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MG2138

Module Title

Marketing Channel and Logistics

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Des Doran

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Degree Programme (e.g. Business and

Management (General))

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i

Executive Summary

The report analyses Dell Corporation’s supply chain management, Dell has recently

improved their market share and lie 2nd in the global PC supplier market, behind leaders

Hewlett-Packard. Dell have a sophisticated network in which they sell directly to customers

and as of late, they have adapted and sell through retail outlets such as Tesco.

A SWOT analysis has identified clear strengths, weaknesses, opportunities and threat’s that

Dell have. The Dell input transformation output model included, shows how Dell have made

use of high quality supplies in order to assemble high quality products for their customers.

Also analysed in this report is how Dell have managed there logistics throughout the entire

process of satisfying orders from getting components from suppliers to creating full finished

goods for customers. Managing logistical activities such as pre and post level customer

service, traffic monitoring, demand forecasting etc throughout the process has enabled Dell to

get products to customers at the right time, price, and quality.

After analysing Dell’s supply chain management through the logistics management model

and input transformation output model, further research showed Dell have had customer

service issues. A major issues identified was Dell pricing a computer system incorrectly, this

was largely due to poorly managed logistics, in particular, information about the product was

not accurate, thus price ended up incorrect all the way through to the customers, Dell refused

to meet orders thus potentially losing customers and reducing their quality reputation.

An analysis of how Dell maintain positive relationship with customers and suppliers has been

identified, Dell make full use of software’s such as database software’s, ProClarity which

also maintains information on suppliers/customers and finally the premier page on the Dell

website also allows Dell to monitor the activities of customers browsing (on Dell.com) and

there buying habits etc.

Porters value chain model has been adapted to show how Dell create value for their

customers through the use of primary activities like inbound and outbound logistics,

operations, marketing/sales and after sales support with secondary activities there to support

the primary activities. Secondary activities include, procurement, technology development,

human resources management and the Dell infrastructure.

Table of Contents

Executive Summary i

Introduction into Dell and its Market Position

Global PC Supplier Market share 1

Perceptual Market Positioning Map 2

Four V’s of Operations Management at Dell 3

Marketing Channels of distribution 4-5

Performance Objectives 5-6

SWOT Analysis 6

Dell Marketing Channel and Logistics Structure and Analysis

Input-Transformation-Output Model 7

Logistic Management Model 8

Analysis of Logistical Activities

o Customer Service

o Demand Forecasting

o Traffic and Transportation

8-10

Marketing Channel/Logistics impact on customer service, relationships

and value creation

Marketing Channels and Logistics impact on customer service 10

Customer and Supplier Relationship Management Analysis 11

Value Creation (Porter’s Value Chain) 12

Conclusion and Recommendation 13

Appendices and References

1 | P a g e

Introduction into Dell and its Market Position

What is marketing and logistics?

Marketing is the process of Dell creating ‘value for customers and build strong customer

relationships in order to capture value from customers in return’ (Kotler et al, 2008). In

combination with effective logistics management which is defined by Long, D (2003) as ‘the

part of the supply chain process that plans, implements, and controls the efficient, effective

flow and storage of goods, services and related information from point of origin to point of

consumption in order to meet customer requirements’, customers will get there products

when and where they want it and at the right cost.

Multinational IT firm Dell are computer system and software providers,

Dell operates on a worldwide scale and supplies to consumers, to other

businesses and also supplies to government’s around the world.

Dell offer products ranging from ready-built computer systems to

custom built systems as well as offering individual hardware

components such as hard-drives, monitors, printers etc.

Global PC Supplier Market share

In recent times, operating in such a fast-paced environment where consumer habits and

attitudes change on a frequent basis.

In 2010, Dell moved into 2nd

in the market with a market share in the 2nd

quarter of 2010 of

12.8% (figure 1), Hewlett-Packard dominate the market with a secure 18.1%, with Acer into

third with 12.4%. Dell were the market leaders but quick changing consumer demands has

cost the firm, when dominating the market, prices reflected this as a high specification

computer could cost up to £800, but now with competition so fierce, prices are down to £500.

Figure 1: Global PC Supplier Market Share

Source: iSuppli Market Research Report

2 | P a g e

Figure 2: Dell Perceptual Market Positioning Map

Above, shows where in my opinion, I believe Dell is in the market today. For many years

Dell sell at a high quality products at high prices, HP and Acer offer high quality but at a

lower price and as a result market share has decreased for Dell but competitors have

improved, this could be because of the following problems in the UK:

The UK economy is recovering, as consumer expenses are increasing due to VAT

rises and inflation, consumer attitude towards saving money is increasing and this

conflicts with Dell’s approach in the market to sell at high prices.

When economies are not doing well, inflation/VAT rises force Dell to raise their

selling prices in order to cover the increase in price for their supplies for the computer

models.

Low Price High Price

Low Quality

High Quality

Dell

HP

Acer

Toshiba

3 | P a g e

Figure 3: Four V’s of Operations Management at Dell

The four V’s of operation management helps to show how Dell operate in their market based

on the volume of orders they deal with, variety of products offered to customers, the variation

of demand in the market and also the visibility of the firm to its customers (Stack et al,

2004).

Dell deal with large numbers of orders for not only their computer models, but there

hardware components such as hard disk drives, servers etc. Especially during summer as

teenagers get ready to go back to school in September and schools begin to upgrade their

systems. ‘Today Dell connects with more than 5.4 million customers every day — on the

phone, in person, on Dell.com and, increasingly, through social networking sites’

(Dell.com).

Dell are not known for the wide range of products, however they do have a number of

technological products such as hard disk drives, monitors, servers, keyboard/mouse’s etc. As

they do not deal with foods/drinks, or housing, banking etc., they have a reasonably low

variety of products.

Demand is not so much high on a regular basis; seasonal demand does vary due to Christmas

offers, ‘back to school’ offers for students throughout summer and for public service

companies upgrading their systems.

Much of what Dell do is all ‘behind the scenes’, customers can view their order when they

take the order through the website or if they go and directly purchase from the retail outlets

Dell sells their computer models to. Customers are unaware of the manufacturing process or

distribution system for their order.

Low High Volume

Low High Variety

Low

High

Visibility

Low High Variation in Demand

4 | P a g e

Dell Marketing Channels of distribution

Figure 4: Distribution Channel 1- Direct Channel

The chart above shows how I believe Dell’s distribution channel is; it’s been one that has

been used since Dell began their operations in the PC supplier market. The direct channel

which gets components from suppliers such as Intel/Maxtor, are all assembled at the

manufacturing site which then transfers finished goods to a fulfilment centre, which holds

stock for a small out of time before being delivered to consumers. This method of distribution

have benefited Dell much over the years, below shows a few ways that this direct channel has

made Dell better:

Cost saving- Dell has a ‘build to order’ strategy where they only get components from

suppliers when orders have been made, Dell save money as they only spend money when

they know they will be making returns.

Speed- Getting the product made and sent out to customers is a lot quicker because as

soon as orders become finished goods, they are sent out to customers straight away and

not stored for a long time.

Figure 5: Distribution Channel 2- Inclusion of retailers

‘Although Dell is still one of the world’s largest pc manufacturers, its sales via phone and

the internet have begun to shift as more consumers prefer to visit retail stores to try out

new gadgets and features’ (Kurtz, D. 2008). Figure 5 shows how Dell have changed their

direct method to customers, and now sell their products via retail outlets such as Wal Mart,

Tesco, PC World, Curry’s etc., these of course are not custom made orders for specific

customers, thus costs do increase as not every computer is suited to customers, as a result

stock can be wasted.

Dell are competing with competitors to manufacture computer systems, in doing so they need

to get the best quality hardware and software, as a result, they have high quality suppliers

such as Intel who produce micro-chips for the systems and Maxtor to create hard drives etc.

This is all shipped to the main Dell manufacturing site where microchips, hard-drives,

monitors etc for the system are assembled, then transferred to a fulfilment centre where it is

Suppliers

(Other components)

Suppliers (Intel)

(Microchips)

Suppliers (Maxtor)

(Hard Drives)

Manufacturing

Site

Fulfilment

Centre Customers

Suppliers

(Other components)

Suppliers (Intel)

(Microchips)

Suppliers (Maxtor)

(Hard Drives)

Manufacturing

Site

Fulfilment

Centre

Retail

Outlets Customers

5 | P a g e

stores until sent out to retail outlets such as Wal Mart, Tesco, PC World etc, these firms will

be responsible for selling to customers.

Figure 6: Dell Performance Objectives

Flexibility

Dell has a built-to-order system which is a key competitive advantage against HP and Acer.

This is how they differentiate themselves from the competition and are always keen to ensure

that they perfect the system to ensure customer satisfaction remains high. Dell also tries to

keep with the times and market changes to continue to meet consumer needs. Allowing

customers to customize their desired system ensures flexibility, something which competitors

find it difficult to match Dell on.

Speed

Dell has a direct channel of distribution ensuring quick order fulfilment and good customer

satisfaction. Selling to retailers increases availability and speed for customers to products.

Dell is likely to have sophisticated logistical systems in place such as traffic control to ensure

drivers avoid traffic area’s to prevent delayed deliveries. Having online support and

downloads allows customers with quick access to information and assistance.

Dependability

It’s vital for customers to know where there products are and if it’ll be delivered when and

where expected. Dell has a strong delivery service record, with track and trace utilities

allowing customers to monitor their delivery and be aware of any delays.

Cost

Dependability Speed

Quality Flexibility

6 | P a g e

Key aspects of improvements

Cost

High pricing is something customers such as students and businesses are looking to avoid

in order to keep expenses low, thus they are likely to go to HP or Acer.

Not too many discounts offered by the company on its products, perhaps because supplier

costs are reasonably high.

Dell Swot Analysis

Figure 7: Swot Analysis of Dell Corporation

Strength

o Good relationship with suppliers

o Dell Direct channel of distribution

o Build-to-order

o Finance

o Strong brand and reputation

Weaknesses

o Targeting education institutions has been

poor. Only 5% of sales revenue is from

education.

o Can’t physically touch the customised

computers until delivered.

o Competitors have more market and sales

knowledge than Dell as they’ve sold to

retailers longer.

Opportunity

o Improve price strategy

o Sell more through retailers as customers

want to physically see and touch what

they buy.

o Improve relationships with education

institutions

Threats

o UK economic recession

o Low customer confidence

o Fierce competition in a highly volatile

market environment

7 | P a g e

Dell’s Input-Transformation-Output Model

Dell makes use of a number of inputs in order to transform them into outputs. Much of the

inputs involve resources required to complete the output which for Dell is customer custom-

designed computer systems.

Figure 8, below, shows how I believe Dell use inputs and transform them to outputs to

meet customer orders.

Input Transformation Resources

Materials

(Bolts, screwdrivers, cases, printed labels, paper, hardware

components e.g. hard drives, monitors etc.)

Information

(Stock levels, tracking and tracing information on stock, customer

order requirements, traffic information and re-routing software)

Customers

Clear order requirements, any specific custom configurations

before delivery e.g. disability- larger text etc)

Input Transforming

Resources

Facilities

Manufacturing land, CAD and

CAM (Robotic machinery), Bar

coding systems, testing equipment.

Staff

Technical employees to assemble

products, Employees to test

supplies, Managers, Administration

staff

Transformation Process

- Components are assembled and labelled

- Health and safety information is printed and attached

- Tutorials are created and attached

- Finished goods are tested on quality

Output: Finished Goods

Fully tested computer system that fully meets the needs and

requirements of the customer. Also included, a magazine of

Dell with latest offers, tutorials and help CD’s and documents.

8 | P a g e

Dell Marketing Channel and Logistics Structure and Analysis

Figure 9: Dell’s Logistic Management Model

Source: Fundamentals of Logistics Management, 2006

Dell Logistics Management Model (Figure 9) Explained

Micro-processors from Intel, hard disk drives from Maxtor and much of Dell’s other supplies

are key to their computer systems and meeting customer orders. The logistics management

model shows how Dell carries out orders.

Once gathered, management at the manufacturing site may purchase raw material for workers

including ensuring that there is enough welding equipment, bolts, screwdrivers, cases to

complete orders. Dell manufacturing workers will use these raw materials to assemble the

hardware components to make up the system and install the required software(s). After

successfully testing these new Dell models, they will be passed over as finished goods, with

management consistently controlling what is happening throughout.

Inputs into Logistics

Natural Resources

(Manufacturing/Welding

equipment,

manufacturing site)

Human Resources

(Highly qualified

production team +

manager, van drivers)

Financial Resources

(Money needed to pay

for supplies and

employee wages,

transport costs etc.)

Information Resources

Live tracking

information of

transporting supplies,

costing etc. Re-order

level, Bar Coding, EDI.

Management Actions

Planning- Top management need to plan how logistical activity is to be carried out in conjunction with the production.

E.g. how will supplies get to Dell’s manufacturing site?

Implementation- Ensure all activities are carried out correctly and run to schedule.

Control- Monitor on a consistent basis, for example, ensure that deliveries arrive on time by ensuring supplies are

delivered just in time.

Output of Logistics

Marketing Orientation

(Competitive

Advantage)

Time and Place utility

(Ensures orders are met

when and where

customers have asked)

Gain customer

satisfaction

(If Dell manage their

logistical activity during

manufacturing and

ensure product is on

time, they can maintain

consumer satisfaction)

Raw Materials-

Purchase the bolts,

labels, machinery

that will be needed

to complete the

orders.

In-process Inventory-

Assemble all required

components to form the

computer system.

Finished

Goods- The

final product

should be in top

condition and

ready to be

delivered to the

customer.

Logistics Activities

- Customer Service

- Demand Forecasting

- Material Handling

- Order Processing

- Packaging

- Return goods handling

- Traffic and transportation

9 | P a g e

These goods are delivered to the fulfilment centre to be stored before being dispatched to

customers at the correctly specified time and location.

Key Dell Logistical Activity

Logistical activities are vital to ensure consumers are satisfied and the process of getting the

order from manufacturing to customer is successful. Activities include:

Figure 10: Customer Service Standards

Source: Adapted from Fundamentals of Logistic Management, 2006

Dell Pre-Transaction Customer Service

Dell's online website tells customers what hard drives/monitors are available so that

they do not order what is not available. They will be aware of what is NOT available

so that they will not be disappointed.

Each component has key information written in user friendly language avoiding

confusion.

Different delivery options/accurate delivery times prevent customers having to take

days off work.

Dell Transactional Customer Service

Customers make online orders which reduce human error that telephone sales does.

Highly rated delivery network

Live tracking on customer orders

Dell Post-Transaction Customer Service

Accurate computerised invoice systems to avoid human error in calculation

1 year warranty on ALL products

Demand Forecasting

Dell have a build-to-order system which means as soon as orders are received through

systems, management then begins to plan, implement and control the order of supplies from

suppliers. Being heavily reliant on information systems, management make use of

computerised tracking of supplies from suppliers and ensure the correct amount has been

received.

Dell do not hold any stock in their inventory, they simply order the amount compared to the

amount required per order. This saves money for Dell and ensures no stock is wasted

however there is a huge reliance on information systems being accurate and available, if

systems are down, it could cause customer dissatisfaction with orders not fulfilled on time.

Customer Service

Pre-Transaction Elements

Transaction Elements

Post- Transaction Elements

10 | P a g e

Traffic and Transportation

A key advantage of Dell’s distribution channel is its speed; they rely on traffic software and

updates to find the best route to getting products from suppliers like Intel and Maxtor, to

getting products from the fulfilment centre to customer delivery locations. Information such

as road traffic and re-routing capabilities are important for truck drivers as stopping in traffic

for hours will delay orders and reduce customer satisfaction.

Management at Dell are likely to constantly be planning the best mode of transport e.g. ship

(to get products from suppliers), air etc in order to ensure customer orders are met on time as

expected. They plan and implement transport strategies and maintain firm control over

progress of delivery trucks to ensure customers will be nothing but satisfied at the end of the

delivery.

Marketing Channel/Logistics impact on customer service, relationships and

value creation

Marketing Channels and Logistical impact on customer service

In 2008, it was reported Dell had labelled its new Vostro 220ST computer system incorrectly.

‘Bargain hunter websites, such as OzBargain, and PC user forums, including Whirlpool

and Overclockers Australia, lit up on Friday with word that Dell was offering a $799

Vostro 220ST computer on its website for $240’ (Sydney Morning Herald, 2008), consumers

being aware, begin purchasing at a clear knock down price, Dell later refused orders as they

‘did not send customers a notice accepting the orders and therefore no contract was

created. Dell did, however, send customers an automated response acknowledging the

orders’ (Sydney Morning Herald, 2008). Customers were clearly unhappy and all due to poor

package labelling and advertising.

How has logistics failed to satisfy customer service standards?

Information Sources are important when Dell deal with a direct distribution channel like they

operate, information sources to customers’ needs to be as accurate as can be, including

correct prices. Due to this one price error, it can be perceived by customers that ‘Dell

deliberately advertised at an impossibly low price as a marketing ploy, knowing it could

pull out at any time and claim the offer was an error’ (Sydney Morning Herald, 2008), this

foul play which may in truth have been a simple computer error, has caused customer service

standards to drop, Dell have perhaps lost many customers. With news publicised over the

Internet, this is bound to have a negative impact on customers who may now perceive Dell to

be undependable and untrustworthy.

11 | P a g e

Dell SRM and CRM

Supplier and customer relationship management is a term used to describe the management

of the flow of raw materials to the end product, which Dell then use to fulfil customer orders.

Dell has developed a strong relationship with its suppliers and customers in order to have

computer components available for customer orders on time. Below shows how I believe Dell

makes use of web focused methods to manage supplier and customer relationships.

Figure 11: Ways Dell manages the relationship with their customers

Customer Relationship Management

Database Software Used to record customer information, their interests, and products. The database allows Dell

to 'determine effective and efficient ways to target and segment the customers', thus

improve profitability.

Dell’s Online Transparent system: Premier Pages Custom created pages made by Dell on their website to collect purchase data and shopping

information of customers whilst browsing and making orders.

ProClarity Software The software allows in depth 'demographic information about customers, customer sales,

history and trade relationships', this in combination with sales by region allows Dell to

'measure trends and successes.'

Source: Klinker, S. Terrel, R. & Mahfouz, A. 2006

12 | P a g e

Figure 12: Dell customer value creation (Porters value chain)

Source: Porter M, E. 2001

Primary Activities

Inbound Logistics

o Purchase high quality components from suppliers.

o Stored until required on production assembly line

Operations

o Assemble all components to form finished goods (see figure 8)

Outbound Logistics

o Finished goods stored at fulfilment centre for a short time before sent to customers directly/or to

retail outlets.

Marketing/Sales

o Once product(s) are sent to customers, Dell makes sales and find out customer views. All orders are

sent with a Dell magazine to advertise latest offers.

o Website allows customer sales

o Customers can fully customise orders

After Sales Support

o Online support

o telephone support

o repairs

o warranty

Support Activities

Procurement

o Purchase high quality components from suppliers only when an order has been made to avoid

wasting stock.

o Machinery, screws/bolts, PC case etc for production

Technology Development

o Use of SRM/CRM software’s to meet customer needs, strong research and development department

to aid value chain system.

HR Management

o Recruiting and training staff and managers to maintain different areas of business e.g. production.

Firm Infrastructure

o Ensure finance, legal, marketing, IT departments work to optimal performance ensuring customer

needs are met and live/accurate information is available.

13 | P a g e

Conclusion

In conclusion, Dell have got a lean production and distribution system with a quick and

efficient distribution channel and in combination with well managed logistical activities, they

have built a strong reputation within the PC suppliers market.

Dell have a direct distribution channel which starts with an order, order being manufactured

and then delivered to the customer, this reduces the cost and need of stock being stored in

warehouses. The system enables Dell to reduce stock wastages as they only begin ordering

components for computers when orders and payments have been made.

Dell’s sophisticated logistics system which involves high-quality employees, computer

components, machinery, and information resources such as bar codes, tracking parcels,

robotics, traffic re-routing software etc. All this in combination with good customer service,

traffic control, demand forecasting and good packaging, enables Dell to satisfy customers as

orders arrive in good time and in good condition.

References

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http://www.bbc.co.uk/news/business-11795626. [Date Accessed: 25th November 2010]

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http://content.Dell.com/uk/en/corp/d/financials/investor-faqs.aspx. [Date Accessed: 25th

November 2010]

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comm/our-story-facts-about-Dell.aspx. [Date Accessed: 10th December 2010)

Grant, D. Lambert, D. Stock, J and Ellram, L. (2006). Fundamentals of Logistics

Management: European Edition. London: McGraw Hill. Pgs5, 6, 56

Kotler, S. Armstrong, G. Wong, V. Saunders, J. (2008). Principles of Marketing: Fifth

European Edition [e-book]. pg 7, Available through: Google Scholar

http://books.google.com/books?id=6T2R0_ESU5AC&lpg=PP1&pg=PA7#v=onepage&q&f=

true, [Date Accessed: 7th

December 2010]

Klinker, S. Terrel, R. & Mahfouz, A. (2006). Dell’s Use of CRM-SCM Integration to

Dominate the PC Market. Communications of the IIMA. 6 (3), 87

Levey, R. (1999). The Visible Marketer: Dell's CRM model stresses transparent processes.

Available: http://directmag.com/mag/marketing_visible_marketer_Dells/. [Date Accessed:

30th November 2010]

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Publications. 1st Edition, p4. [Date Accessed: 6

th December 2010]

Moses, A. (2008). Uproar as Dell claims half-price offer a mistake. Available:

http://www.smh.com.au/news/technology/biztech/halfprice-offer-a-mistake-says-

Dell/2008/11/18/1226770413954.html. [Date Accessed: 30th November 2010]

Porter M, E. (2001), ‘Strategic and the Internet’. Harvard Business Review, pg 15. Available

through: Google Scholar. [Date Accessed: 15th

December 2010]

Slack, N. Chambers, S. Harland, C. (2004) Operations Management. 4th Edition. Pearson

Education.

Wilkins, M. (2010). Dell Climbs Back to No. 2 in Global PC Market. Available:

http://www.isuppli.com/Home-and-Consumer-Electronics/MarketWatch/Pages/Dell-Climbs-

Back-to-No-2-in-Global-PC-Market.aspx. [Date Accessed: 27th November 2010]