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1 what are the chief element of strategy for dell Dell Computer's strategy was built around a number of core elements: build-to-order manufacturing, mass customization, partnerships with suppliers, just-in-time components inventories, direct sales, market segmentation, customer service, and extensive data and information sharing with both supply partners and customers. Through this strategy, the company hoped to achieve what Michael Dell called "virtual integration"a stitching together of Dell's business with its supply partners and customers in real time such that all three appeared to be part of the same organizational team Build-to-Order Manufacturing and Mass Customization Dell built its computers, workstations, and servers to order; none were produced for inventory. Dell customers could order custom-built servers and workstations based on the needs of their applications. Desktop and laptop customers ordered whatever configuration of microprocessor speed, random access memory (RAM), hard-disk capacity, CD-ROM drive, fax/modem, monitor size, speakers, and other accessories they preferred. The orders were directed to the nearest factory his sell-direct strategy meant, of course, that Dell had no in-house stock of finished goods inventories and that, unlike competitors using the traditional value chain model (Exhibit 6), it did not have to wait for resellers to clear out their own inventories before it could push new models into the marketplace. (Resellers typically operated with 60-70 days' inventory.) Equally important was the fact that customers who bought from Dell got the satisfaction of having their computers customized to their particular liking and pocketbook. Partnerships with Suppliers Michael Dell believed it made much better sense for Dell Computer to partner with reputable suppliers of PC parts and components rather than to integrate backward and get into parts and components manufacturing on its own. He explained why: First, using name-brand processors, disk drives, modems, speakers, and multimedia components enhanced the quality and performance of Dell's PCs. Because of the varying performance of different brands of components, the brand of the components was as important or more important to some buyers than the brand of the overall system. Dell's strategy was to partner with as few outside vendors as possible and to stay with those vendors as long as they maintained their leadership in technology, performance, and quality hird, Dell's formal partnerships with key suppliers made it feasible to have some of their engineers assigned to Dell's product design teams When new products were launched, suppliers' engineers were stationed in Dell's plant ell's long-run commitment to its suppliers laid the basis for just-in-time delivery of suppliers' products to Dell's assembly plants in Texas, Ireland, and Malaysia We tell our suppliers exactly what our daily production requirements are. So it's not, "Well, every two weeks deliver 5,000 to this warehouse, and we'll put them on the shelf, and then we'll take them off the shelf." It's, "Tomorrow morning we need 8,562, and deliver them to door number seven by 7 am."8

Dell Was Committed to Just-in-Time Inventory Practices Just-in-time inventory emphasis yielded major cost advantages and shortened the time it took for Dell to get new generations of its computer models into the marketplace. New advances were coming so fast in certain computer parts and components (particularly microprocessors, disk drives, and modems) that any given item in inventory was obsolete in a matter of months, sometimes quicker. Having a couple of months of component inventories meant getting caught in the transition from one generation of components to the next. Moreover, there were rapid-fire reductions in the prices of componentsmost recently, component prices had been falling as much as 50 percent annually (an average of 1 percent a week). Intel, for example, regularly cut the prices on its older chips when it introduced newer chips Direct Sales Selling direct to customers gave Dell firsthand intelligence about customer preferences and needs, as well as immediate feedback on design problems and quality glitches. With thousands of phone and fax orders daily, $5 million in daily Internet sales, and daily contacts between the field sales force and customers of all types, the company kept its finger on the market pulse, quickly detecting shifts in sales trends and getting prompt feedback on any problems with its products. If the company got more than a few similar complaints, the information was relayed immediately to design engineers. When design flaws or components defects were found, the factory was notified and the problem corrected within a matter of days. Management believed Dell's ability to respond quickly gave it a significant advantage over rivals Market Segmentation n 1998, 90 percent of Dell's sales were to business or government institutions and of those 70 percent were to large corporate customers who bought at least $1 million in PCs annually. Many of these large customers typically ordered thousands of units at a time. Dell had hundreds of sales representatives calling on large corporate and institutional accounts. Its customer list included Shell Oil, Exxon, MCI, Ford Motor, Toyota, Eastman Chemical, Boeing, Goldman Sachs, Oracle, Microsoft, Woolwich (a British bank with $64 billion in assets), Michelin, Unilever, Deutsche Bank, Sony, Wal-Mart, and First Union (one of the 10 largest U.S. banks). However, no one customer represented more than 2 percent of total sales. Because corporate customers tended to buy the most expensive computers, Dell's sales to individuals and small businesses were made by telephone, fax, and the Internet. It had a call center in the United States with toll-free lines; customers could talk with a sales representative about specific models, get information faxed or mailed to them, place an order, and pay by credit card. In 1997, 31 percent, or $3.8 billion, of Dell's sales came from foreign customers. Europe, where resellers were strongly entrenched and Dell's direct sales approach was novel, was Dell's biggest foreign market Customer Service Service became a feature of Dell's strategy in 1986 when the company began providing a guarantee of free on-site service for a year with most of its PCs after users complained about having to ship their PCs back to Austin for repairs. Dell contracted with local service providers to handle customer requests for repairs; on-site service was provided on a next-day basis. Dell also provided its customers with technical support via a toll-free

number, fax, and e-mail. Dell received close to 40,000 e-mail messages monthly requesting service and support and had 25 technicians to process the requests. Bundled service policies were a major selling point for winning corporate accounts. If a customer preferred to work with his or her own service provider, Dell gave that provider the training and spare parts needed to service the customer's equipmen Virtual Integration and Information-Sharing How the company was using technology and information-sharing with both supply partners and customers to blur the traditional arm's-length boundaries in the suppliermanufacturer-customer value chain that characterized Dell's earlier business model and other direct-sell competitors. Demand Forecasting Management believed that accurate sales forecasts were key to keeping costs down and minimizing inventories, given the complexity and diversity of the company's product line. Because Dell worked diligently to maintain a close relationship with its large corporate and institutional customers, and because it sold direct to small customers via telephone and the Internet, it was possible for the company to keep a finger on the pulse of demand Research and Development Company management believed that it was Dell's job to sort out all the new technology coming into the marketplace and help steer customers to options and solutions most relevant to their needs. The company talked to its customers frequently about "relevant technology Advertising Michael Dell was a strong believer in the power of advertising and frequently espoused its importance in the company's strategy. Thus, Dell was the first computer company to use comparative ads, throwing barbs at Compaq's higher prices. Although Compaq won a lawsuit against Dell for making false comparisons,