Explaining Dell's Transformation – Managing Profitability

from the in-retrospect,-everything-looks-easy dept

An interesting look behind the scenes at how Dell jumped from second-tier status to the number one computer supplier using “profitibility management”, which at first just seems like a catchy new name for inventory management. The difference is that it goes one step beyond inventory management to tie sales efforts into inventory issues. This way, Dell adjusted prices and sales incentives to continuously push whatever products they had on hand, rather than push what they wanted to sell. The results of this process surprised even those involved with it. It apparently had some unexpected consequences as well. For instance, not only did they save from having shorter inventory lead times, they found even larger savings in the fact that component prices were regularly dropping – so when they did have to order new components the prices were much cheaper than if they had had to order them earlier.

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Comments on “Explaining Dell's Transformation – Managing Profitability”

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Doug says:

Selling what?

push whatever products they had on hand, rather than push what they wanted to sell

So, now Dell is using the sales model that Lee Iacocca says drove Chrysler to the brink of bankruptcy a couple of decades ago?

Iacocca wrote in his autobiography (heh… auto-biography) that the biggest problem that Chrysler had was that they were manufacturing-driven. If they built 150 purple cars with pink interiors, then it was the dealers’ problem to sell them.

Iacocca said that simply changing to a “build what the customer wants to buy” process was the biggest single change that he made to turn Chrysler profitable again.

In the case of Chrysler, the “sell to the customer whatever we build” model killed them because Chrysler didn’t get a cent until the car was sold, whereas the “build what has been sold” model treated the dealers as customers, requiring the dealers to pay Chrysler for the cars that they ordered. Dell probably won’t be as financially hurt as Chrysler was.

Still, it seems to me that changing what the company is “pushing” is not the answer; changing from a “push” to a “pull” model is the answer.

Vance says:

Re: Selling what?

The Chrysler comparison is a poor one. Part of the Chrysler problem is that cars at the time took 5 years to develope and when they were introduced they were already obsolete.

By looking at the market demands and supply lines every day/week/month Dell has reduced the product introduction cycle. You can’t sell what you don’t have, but you also don’t want to have (old) inventory that your forced to “push” on your customers.

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