Distribution Channels Assessing Dell's Distribution Channels Dell

Distribution Channels Assessing Dell's Distribution Channels Dell Corporation (NYSE:DELL) is a global provider of personal computers, laptops, enterprise servers and storage networks, generating $61B in revenues during its latest fiscal period. All products are sold through a multichannel marketing and distribution strategy, with the server systems being sold through a network of distributors, dealers, resellers and service providers. The Dell servers are heavily customized to the specific needs of a given business, which provides distributors, dealers and resellers with an opportunity to customize these systems and gain incremental profit.

Dell's approach to multi-channel distribution relies heavily on the distributor to share inventory carrying risk and the reseller to customize the system to user needs. This is a well-known best practice in multichannel distribution, of distributing risk evenly throughout an organization while ensuring systems are configured to specific customer needs (Magrath, Hardy, 1987). Analyzing the Effectiveness of the Dell Multi-Channel Distribution System In constructing its multi-channel strategies, Dell has deliberately sought out distributors who have the ability to stock, customize servers to user requirements, and manage returned servers for warranty repair.

The reliance on distribution channel partners as a full service sales and service centers in the personal computer industry has become a factor in the consolidation of smaller and less value-add channels (Chu, Chintagunta, Vilcassim, 2007). Dell also requires their primary-tier distributors to support Vendor Managed Inventory (VMI) in addition to stock balancing and service lifecycle management of warranty contracts (Chu, Chintagunta, Vilcassim, 2007).

As Dell's business model benefits most from inventory turns and the ability to quickly customize systems with the help of resellers to drive margins, the first-tier strategy of full service distributors works well for this manufacturer. The secondary tiers are focused on value-added resellers, retailers for their laptops and tablet PCs and a wide variety of chain stores and outlets. Dell relies on the value-added resellers however to customize the servers for specific larger customer requirements and needs.

Dell benefits significantly from having a multi-channel distribution system as their product strategies are so diverse, product lifecycles so varied in depth and complexity, and they serve a diverse array of customers. The best multi-channel distribution systems are those that allow a company to tailor their unique value proposition to the needs of a given market while still retaining their core strength in innovation and thought leadership (Frazier, 1999). Dell's greatest costs are in coordinating on the high-volume, low-margin products that they are most famous for.

The laptops and desktop PCs rely on a strong horizontal market system for brad distribution. Dell's costs in this area include price protection on the existing inventory, significant costs for training and detailing of retail stores, and heavy costs for returns. Dell also caries inventory for fast-moving retailers who have excellent selling skills yet don't have funds to finance huge amounts of Dell products sitting in their warehouses.

Conclusion Dell's unique approach to creating and sustaining a multi-channel distribution system has given them insights into how best to manage the significant risks of carrying inventory on higher-end servers, in addition to giving them flexibility in.