Dell direct delivers goods

For about 22 years, Dell has been revolutionising the industry to make computing more accessible to customers around the globe. Because of the Texas-based computer maker's direct model - and the industry's response to it - information technology is more powerful, easier to use and more affordable.

This direct business model eliminates retailers that add unnecessary time and cost, or possibly diminish Dell's understanding of customer needs. It is a model that allows the company to build every system to order and offer customers powerful, feature-packed systems at competitive prices.

The model is also replicated in China, where Dell has a plant in Xiamen.

'We are confident in our ability to continue growing globally, particularly when we remember that 95 per cent of the world's population lives outside the US and we have less share of the market outside the US than some of our competitors,' Dell chief executive Kevin Rollins said.

Dell is making key investments in major countries, including China, India and the US, ensuring it can design, manufacture and provide service close to its customers for the long term.

A typical Dell order goes like this. When an online order is received, the configuration of the desired computer is transmitted to the manufacturing group. Using a specification sheet the order is broken down to individual components.

The computer is assembled by a production team and then shifted to software loading where it is tested for four to eight hours. The entire process from receipt of order to shipping requires about 36 hours.

According to a US Department of Transportation case study, Dell would not be able to achieve that combination of rapid response and low inventory level without a very high level of freight service from United Parcel Service under a contract covering all inbound movements of parts, in addition to a sophisticated communications system.

The study said the online store concept was a revolutionary precedent for the computer industry that had been dominated by manufacturers with complex supply chains and relatively large inventories of parts and computers.

By building to order and outsourcing most components, Dell gained a major cost advantage by greatly reducing parts inventories and virtually eliminating stocks of finished machines.

Suppliers are integrated into Dell's online ordering and purchase system, resulting in a span of 15 minutes for most suppliers between receipt of order and shipment to Dell's assembly plant.

Since prices of components decline rapidly because of innovation, Dell derives a cost advantage as components are not bought until an order is received.

That means very low inventory levels - about one-tenth that of many competitors - and a favourable cash-conversion cycle of minus 20 days or less. The company estimated savings of US$30 per monitor by virtually eliminating inventory.