DELL
Rotman Integrative Thinking SeminarUniversity of Toronto - Toronto, OntarioSeptember 21, 2004
Our product teams knew that the servers weren’t that complicated or expensive to produce,and customers were being charged unfair prices.
MICHAEL DELL: We've also found that our customer value helps us make better supply chain,logistics and inventory management decisions – we’ve created a pull system instead of a push system.The classical way to build products and deliver them to the customer was an anticipatory structurewhere you'd say, “There are 10,000 points of distribution. We have 100 different products and we thinkthese products are going to be purchased at each of these 10,000 points over the next number ofweeks.” Then the companies build them, send them out there, and hope they sell. And if they don’t sell,they’ll change the price and get them to sell anyway.Well, if you take the permutations and combinations with processors, memory, displays, disk drives,communications, operating systems, etc., you end up with just a tremendous number of differentvarieties. I pity the guy who has to guess what people are actually going to buy at these stores. If youcombine this with the enormously rapid decline in pricing, our typical competitor would have seven,eight, nine, ten weeks of inventory. Dell would only have three or four days. Component costs aredeclining about half-a-percent a week – that’s an enormous structural cost advantage which wetranslate into savings for our customers.
They were not thinking aboutsupply chain logistics and the integration of design, manufacturing, and the sales and service channels.
I haven't heard any good alternatives to globalization. Think about countries likeCanada or the United States that have a very small percentage of the worldwide population but controla disproportionate percentage of the wealth in the world. The reason for that is because we createthings that are valuable around the world, such as networking, yet it’s pretty complicated to understandand use. It takes brainpower, energy and work to go and create this value.
this industry will still produce 180 million microprocessorsthis year. There are new semiconductor fabrication facilities going up around the world. I believe you’llsee a lot of innovation now coming out of the semiconductor industry. For example, there are bigimprovements coming in power management and heat dissipation.
Figuring out what we really do well and thenpartnering with the best in the industry has made a huge impact on our success.There are some new challenges that have been created as a result of our size. For example, we’reconsuming more than 20 percent of the world's supply of LCD screens, which means that we need tothink carefully about how we get the capacity over the next three to five years. We need new plants,with the production of those new plants coming to us. With some of these suppliers, we haverelationships where we share risk and invest jointly in terms of capital to make sure we get the capacitywe need.
Our business has so manyvariables that are changing so quickly. If you wait for all the right information and data, you're too late.Some of these decisions you just have to go with limited information, decide what you think is right, andthen make adjustments along the way.
It’s not that their products aren't cool or interesting or fun. They’reinventing a lot of things that people aren't really willing to pay for. Apple does create some wonderfuland exciting products, yet they have 1.7 percent market share in the computer industry. One couldargue obviously that Apple could have more market share if they marketed their operating system tothe world, as opposed to trying to sell this tightly bound system of products and operating systemtogether. It might be a little too late for that.They’ve also been very innovative. The iPod has been a great hit for them in an economic sense, butonly because the rest of their business hasn’t been such a great success.
Our product teams knew that the servers weren’t that complicated or expensive to produce,and customers were being charged unfair prices.
MICHAEL DELL: We've also found that our customer value helps us make better supply chain,logistics and inventory management decisions – we’ve created a pull system instead of a push system.The classical way to build products and deliver them to the customer was an anticipatory structurewhere you'd say, “There are 10,000 points of distribution. We have 100 different products and we thinkthese products are going to be purchased at each of these 10,000 points over the next number ofweeks.” Then the companies build them, send them out there, and hope they sell. And if they don’t sell,they’ll change the price and get them to sell anyway.Well, if you take the permutations and combinations with processors, memory, displays, disk drives,communications, operating systems, etc., you end up with just a tremendous number of differentvarieties. I pity the guy who has to guess what people are actually going to buy at these stores. If youcombine this with the enormously rapid decline in pricing, our typical competitor would have seven,eight, nine, ten weeks of inventory. Dell would only have three or four days. Component costs aredeclining about half-a-percent a week – that’s an enormous structural cost advantage which wetranslate into savings for our customers.
They were not thinking aboutsupply chain logistics and the integration of design, manufacturing, and the sales and service channels.
I haven't heard any good alternatives to globalization. Think about countries likeCanada or the United States that have a very small percentage of the worldwide population but controla disproportionate percentage of the wealth in the world. The reason for that is because we createthings that are valuable around the world, such as networking, yet it’s pretty complicated to understandand use. It takes brainpower, energy and work to go and create this value.
this industry will still produce 180 million microprocessorsthis year. There are new semiconductor fabrication facilities going up around the world. I believe you’llsee a lot of innovation now coming out of the semiconductor industry. For example, there are bigimprovements coming in power management and heat dissipation.
Figuring out what we really do well and thenpartnering with the best in the industry has made a huge impact on our success.There are some new challenges that have been created as a result of our size. For example, we’reconsuming more than 20 percent of the world's supply of LCD screens, which means that we need tothink carefully about how we get the capacity over the next three to five years. We need new plants,with the production of those new plants coming to us. With some of these suppliers, we haverelationships where we share risk and invest jointly in terms of capital to make sure we get the capacitywe need.
Our business has so manyvariables that are changing so quickly. If you wait for all the right information and data, you're too late.Some of these decisions you just have to go with limited information, decide what you think is right, andthen make adjustments along the way.
It’s not that their products aren't cool or interesting or fun. They’reinventing a lot of things that people aren't really willing to pay for. Apple does create some wonderfuland exciting products, yet they have 1.7 percent market share in the computer industry. One couldargue obviously that Apple could have more market share if they marketed their operating system tothe world, as opposed to trying to sell this tightly bound system of products and operating systemtogether. It might be a little too late for that.They’ve also been very innovative. The iPod has been a great hit for them in an economic sense, butonly because the rest of their business hasn’t been such a great success.
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