How Its Business Model Sweetens Its Financial Statement
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Transcript of How Its Business Model Sweetens Its Financial Statement
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How Its Business Model Sweetens Its Financial Statement
Elise Huyen
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Introduction
Conventional sales approach A business forecasts the demands and
then schedules the productions, which reverberates throughout the supply chain.
The problems of the conventional method Getting stuck with inventory if sales fall
short of projections
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Financial advantages of Dell’s business model
Direct sale approach Building To Order (BTO)
• Production a unit after the order is transmitted to the factory floor
No much forecasting Component suppliers building to order get i
nformation electronically from Dell as customers place orders
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Financial advantages of Dell’s business model
The shippers cart products away as soon as they exit the production
process. compresses the amount of time it takes fro
m order to deliver The average computer manufactures
deliver to suppliers within 30 days, and then pays them for 36 days
Receive payments from customers at once
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The advantages of Dell’s business model
Achieved a cash-concersation cycle Inventory turnover is high
• company can convert its inventory into cash quickly
Generate a tremendous amount of cash• fund its growth
Dell introduce new technology quickly, and use slower-moving, indirect distribution channels.
Falling component costs quicker than its competitors can
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Downside of pushing cost savings
Dell started outsourcing its call center activities led to growing complaints about long wait t
imes for customer service calls and poor postsales support
spent over $100 million to revive customer service, increase the percentage of full-time Dell employees, and reduce part-time and contract workers.
Dell pushes its suppliers hard
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Discussion 1
Investigate the financial ratio of inventory turnover. Find current information about Dell and report whether its inventory turnover is still as impressive as the number mentioned in the case. How does Dell’s current inventory turnover ratio compare to that of its competitors?
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Inventory Turnover of Dell
2012 2011 2010
Revenue $62,071 $61,494 $52,902
Gross Profit $13,811 $11,396 $9,261
Cost of sold goods
$48,260 $50,098 $43,641
Inventory $1,404 $1,301 $1,051
Inventory turnover
38.57 40.05 34.89
All these numbers are not as impressive as the number mentioned in the case, 107 times per year.
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Discussion 1
Inventory turnover comparison
Dell 31.2 (July, 2012)
HP 12.5 (July, 2011)
IBM 19.1 (Sep., 2012)
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Discussion 2
Locate Dell’s most recent 10-K and compute what you believe are the three most important financial ratios for Dell. Are the ratios impressive or do they cause you reason for concern?
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Discussion 2
Profit margin a measure of profitability of a company, the
profit margin is calculated by dividing the net revenue by the net sales revenue
Profit margin: 23.3%; average 5 years: 20.5% The profit margin of a company is also an
indication of its pricing policy and also the company’s ability to control prices
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Discussion 2
Debt equity ratio a measure of a companies proportion of
equity and debts used to finance the companies operations.
Total debt/Equity Ratio: 0.87 Referred to as risk because it is equal to
the debts divided by the shareholders equity
Gross margin a companies amount of contribution
toward its enterprise after payments of it production costs
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Discussion 3
If you were the CEO of HP, how would you repond to Dell's direct approach to selling?
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Discussion 3
Follow the Porter’s value chain model the primary and supportive activities
Primary Activities Inbound Logistics Operation: removing several layers of
management, outsourcing more production to subcontractors, development and installation of new IT database to improve the supply chain.
Outbound logistics: 3Pl model reducing HP’s fixed costs groups 9-12 core partners
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Discussion 3
Supportive Activities Procurement : applying the most
technology including e-auctions, e-quoting, e-invoicing and e-payments
Technology development: HP created a unique service (ANA – Adaptive Network Architecture) to deliver the ability of managing an adaptive enterprise to customers
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Discussion 4
What lessons can a young entrepreneurial firm learn from Dell's experiences?
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Discussion 4
Drivers of supply chain of Dell Facilities: low facility costs Inventory: low inventory costs Transportation: high transportation
costs Information: high information costs http://www.youtube.com/watch?v=LkL1
7lqMq90
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References
Research Hewelett Packard through its vaule chain – Hongni Zhang, International Journal of Business and Management -8 August 2010
Forbes Magazines
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