How Dell dealt with the competition by eliminating inventory?

Dell started as a Dorm room Start-up in 1984 but became the world’s largest PC maker in 2005

Dell Computer during the 1990s innovated the build-to-order strategy.

The company would take orders directly – through the phone and eventually from the Internet – and then the PC would be quickly assembled. The suppliers would also be paid later, which would generate higher cash flows.

The result was that Dell did not suffer from the heavy expenses of inventory accumulation and was able to fend off many competitors to become the top producer in the industry.

Overprocessing: This is where any part of the process of manufacturing or development is unnecessary. This could be something like creating an elegant design for an engine, even though most customers would not notice or care about them.

Also, Dell’s success can be attributed in large part to its “direct mode”.

By avoiding middlemen, it was also able to get the product faster to the customer. While competitors like IBM and Compaq sold Personal Computers through retailers, distributors, and resellers, Dell sold directly to its customers, offering highly customized PCs at a time when the cost of computers was high enough to still require significant tradeoffs.

The majority of the sales came from business and government, as giant customers appreciated the ability to customize a large number of PCs; Dell also offered these companies customized portals where employees could buy one of several company-approved computers directly.

This simple strategy proved highly successful.

Competitors like IBM and Compaq struggled with the politics of managing their various channel partners and lagged Dell in inventory management.

When competitors tried to copy the direct model, their channel partners — fearing for their own businesses — objected, preventing other PC makers from fully going direct.

By the mid-2000s, much of Dell’s competition had faded. By 2007, most had merged (HP and Compaq) or sold some or all of their PC businesses to foreign competitors (IBM to Lenovo; Gateway to Acer).

Adopting and applying Lean Six Sigma principles will immensely benefit organizations in creating a competitive advantage for themselves.

In the case of Dell, they killed the competition by embracing customer satisfaction and eliminating waste in their processes – having created efficient processes.

Also, one needs to understand that the pace of change is accelerating everywhere and needs to keep up with it to survive!

Share with us the company that dealt with their competition and won the market leadership. What strategies did they follow and how far they are relevant?

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