Dell Working Capital Case

In: Business and Management

Submitted By akhiz
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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 (DSI)a | 1993 | 1994 | 1995 | Dell’s Computer | 55 | 33 | 32 | Apple Computer | 52 | 85 | 54 | Compaq Computer | 72 | 60 | 73 | IBM | 64 | 57 | 48 |

DSI = 365 x (Average Inventory/ COGS)
DSI average = (54+73+48)/3 = 58 days
From Table A, Dell had Days Supply of Inventory (DSI) as 32 days while the competition average is 58 days, its means Dell’s DSI is better than the…...

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