Multinational company organizational structure and operations

Dell Computers Incorporated is a global technological corporation that develops, manufactures, sells, and supports personal computers and computer and electronic-based devices. They are based in Texas and employs more than 80,000 worldwide. Dell's concept of direct marketing and a direct distribution channels are a critical key to success. Most computer companies sell their products to retailers, who sell them on to customers. Dell's channel is far simpler: parts come in, computers are made to order, and ordered computer goes out. This indirect distribution process obviously adds cost since there is profit needed for the manufactured, shipping costs, store sales and inventory costs, and associate taxes. Dell's model eliminates this through direct selling. Furthermore, this approach brings a number of other critical business advantages. By dealing directly with its customers, Dell is able to more accurately judge consumer trends and react quicker to market changes, style issues, memory needs -- and a true snapshot of demographic market research. This also ensures greater customer satisfaction and experience. Dell also collects the views and needs of thousands of consumers, whether they purchase or not, and gains a greater (and deeper) understanding of individual consumer requirements which feed into its distribution modeling. For Dell, the model is on a just-in-time (JIT), build-to-order (BTO) basis. Therefore, if a new technology emerges it can be included in the product immediately, simply by adding that option to the order screen. In addition, changes in chip pricing can be more accurately reflected and increase margins for Dell. The JIT/BTO approach also means that Dell does not have to keep stocks of components or ready-made computers, increasing inventory costs, lack of price elasticity, and waste. Dell has chosen to pass these savings on to the consumer, which in tandem with the customized experience increases both volume and customer loyalty. In the Dell Direct Model, the customer is the beginning and end of the process. As a result, Dell can deliver high quality computers to satisfied customers at the best possible prices. Furthermore, Dell can do this all over the world (Holzer, 2005).

Dell was founded in 1984 by entrepreneur Michael Dell with only an initial influx of $1,000. His aim was to sell IBM PC-compatible computers built to order from stock components. Once he realized that consumers were quite willing to pay for custom built computers, he raised $300,000 from family and friends, dropped out of school, and in 1985 produced the first computer of its own design, the "Turbo PC" (Koehn, 2001, p. 297). In 2006, Fortune Magazine ranked Dell as 8th on its "Top 20" list of most admired companies in the United States. However, due to the economic downturn in the U.S. economy, on which Dell depends for over 50% of its revenue, the profits dropped 16% to $2.5 billion for 2008, yet grew 20% overseas, now ranking Dell as #10 most profitable and #33 as a Fortune 500 company ("Dell -- Fortune 20," 2008).

Still, Michael Dell is one of the world's most successful IT entrepreneurs. Dell's model is often touted and imitated, but the idea of direct selling to its customers rather than brick and mortar locations. In fact, Michael Dell once commented that "inventory should have the shelf life of lettuce." Dell took this to the extreme, believing that no computer should be built without first being sold in advance -- no extra surplus, few inventory issues, efficient production, and the elimination of retailers. Eliminating retail locations has removed unnecessary shipping time, costs, overhead, and allowing for a better customized business experience for consumers, all at a competitive price. For much of its recent history, Dell used the model of direct selling - inventory. To epitomize this, Michael Dell once said inventory should have the shelf life of lettuce (Davidson, 2003, 91-2). This model means that the company holds three or less days of complete inventory supply, and was the first in a long line of companies that believe a computer should never be built without first being presold. In many ways, this benefits all sides: Dell does not have to hold inventory, the consumer gets a more customizable machine, and there is no retailer middle man to raise prices or hold product. Doing this, Dell could introduce new chip sets and relevant technologies quicker by streamlining it channels. Because of this, in less than two decades, Dell became the number-one retailer of personal computers. Michael Dell still remains wary of having extra parts building up in a warehouse that should handle items built and ready to ship ("A Revolution of One," 2001). That inventory obsession continues to reduce Dell's inventory while increasing the profit on cost of goods sold.

Dell's concept of direct marketing is a critical key to success. Most computer companies sell their products to retailers, who sell them on to customers. This indirect distribution process obviously adds cost since there is profit needed for the manufactured, shipping costs, store sales and inventory costs, and associate taxes. Dell's model eliminates this through direct selling. Furthermore, this approach brings a number of other critical business advantages. By dealing directly with its customers, Dell is able to more accurately judge consumer trends and react quicker to market changes, style issues, memory needs -- and a true snapshot of demographic market research. This also ensures greater customer satisfaction and experience. Dell also collects the views and needs of thousands of consumers, whether they purchase or not, and gains a greater (and deeper) understanding of individual consumer requirements.

Figure 1 -- Overview of Dell Financial Performance, 2009-2011

In essence, each computer is built to order with the features each individual wants -- a true customized experience. This is highly personalized, one individual may want more features for gaming, the other graphics, and the other internet speed -- Dell ensures that each product is built so that the end user "feels" better about their Dell experience. For Dell, the model is on a just-in-time (JIT), build-to-order (BTO) basis. Therefore, if a new technology emerges it can be included in the product immediately, simply by adding that option to the order screen. In addition, changes in chip pricing can be more accurately reflected and increase margins for Dell. The JIT/BTO approach also means that Dell does not have to keep stocks of components or ready-made computers, increasing inventory costs, lack of price elasticity, and waste. Dell has chosen to pass these savings on to the consumer, which in tandem with the customized experience increases both volume and customer loyalty. In the Dell Direct Model, the customer is the beginning and end of the process. As a result, Dell can deliver high quality computers to satisfied customers at the best possible prices. Furthermore, Dell can do this all over the world. Thus, for Dell, the five basic tenets to their paradigm are: