Will Dell’s direct business model continue to provide a competitive advantage as fellow competitors Compaq, IBM, and HP emulate Dell’s direct model?
Dell’s direct business model bypasses the dealer in the supply chain and sells computers directly to customers, building each to order. Dell does not manufacture the computer components; they merely assemble computers based on components that are available in the market.
Dell’s use of technology and information to blur the traditional boundaries between suppliers, manufactures, and users is named virtual integration. To achieve the advantages of an integrated company, Dell treats suppliers and service providers as if they were inside the company. Their systems are linked in real time to Dell’s system and their employees participate in design teams and product launches.
Dell measures inventory velocity which is defined as the reciprocal of the average amount of time a product spends in inventory. Accumulating inventory is the fast moving PC computer industry is very risky due to the fact that many components quickly become outdated.
In 1998 Compaq, IBM, and Hewlett-Packard all announced plans to mimic portions of Dell’s direct business model, with various build to order plans. All have had difficulty in making the transition. These companies are moving towards a target inventory level of four weeks, conversely, Dell maintains just eight days of invento...
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