have reasonably
managed to adapt to similar concept and delivered results too. Auto manufacturers also have
been making strides in this direction.
Lowering month to month inventory costs allowed automotive manufacturers like Honda
to compete with their North American counterparts, who by the way, had large amounts
of inventory holdings. Johnson, I. (2010)
Thus is obvious that any industry can imitate the model provided all the positive and negative
consequential possibilities are comprehensively contemplated prior to application. if a given
industry has its own inherent characteristics that the negative contribution such as highly volatile
raw material prices etc supersedes the positive contribution through nil inventory, it is not
worthwhile persuading this type of high cost ,high risk model.
What factors might make it difficult for other PC companies to
adopt Dell’s model?
The firm that wishes to adopt Dell Model will have following fundamental challenges to meet.
Work closely with suppliers and Keep them motivated to participate in the process. This
factor work well with Dell due to the size of orders anticipated as its orders account for
major portion of the respective suppliers’ production. Otherwise the supplier may find it
is not profitable to work closely and no future prospects.
Should treat the suppliers as partners and be loyal. Should be good paymasters and not
create disruption in their cash flows by delays of payments etc.
All the partners in the model should equally participate in the process eliminating any
bottle necks which is a killer in such model. Especially Dell’s model is heavily dependent
on internet. Therefore time discipline on prompt update of data could be a major issue
even if the partners agree to participate in principal. An example is that online beauty
retailer The company, as reported, struggled largely because the many of the
high profile suppliers of women’s beauty products wouldn’t sell their products on its web
site. The suppliers were concerned that if they sold through, they would offend
their traditional channel partners, such as Nordstrom and Saka.
One of the main factors that makes it difficult for other PC firms to adopt Dell’s model is the
managerial know-how.
Commenting on the early years of Dell computers and its direct sales approach,
Michael Dell wrote. “We screwed up all kinds of things , but there was so much
inherent value in what we were doing that it masked all the mistakes we made ,
Still we didn’t make a lot of the same mistakes over and over again We learned
from the mistakes and figured out how we could progress. (Barringer, B.R. and
Ireland, R.D., 2006, p100)
Therefore even a PC company, though it operates in a similar platform should realize that
knowing what to do is simple but knowing how to do it is immensely complicated thus it is
usually easier said than done.
What is the source of Dell’s competitive advantage? How secure
is this advantage?
What's Dell's secret? How has the computer maker managed to defy the naysayers and
turn a classically low-margin mail-order operation into a high-profit, high-service
business that's the envy of the industry? In a word: speed. Dell has long been a model of
just-in-time manufacturing, but now it has upped the ante by applying the same brutal
time standard to its supply chain. (Williams, G. M., 1997)
Customer intimacy at Low cost is the source of Dell’s competitive advantage. Rather than
competing on equal factors that were common in the industry, Dell thought “out of the box”.
Dell seems to be able to counter competitive challenges, innovatively which evidences
management capability.
This indicates a relatively secure advantage with the huge experiences they would have gained
since its implementation time at small scale. But, just because it is imitable in principle, it is not
fully secure too. The concept is so simple and any PC company also may initiate a subsidiary
company to follow the same model as a separate profit centre. They may attract suppliers using
the prestige of the parent company for competitive pricing and other terms. They may attract
customers using their high brand image. The IT infrastructure of the parent company may
provide a fast information flow to match even the Dell’s approach. In that manner if the
competitor start operation at a smaller scale and gradually gain the hands-on experience for
some time (Smaller scale will mitigate possible loss due to trial and error) such company can
gradually increase volumes under the subsidiary firm while gaining experience. If they manage
to head hunt some key people from Dell the situation might be even worse.
Apart from the possible imitation, there is not much threat for Dell if other firms continue to
work on demand forecast based production because the only certainty in forecasting is that
you will never be 100% accurate. Forecasting sales is never easy. Forecasts are often missed due
to many reasons such as the economy, misunderstood sales pipeline, customer budget cuts,
competition, market shifts, product inadequacies, supply shortages, etc. and most critically ,the
customer needs and wants in the veer changing computer industry. Forecasts drive
manufacturing line production, which in turn drive inventory, supply, costs, and ultimately
revenues. Therefore, most supply problems result from poor forecasting.
Dells innovative approach came into light with accurate timing when the computer industry is
booming thus they managed to capitalize on the model.
Today, a custom order placed at 9 a.m. on a Monday can be on a delivery truck by 9 p.m.
Tuesday. What's more, this speed has allowed Dell to slash inventories and keep parts
costs down so low it can under price its rivals by 10% to 15%. How does the company’s
just in time system deliver lower costs? While machines from Compaq and IBM can
languish on dealer shelves for two months Dell does not start ordering components and
assembling computers until an order is booked. By ordering right before assembly, Dell
figures it s parts, on average, are 60 days newer than those in an IBM or Compaq
machine. That can translate into a 6% profit advantage in components alone. (Williams,
G. M, 1997)
Therefore, the advantage will be secure as long as, the suppliers & vendors turn around parts
quickly, suppliers & vendors are in close proximity, and companies have Strong Purchasing
Power. Because parts must be available at very short notice, thus requires strong vendor
relationships with strong contractual agreements on supply. Companies running this system must
have strong purchasing power in order to remain their vendor’s number one priority.
What are the potential risks associated with Dell’s global supply
chain strategy? How can these risks be mitigated?
Despite the transport and logistics industries had remarkable improvements shortening the
delivery time there are practical issues and natural or environmental reasons that cause delays
frequently. JIT manufacturing exposes Dell to a number of risks, such as sudden issues those
associated with the supply chain. With almost no stocks to fall back on, a very slight delay or
contingent disruption in supplies to Dell from just one supplier could force production to cease
at very short notice.
As illustrated by Dell Computer's global supply chain (see Figure 1) these industries rely
extensively on international air cargo shipments of parts and components. In fact, by year
2000, the value of U.S. exports by air substantially exceeded that by vessel, with
approximately 85 percent of air cargo imports and exports passing through the nation's
ten largest hub airports (U.S. Department of Commerce, 2002). When the high-tech
bubble burst in early 2001, air freight started to decline. The events of 9/11 accelerated
this decline, with U.S. air exports dropping by nearly $33 billion in 2001.( Abby, Twist
and Koonmen,2001)
Figure 1
(Source: Abby, Twist and Koonmen, 2001)
Dell is highly dependent on JIT procedures which involve a major overhaul of business systems.
Thus it may be difficult and rather expensive to introduce and maintain the whole process in a
foolproof manner. The Dell Direct model does not only involve a direct relationship with
customers but also includes suppliers. Through the use of the World Wide Web, Dell has been
able to integrate both customers and suppliers into its manufacturing and logistics function.
Therefore Dell is invariably heavily depending on the ICT Information Communication
Technology. Unfortunately Dell or any other firm for that matter has a least control of global
ICT infrastructure at macro level. In case of global political or technological reasons that have a
negative impact of the ICT, at least for a very shorter duration that impact for a model in this
nature will be drastic. This factor makes Dells operation vulnerable with the possible failure on
the internet etc.
There are many other risks too associated with Dell’s supply chain management. If the
transportation links are disrupted (work stoppages, port congestions, terrorism, etc.), Dell’s
approach will be badly affected. Also, they are vulnerable to problems their suppliers have. Dell
is also vulnerable to IT issues (even if the infrastructure is well up and running smoothly) such as
hacking, internal system failures, leaking out market intelligence. Their competitors would be
facing the same issues, though; the impact on Dell will be comparatively higher due to the nature
of the model.
The risks that need most to be mitigated are the supplier related ones because they would not be
reflected on competitors who follow the traditional model. These can be mitigated by integration
with the supplier, and Dell has integrated with the supplier’s supplier as well in order to face
such challenges.
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Outsourcing has become a useful tactic to lower costs and gain a competitive advantage. Now that international markets have become easier to access and more reliable, global outsourcing has become more of a concern. By using a well-managed outsourcing agreement, companies can gain in markets that would otherwise be uneconomical. Global outsourcing can contribute to short-and long-term benefits. However, the long term should be the driving force. Considerable time and energy must be put forth by all involved in order to create a successful alliance. The only way to have an outsourcing strategy flourish is by having an agreement that is solid and flexible. The best-laid plans will eventually fail if care is not taken to ensure a fair and equitable relationship.
The exceptional performance of Dell Computer in recent years illustrates an innovative response to a fundamental competitive factor in the personal computer industry - the value of time. This article shows how Dell's strategies of direct sales and build-to-order production have proven successful in minimizing inventory and bringing new products to market quickly, enabling it to increase market share and achieve high returns on investment. The Dell case illustrates how one business model may have inherent advantages under particular market conditions, but it also shows the importance of execution in exploiting those advantages. In particular, Dell's use of information technology (IT) has been vital to executing both elements of its business model - direct sales and build-to-order - and provides valuable insights into how IT can be applied to achieve speed and flexibility in an industry in which time is critical. Many of the insights gained from this case can be applied more generally to other time-dependent industries, suggesting that the findings from the Dell case will have implications for a growing number of companies and industries in the future.
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