...Dell Working Capital 1. How was Dell’s working capital policy a competitive advantage? Dell’s core strategy in the 90’s, build to order business model, allowed the firm to work with minimum finished goods and work-in-process (WIP) inventory. As a result, Dell maintained low inventory costs and permitted the company to adjust to technological innovations in the market. Dell’s WIP and finished goods inventory as a percent of total inventory was about 10%-20%, compared to the industry rate of 50%-70%. This led the company have low accounts payable, low cash conversion cycle, and high inventory turnover (Dell DSI 32 days vs. 58 days). As Dell’s computers were assembled after the company received the sale order and, as the rate of innovation is high, by keeping low inventory levels, the company could easily adjust to the new technology whereas the competition incurs in high depreciation rate of approximately 40% per year on old hardware components (Source Dell Website) for old. Additionally, if any component was factory flawed, as in 1994 with the Pentium chip, the company could quickly manufacture computers with the new updated flawless chip. Moreover, the company could reach new technology or components to market in an average of 35 days compared to 100 days by the competition. This helped Dell to take first mover advantage. 2. How did Dell fund its 52% growth in 1996? The sales increased 52% owing to growth in sales of Pentium processor. Calculating the increase...
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...Q1) How was Dell's working capital policy a competitive advantage? * Dell’s built-to-order manufacturing process yielded low finished goods inventory balances * By the mid-1990s Dell’s WIP and finished goods inventory as percent of total inventory ranged from 10% to 20% in contrast to its competitor’s range was from 50% to 70%. * Supply of inventory of Dell was significantly lower than its competitors. * Manufactured PCs with latest OS and processor much before its competitiors. * Maintained low Cash Conversion Cycle. Q2) How did Dell fund its 52% growth in 1996? Dell had 52% growth in 1996 and this growth was possible by investing substantially in operating assets. Operating assets in 1995 = Total assets – short term investments = 1,594 – 484 = 1,110 Percentage of Operating assets in sales = 1,110/3,475 = 32% Operating assets required in 1996 for 52% growth = 0.32*5,296 = 1,695 So, increase in operating assets in 1996 to obtain 52% growth = 1,695 – 1,110 = 585 From balance sheet of 1996, operating assets = 2,148 – 591 = 1,557 So actual increase in operating assets in 1996 = 1,557 – 1,110 = 447 With efficient management of total assets, Dell had reduced its required operating assets by $138 Also, increase in current liabilities in 1996 = 939 – 752 = 187 Net profit in 1996 = 272 Total funding through current liabilities and net profit = 187+272 = 459 Dell had funded its 52% growth in 1996 internally as total...
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...para necesidades de capital de trabajo). Además hay que mencionar que el precio de los componentes de un PC iba bajando 30% a medida que aparecían nuevas tecnologías y como Dell tenia un sistema de fabricación a pedido, no acumulaba inventario de componentes de la misma manera que la industria, de esta forma sus costos incurridos en componentes individuales (cerca a un 80%), se iría reduciendo el costo de su inventario. También en 1996 el margen neto de ganancia subió a 5.2% de 4.1% del año anterior y el pasivo circulante incrementó en 187MM. Todo lo mencionado demuestra que Dell pudo autofinanciar su crecimiento y que no tuvo déficit de financiamiento. En Síntesis, el saldo de capital de trabajo de 1995, mas el aumento en pasivo circulante, mas las utilidades esperadas de 1996, son suficientes para financiar el capital de trabajo del 1996: Necesidades para 1996 según 1995 | Según proyección | | | | | | Capital de Trabajo | $1,094 | | | | | Disponible de 1995 | | Capital de Trabajo | $718 | | Pasivo Circulante | $187 | | Utilidad Operacional | $227 | | | | | | | | Neto | | | | | | Capital de Trabajo | $-38 | | Si las ventas creciesen un 25% o un 50%, la empresa podría financiar internamente, al igual que el año anterior, su aumento en necesidad de trabajo. Necesidades para 1997 según 1996@25% | Según proyección | | | | | | Capital de Trabajo | $1,273...
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...Introduction Dell Computer Corporation continues to have successful growth due to its innovative “built to order” business model and customer service focus which includes direct selling. Dell’s ability to maintain low levels of finished goods inventory minimized the cash conversion cycle to a high extent, thus minimizing the need for costly working capital. In past years, Dell has mainly financed its operations internally and secondly through the issuance of shareholder equity and small amounts of long term debt. Statement of Problem Being more flexible and responsive to market demands, Dell will bring new, superior products to market quicker than its competitors. This has created an expectation for large, double-digit growth in the upcoming year. Dell needs a plan for financing the large potential growth. Recommendations Dell has working capital advantages over its competitors which it should continue to pursue. Dell funded its FY 1996 growth both from internal and external funds. It was wise to seek external funding to support Dell’s healthy growth. If Dell were to grow by 50% in FY 1997, it is recommended to seek external funding for the amount not funded internally. Dell should issue debt and continue to take advantage of its strong internal cash conversion cycle to fund its continued growth. Dell should not reduce its external funding as it will limit its growth. Methods of analysis & Discussion (Q1) Dell’s advantageous working capital policy enabled the...
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...Working Capital Question1 Understand that this was a paradigm shift in this industry. A customer who is used to walking into a store, buying, and walking out is looking for instant gratification. What did Dell offer which other players were not offering to counter this? Answer 1 The most important thing that Dell offered was a “customized systems” within a few days. This was something that other competitors were not able to offer as they had already built systems in inventory with them and at retailers’ / resellers’ store. Dell was also the first to offer toll free telephone lines that the customers could call to place the order and on-site technical support. -------------------------------------------------------------------------------------------------------- Question 3 How did keeping low finished goods inventory vs its competitors help Dell when Intel had to replace faulty Pentium chips? Answer 3 Low finished goods inventory helped Dell as it did not had to dismantle already assembled PCs to replace the faulty chip. It was able to quickly manufacture systems with the updated Pentium chip while others who had a considerable inventory of already built systems were still selling systems with the flawed chip or had to go through the costly processes of recalling and dismantling the systems to correct them. -------------------------------------------------------------------------------------------------------- Question 5 In 1995, how many days did it take Dell to bring...
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...* Explain how Dell’s working capital policy is a competitive advantage for the company? Dell uses a just in time order fulfillment policy and accurate forecasting of sales to minimize inventories. This allowed Dell to hold inventory of finished products far below levels of their competitors (10-20% compared to 50-70% industry level) and furthermore allowed them to quickly implement changes to their product lines as new technologies became available. This quick inventory turnover also allowed Dell to retain more capital. Finally, this policy enabled Dell to respond immediately to technological progress in components and deliver state of the art new finished products (e.g. Pc’s holding the newest Pentium microprocessors) while competitors are still selling inventory of products not containing newest technology. When comparing Dell’s 1995 DSI to its competitors you can see the competitive advantage taking shape: Company: DSI (1995): Inventory Savings at competitors DSI: Dell: 32 0 Apple: 54 $167.3 million Compaq: 73 $311.7 million IBM: 48 $121.6 million * How did Dell fund its 52% growth in 1996? Please be sure to distinguish between internal and external sources of funding, and to discuss the trade-off between the uses of external funds in order to maintain high growth rates. Dell funded its 52% growth in 1996 internally by increasing sales, lowering sales/operating expenses by 1%, which led to an increase in profit margin (net profit/sales)...
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...Finanzas I; Caso 2: Dell”s Working Capital 1. ¿De qué manera la política de capital de trabajo fue una ventaja competitiva para Dell? En primer lugar, la política de capital de trabajo que implementó Dell le permitió tener menos niveles de inventario, y por ende, menos capital de trabajo inmovilizado. Estos bajos niveles de inventario que presentaba Dell se debían a que en esta compañía se vende cuándo y cómo los clientes quieren (sistema pre-venta). No así su competencia, como vemos a continuación con un ejemplo, Cantidad de días inventario trimestral 2005: Compañía | Dell | Compaq | Apple | Año 2005 (tomado como ejemplo) | 32 | 73 | 54 | Consideramos estos datos y luego multiplicamos estos números por el costo de venta “diario” en 1995 (costo de venta del 2005/360). Si se hace un análisis comparativo de Dell con sus competidores vemos el costo adicional diario que deben afrontar los competidores a diferencia de Dell: Costos diarios adicionales de Compaq v/s Dell: (73-32) x 7,602= $311,713 millones.Costos diarios adicionales de Apple v/s Dell: (54-32) x 7,602= $167,261 millones. | Estos costos pueden provenir del costo directo de los insumos, como también costos de almacenamiento, seguros por daños o robos, etc. Otra ventaja que presenta esta política de capital de trabajo es que se reducen los riesgos de quedar con tecnologías obsoletas, esto porque puede poner productos en venta con gran rapidez, pues no posee un stock de productos muy grande que deba vender...
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...1. COMPANY BACKGROUND * Founded in 1984 by Michael Dell * First, Dell company purchased IBM compatible personal computers, upgraded rgem, then sold the upgraded PCs directly to business by main order. * Subsequently, Dell began to market and sell its own brand personal computer, taking orders over a toll free telephone line, and shipping directly to customers. 2. DELL’S WORKING CAPITAL POLICY AS A COMPETITIVE ADVANTAGE * Industry Strategy Assembled to forecast, retaining a substantial finished goods inventory. (Dell ordered components based in sales forecasts). * Dell’s Main Strategy Build-to-order model that causes: * Selling straight to customer and manufacturing cycle that started after a buyer’s order * A personalized purchase within a small amount of time (Dell combined this low cost sales/distribution model with a production cycle that began after the company received a customer’s order. This build-to-order model enabled Dell to deliver a customized order within a few days, something its competitors could not do. Dell also provide toll-free telephone and on-site technical support in an effort to differentiate it self in customer service). * Small finished goods inventory balance, proven by DSI amount. There is no excess stock doesn’t take up room and absorb capital. Low inventory with low fixed assets gives Dell a higher return on capital employed. (Dell had 10%-20% stock while competitors had 50%-70%. TABLE A Days Supply Inventory...
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...CASO DELL WORKING CAPITAL 1. Representa el manejo de capital de trabajo una ventaja competitiva? En qué sentido? Tiene algún problema la forma en que Dell administra su capital de trabajo? Representa el manejo de capital de trabajo una ventaja competitiva? En qué sentido? Representa una ventaja competitiva el manejo de capital de trabajo en los siguientes aspectos: La manera en que Dell Working Capital manejaba su inventario hacia que los saldos de inventarios de bienes en proceso y acabados disminuían, ya que su proceso de fabricación era contra pedido. Mayor flexibilidad ante los constantes cambios tecnológicos. En cierta manera sus inventarios no dependían completamente de pronósticos de ventas. Cantidad de días inventarios menor que los competidores, lo cual reducía los costos de espacio y menor requerimiento de capital. Parte de la ventaja competitiva de Dell es la de poder financiarse a través de sus clientes y proveedores. Tiene algún problema la forma en que Dell administra su capital de trabajo? Si tiene problema la manera en que Dell administra su capital de trabajo en los siguientes aspectos: Debido a que inicialmente la forma de venta era contra pedido, esto limitaba el crecimiento debido a que no existían otros canales de venta. ...
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...Abstract Company Overview Michael Dell, who was a student at the University of Texas, decided to establish a computer company with a capital of only $1000. He was following the "direct model" concept where all the products were customized based on the orders and requests of the customers. It is headquartered in Round Rock, Texas but receives nearly half of its revenues from outside the United States. Dell offers produces and markets a wide range of technology products for the consumer, education, enterprise, and government sectors. In addition to a full line of desktop and notebook PCs, Dell offers network servers, data storage systems, printers, Ethernet switches, and peripherals such as displays and projectors. In addition to third-party software and many services such as asset recovery, financing, support and so on. Strategic analysis summary This case study analyzes Dell Company from a strategic perspective, which shows that Dell follows a differentiation Strategy. In the analysis of Internal and External factors; Dell has scored medium on both external and internal factors analysis with scores of (2.78) and (2.56) respectively. Showing good financial position compared to its competitors, the financial analysis revealed that the company was able to enhance and increase its market share and power after the recession especially after 2009. This study led us to recommend using the QSPM matrix. Dell has to be aware of the price war started by rivals in which...
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...EXECUTIVE SUMMARY Dell computer was founded by Michael Dell at age of twenty one in his dorm at the University of Texas, Austin. Dell’s strategy is to build computer so that it can be order by the consumers. It’s build to order strategy has made Dell the most successful company in the information technology field. Dell sells its machines and other equipments directly to customers so it has eliminated the middleman. Dell has high margin because of direct sale strategy and customers get excellent state of the art machines at low cost compare to Dell’s competitors. Michael Dell’s visionary leadership has made Dell the second most successful PC maker in the industry. (IBM is the leader). Dell’s ability to adapt to changing circumstances is its great strength. One week after the September 11th 2001 attack, Dell reported selling 24,000 servers and desktops. Dell established mobile technology park in Washington D.C. and New York by converting three eighteen wheel trucks and operated its factories round the clock to fulfill the unexpected customers demand. The trustworthy relationship between Dell’s management and work force made it possible to change the disastrous moment in the I.T industry to a great opportunity for the organization. Dell has very user friendly web site and half of Dell’s sale, half of tech support and three quarter of order status takes place online. The supply chain and data integration with suppliers has made Dell one of the most efficient...
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...[pic] Dharini Giri 12050221051 FC- 3yr Dell Introduction Dell Inc. is an American privately owned multinational computer technology company based in Round Rock, Texas, United States, that develops, sells, repairs and supports computers and related products and services. Bearing the name of its founder, Michael Dell, the company is one of the largest technological corporations in the world, employing more than 103,300 people worldwide. Dell sells personal computers, servers, data storage devices, network switches, software, computer peripherals, HDTVs, cameras, printers, MP3 players and also electronics built by other manufacturers. The company is well known for its innovations in supply chain management and electronic commerce, particularly its direct-sales model and its "build-to-order" or "configure to order" approach to manufacturing—delivering individual PCs configured to customer specifications. Dell was a pure hardware vendor for much of its existence, but a few years ago with the acquisition of Perot Systems, Dell entered the market for IT services. The company has since made additional acquisitions in storage and networking systems, with the aim of expanding their portfolio from offering computers only to delivering complete solutions for enterprise customers. History Dell traces its origins to 1984, when Michael Dell created PC's Limited while a student of the University of Texas at Austin. The dorm-room headquartered company...
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...a ti o n a l J o u r n a l o f M a n a g e me n t C a s es BOOTSTRAP FINANCING: FOUR CASE STUDIES OF TECHNOLOGY COMPANIES EVA M.TOMORY UNIVERSITY OF TORONTO, CANADA Abstract Innovative businesses, especially in the early stages of their life cycles, often encounter difficulty in obtaining long-term external financing. Their founders tend to seek financing through nontraditional bootstrapping methods to launch their ventures. Bootstrap financing refers to a range of creative ways to acquire resources without relying on borrowing money or raising equity from traditional sources (Freear et al., 1995a). The paper examines how successful technology entrepreneurs used bootstrap financing: the founders of Microsoft Corporation, Apple Inc., Dell Inc. and Research in Motion Ltd. The research investigates the elements of bootstrapping as described in Freear et al. (1995a) and in Winborg and Landström (2001), finding that entrepreneurs use bootstrapping extensively during the early stages of growth for both product and business developments. Bootstrapping methods change as the business develops with certain methods used more at the beginning of the life cycle, and different variations used as the business starts to grow. The study also points out that even the most successful technology-based consumer goods businesses relied on bootstrap financing at the early stages of their development. This technique deserves more attention from the scholarly community since it is certain to become...
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...energy and evaluation of the external and internal environment of the company. The strategies are created by gifted strategist that use their out of the box thinking to achieve an objective or goal which allows its business a chance to compete in its specific industry (Sooperturtorials.com, 2009). Porter’s five forces model of competitive analysis is very popular and widely used for developing many ideas and strategies across many industries. The intensity of competition varies across industry. The intensity of competition is likely to be higher in low return industries as compared to high return industries due to the fewer requirements of capital and common products that require minimum R & D and efforts for production. In the category of business technology involving personal and business, computers have become a commodity and Dell Computer Corporation has evolved with the growing market. The competition is fierce in this sector and margins can be low. The lower end computers with high-speed internet capabilities have become the main selling force. As dial up internet continually proceeds to fade away and the consumers’ needs to upgrade their computers grow, the need to satisfy the consumers demand for high-speed internet will increase as well. Competition in peripherals is also very intense. New peripheral entrants will drive the margin down even further and create more competitiveness in the industry. In the mind of Porter, the ideal nature of competitiveness in...
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...Dell History Dell is an American technology company based in Round Rock, Texas which develops, manufactures, sells, and supports personal computers, servers, data storage devices, network switches, software, televisions, computer peripherals, and other technology-related products. In 1984, Michael Dell while a student at the University Of Texas founded the company as PC’s Limited with a capital of 1000.00. He operated from his off campus dorm room where he strived to sell IBM PC compatible computers. He believed that by selling personal computer systems directly to the customer, PC’s Limited could better understand the needs of the customers. Michael Dell then dropped out of school to focus full time on his growing business after receiving 300,000.00 in expansion capital from his family. In 1985 the first computer of its own design was produced and called “The Turbo PC.” PC’s Limited advertised the systems in the national computer magazines for sales directly to the consumers and custom assembled each ordered unit. This offered buyers prices lower than those of retail brands. Although PC’s Limited was not the first to use this model, they were the first to succeed with it grossing over 73 million in the first year. In 1987 the company set up its first operations in the United Kingdom. Eleven more international operations followed in the next 4 years. In 1988 the company changed it’s name to Dell Computer Corporation. Dell grew through the 1980s and 1990s...
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