...Dell´s Working Capital – Richard Ruback 1- Briefly explain DELL´s strategy. Do you consider this strategy reasonable? 2- What is your assessment of DELL´s performance? Please refer to the financial statements and calculate the financial ratios used in class to strengthen your analysis. 3- Calculate DELL´s Free Cash Flows. What is your assessment of the quality of these cash flows? ------------------------------------------------- 1- Dell, one of the best worldwide computer producer and one of the most successful organizations in the world, attribut the success to quality products and strategic management. Dell manufactures, sells, and delivers personal computers directly to the customers by a build-to-order model, which enables Dell to have much smaller investments in working capital than its competitors and also enables Dell to enjoy more fully the benefits of reductions in component prices and to introduce new products more rapidly. Dell has grown quickly and has been able to finance that growth internally by its efficient use of working capital and its profitability. Dell’s management principles as well as its supply chain (including inventory) is founded in “Build-to-Order” philosophy, and this philosophy is lies of exchanging inventory for information, because information is easier to store, to move, to discard and less expensive than inventory. Graphic 1 shows Dell´s working capital advantage over competitors by the DSI (days sales of inventory). In 1994...
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...Working Capital at Dell 1. How was Dell’s use of working capital a competitive advantage? Dell minimized its working capital as a result of its made-to-order manufacturing process. Dell focused on building computers to fit the orders placed by actual present and already-committed buyers. By building to order, Dell was able to significantly reduce its inventory on hand (in components, work in process and finished goods), accounts payable, and sunk labor costs thus reducing its working capital. By reducing those costs, Dell freed up funds not necessary to run the day-to-day business for other purposes such as expansion or investment. Those funds could also be used to ease/speed purchasing from suppliers as new technology, such as the Pentium chip, developed. Dell’s competitors, meanwhile, repetitively built several lines of stock computers in advance of any customer being identified, let alone committing to buy. As they compiled ever-aging/obsolescing inventory, labor costs, and accounts payable costs, in anticipation of customers that may or may not actually ever present to the company to make a purchase, Dell’s competitors tied up significant funds in working capital. By committing those funds, Dell’s competitors were prevented from using that cash for other purposes. Additionally, as technology improved, these firms were slowed from incorporating the new technology into their products due both to a lack of cash and an inventory of out-of-date products...
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...Dell Working Capital 1. How was Dell’s working capital policy a competitive advantage? Dell’s core strategy in the 90’s, build to order business model, allowed the firm to work with minimum finished goods and work-in-process (WIP) inventory. As a result, Dell maintained low inventory costs and permitted the company to adjust to technological innovations in the market. Dell’s WIP and finished goods inventory as a percent of total inventory was about 10%-20%, compared to the industry rate of 50%-70%. This led the company have low accounts payable, low cash conversion cycle, and high inventory turnover (Dell DSI 32 days vs. 58 days). As Dell’s computers were assembled after the company received the sale order and, as the rate of innovation is high, by keeping low inventory levels, the company could easily adjust to the new technology whereas the competition incurs in high depreciation rate of approximately 40% per year on old hardware components (Source Dell Website) for old. Additionally, if any component was factory flawed, as in 1994 with the Pentium chip, the company could quickly manufacture computers with the new updated flawless chip. Moreover, the company could reach new technology or components to market in an average of 35 days compared to 100 days by the competition. This helped Dell to take first mover advantage. 2. How did Dell fund its 52% growth in 1996? The sales increased 52% owing to growth in sales of Pentium processor. Calculating the increase...
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...CASO DELL WORKING CAPITAL 1. Representa el manejo de capital de trabajo una ventaja competitiva? En qué sentido? Tiene algún problema la forma en que Dell administra su capital de trabajo? Representa el manejo de capital de trabajo una ventaja competitiva? En qué sentido? Representa una ventaja competitiva el manejo de capital de trabajo en los siguientes aspectos: La manera en que Dell Working Capital manejaba su inventario hacia que los saldos de inventarios de bienes en proceso y acabados disminuían, ya que su proceso de fabricación era contra pedido. Mayor flexibilidad ante los constantes cambios tecnológicos. En cierta manera sus inventarios no dependían completamente de pronósticos de ventas. Cantidad de días inventarios menor que los competidores, lo cual reducía los costos de espacio y menor requerimiento de capital. Parte de la ventaja competitiva de Dell es la de poder financiarse a través de sus clientes y proveedores. Tiene algún problema la forma en que Dell administra su capital de trabajo? Si tiene problema la manera en que Dell administra su capital de trabajo en los siguientes aspectos: Debido a que inicialmente la forma de venta era contra pedido, esto limitaba el crecimiento debido a que no existían otros canales de venta. ...
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...1. How was Dell`s Working Capital Policy a Competitive Advantage? Dell used its working capital policy as a competitive advantage by reducing the amount of WIP and finished goods inventory in its system. As a result of maintaining a minimum amount of inventory, Dell reduced its need for inventory financing, warehousing and inventory control. Dell kept its accounts payable (A/P) account to a minimum volume by waiting until the customers order was received before placing the “release” order with their suppliers. Dell’s suppliers were all located very close to Dells manufacturing plants, and made daily deliveries to Dell based on just-in-time delivery. By not receiving the parts until the last minute, Dell kept both its inventory and its accounts payable to a minimum. On the sales side, Dell took orders directly from consumers who normally pay with a credit card online, or over the phone. Because Dell waited until they received the order from the customer to start building the computer, Dell kept the CCC (cash conversion cycle to a minimum). If Dell were to operate at Compaq’s DSI level, we estimate that Dell would have to increase its 1995 inventory from $293m to $668m, which is an increase of $375 million. This would mean that Dell would have needed to invest in $668 million in inventory. I believe that the main reason that Dell was able to maintain such a low level of inventory compared to their competition has a direct result of their competitive strategy to maintain a minimum...
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...DELL'S STRATEGY IS AN UNCONVENTIONAL APPROACH. • 1984 The company becomes the first in the industry to sell custom-built computers directly to end-users, bypassing the dominant system of using computer resellers to sell mass-produced computers. • 1986 Dell unveils the industry's fastest-performing computer, pioneers the industry's first thirty-day money back guarantee, and offers the industry's first onsite service program. • 1996 The company's quiet bid to sell custom-built computers over the Internet quickly becomes a public revolution when the company announces that sales over www.dell.com have exceeded $1 million per day. Dell introduces also its first custom custom-made web links for customers. Called "Premier Pages", the links allow customers to tap directly into the company's own service and support databases. 1998 Dell establishes web-based connections with its suppliers to speed the flow of inventory and quality information ================================ THE THREE GOLDEN DELL RULES Disdain inventory Always listen to the customer Never sell indirect ===================================== DELL COMPETITIVE STRATEGIES • Speed to market • Superior customer service • A fierce commitment to producing consistently high quality, custom-made computer systems that provide the highest performance and the latest relevant technology to the customers An early exploitation of the INTERNET. ========================================== ...
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...was Dell’s working capital policy a competitive advantage? Dell’s core strategy in the 90’s, build to order business model, allowed the firm to work with minimum finished goods and work-in-process (WIP) inventory. As a result, Dell maintained low inventory costs and permitted the company to adjust to technological innovations in the market. Dell’s WIP and finished goods inventory as a percent of total inventory was about 10%-20%, compared to the industry rate of 50%-70%. This led the company have low accounts payable, low cash conversion cycle, and high inventory turnover (Dell DSI 32 days vs. 58 days). As Dell’s computers were assembled after the company received the sale order and, as the rate of innovation is high, by keeping low inventory levels, the company could easily adjust to the new technology whereas the competition incurs in high depreciation rate of approximately 40% per year on old hardware components (Source Dell Website) for old. Additionally, if any component was factory flawed, as in 1994 with the Pentium chip, the company could quickly manufacture computers with the new updated flawless chip. Moreover, the company could reach new technology or components to market in an average of 35 days compared to 100 days by the competition. This helped Dell to take first mover advantage. 2. How did Dell fund its 52% growth in 1996? The sales increased 52% owing to growth in sales of Pentium processor. Calculating the increase in Cash, Working Capital and Fixed Assets...
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...In te r n a ti o n a l J o u r n a l o f M a n a g e me n t C a s es BOOTSTRAP FINANCING: FOUR CASE STUDIES OF TECHNOLOGY COMPANIES EVA M.TOMORY UNIVERSITY OF TORONTO, CANADA Abstract Innovative businesses, especially in the early stages of their life cycles, often encounter difficulty in obtaining long-term external financing. Their founders tend to seek financing through nontraditional bootstrapping methods to launch their ventures. Bootstrap financing refers to a range of creative ways to acquire resources without relying on borrowing money or raising equity from traditional sources (Freear et al., 1995a). The paper examines how successful technology entrepreneurs used bootstrap financing: the founders of Microsoft Corporation, Apple Inc., Dell Inc. and Research in Motion Ltd. The research investigates the elements of bootstrapping as described in Freear et al. (1995a) and in Winborg and Landström (2001), finding that entrepreneurs use bootstrapping extensively during the early stages of growth for both product and business developments. Bootstrapping methods change as the business develops with certain methods used more at the beginning of the life cycle, and different variations used as the business starts to grow. The study also points out that even the most successful technology-based consumer goods businesses relied on bootstrap financing at the early stages of their development. This technique deserves more attention from the scholarly community since it is certain...
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...Abstract Over the past ten years, some refer to as the American lost decade; few companies have been able to grow amide political, economic and financial instability as Apple. Apple, what was once considered a memory of times gone by has transformed itself and is on the verge of becoming the modern day David and Goliath. Today, Apple is a prominent provider of hardware and software, including Macintosh computer, the iPod digital media player, and the iPhone. With the iMac in 1998, iPod in 2001, iPhone in 2007, and iPad in 2010 Apple set itself apart with innovative design and has extended this differentiation throughout its entire product offering. Apple PCs are popular with consumers, students/educators, and creative professionals. Apple is also the largest vendor of portable digital music players globally with 70%+ market share. It is the largest vendor of legal digital music downloads globally. Following its entry into the smartphone business only 3 years ago, the iPhone already represents 1/3 of Apple's revenues and more than 1/2 of gross profits. Apple's products are available online, in its own retail stores, through its direct-sales force, and through third-party resellers. Apple is headquartered in Cupertino, CA and has approximately 34,300 full-time employees. Apple Financial Analysis The Company and its History On April 1, 1976, the Apple computer was born. Steven Wozniak and Steven Jobs had been friends through out high school. They had both been extremely...
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...Suppliers 2 Force of New Entrants 2 Force of Substitutes 2 Company Situation Analysis 2 Corporate Strategy 2 Generic Strategy 2 How Well Is This Strategy Working? 2 SWOT Analysis 2 Cost Competitiveness 2 Diversification Efforts 2 Financial Analysis 2 Market Share 2 % Change in Sales 2 Operating Margin 2 Net Profit 2 Net Profit Margin 2 Working Capital % Change 2 Long Term Debt % Change 2 Shareholders Equity % Change 2 Return on Total Capital 2 Return on Shareholders’ Equity 2 Gross Profit Margin 2 Operating Profit Margin 2 Net Profit Margin 2 Return on Total Assets 2 Return on Capital Employed 2 Earnings Per Share 2 Current Ratio 2 Quick Ratio 2 Inventory to Net Working Capital 2 Debt To Asset Ratio 2 Debt To Equity Ratio 2 Long Term Debt to Equity Ratio 2 Times Interest Earned 2 Inventory Turnover 2 Fixed Asset Turnover 2 Total Asset Turnover 2 Accounts Receivable Turnover 2 Average Collection Period 2 Price Earnings Ratio 2 Dividend Payout Ratio 2 Cash Flow Per Share 2 Strategic Issues Identifications and Recommendations 2 Works Cited 2 History Hewlett-Packard was started in 1939 by Dave Packard and Bill Hewlett in a small one car garage behind Packard’s house. At the time it was started HP had $538 in working capital and little more than a couple hundred dollars...
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...Case Study of Dell’s Working Capital Jianduo Guo, Shihao Qi, Michael, Yitsik 1. Big picture: With or Without external financing to meet the need of rapid growth Timeline of Dell is showed as follows: Calendar Year Fiscal Year Note 1990 1991 Expand indirect distribution channels 1993 1994 August: loss from sell-off of excess inventory September: growth to liquidity & profitability 1994 1995 July: exit low margin indirect channel 1995 1996 Inventory control, notebook market, new tech 2. Analysis Benefit and Cost of just in time manufacturing system Thanks to just in time manufacturing system, Dell built its brand as an efficient and flexible company which keeps pace to leading technology. As Dell’s competitive advantages, this system benefits Dell a lot, along with some costs and limits. Internally, in time manufacture lowers inventory, which benefits in many ways. Smaller amount of inventory takes less space for storage, thus lower the PP&E. And computers are easy to depreciate just like groceries, so less inventory leads to reducing expenses of depreciation. Also, it shortens DSI and then indirectly shorten Dell’s CCC performance, benefiting its liquidity. In addition, this enables Dell to simplify its supply chain by cutting off some suppliers. This system at the same time brands Dell as a flexible company to the customers. Without the burden of large amount of inventory, Dell is able to shift flexibly...
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...medium and long term. While impossible to predict future pop culture and trends, Apple has been leading the way for the past decade and shows no immediate signs of slowing down. Keywords: Apple, electronics, financial analysis, stocks Company History Founded in Cupertino, CA in 1976, and incorporated in 1977, Apple has a storied history in the computer industry. Though founded by three entrepreneurs, Steve Jobs stands out as the most famous and currently asks as CEO. In the first fours years, Apple’s goal was to break into the personal computer market; though successful, it was difficult to compete with nationally known brands as a start up. In December of 1980, Apple went public which provided the company millions of dollars in capital to expand operations. Through 1985, Apple struggled to determine which product path to take; after failed models, low sales and a power struggle, Steve Jobs was pushed out of Apple. A steady rise followed by a steep declined characterized the next 12 years as management tried to create new products...
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...Executive Summary: Ford Motor Company was incorporated in 1903 in Michigan,USA by Henry Ford and 11 partners with a starting capital of 28000 US $ in cash. The company witnessed tremendous growth and became one of the top three car manufacturers in North America. Sales reached 150 billion $ in 1996 with a total of 370,000 work force worldwide. The company stayed innovative and progressive in its strategy and business model. In the 1970's, the car market became more competitive with the Japanese manufacturers like Toyota and Honda gaining grounds in the auto market worldwide by producing high quality vehicles with extended life time. In 1999 Ford acquired the Swedish company Volvo to establish a foot hold in Europe and launched a campaign called "Ford 2000"to reengineer the company infrastructure and IT strategy that aimed at reducing their vehicle centers to 5 worldwide and requiring information technology to be the driving force and the link between the various company divisions. In doing so, Ford was trying to build a model similar to the one adopted by Dell computers to improve supply chain and delivery times. Dell launched the "direct business model" or "virtual integration" where Dell contracted with reliable suppliers to produce and assemble hardware and software for its computers and note books and tried to sell its products directly to organizations and individuals through the internet by cancelling the role of the retailers or intermediaries. I recommend the implementation...
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...improved product) Dell is the only computer company which offers its customers the built-to-order model. The customers can choose which components they want to have in their computer and can adapt it to their needs. Process Innovation (the development of a new manufacturing process) Dell has brought a maniacal focus to shaving minutes off the time to assemble and ship a computer. By studying videotapes of "the build," as they call it, factory managers have slashed in half the number of times a computer is touched by workers. They've counted the screws in a PC and redesigned it so that the major components simply snap in place. The entire process, from the time the order is taken to when the finished PC exits the factory, is wrapped up in four to eight hours. Organizational Innovation (a new internal communication; introduction of a new accounting procedure) Dell has a very good communication. As they standing under so much pressure regarding to the fact that they have no inventory, they have to have this skill. There is even a round-the-clock communication with the parts makers overseas existing, which helped them to handle with the lockout in 2002. Without this communication they had never managed it through it. With the built-to-order principle Dell has also changed its financial model (introduction of a new accounting procedure). Dell receives the payment from its customers immediately, through credit cards, online or over the telephone. But Dell doesn’t pay its suppliers...
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...Ford Motor Company Table of Contents Executive Summary 3 Introduction 4 Issue Identification 5 - 7 Environment and Root Cause Analysis 8 - 9 Alternatives and Options 10-11 Recommendations 12 Implementation 13-14 Monitor and Control 15 Conclusion 16 Ford Motor Company Executive Summary As director of Supply Chain Systems, Teri Takai recommends implementing virtual integration strategies from companies like Dell to portions of Ford’s supply chain strategy. Although there are several key differences between the companies, the restructuring plans of Ford 2000 have set a viable foundation to implement Dell’s virtual integration strategy in inventory management, customer service and support and suppliers’ management. The redesign of the process must include design not only of the supply chain but also of fulfillment, forecasting, purchasing, and a variety of other functions that historically been considered independently within the Ford hierarchy. Teri believes that implementing virtual integration by building on Ford’s key initiatives and projects including Ford Production Systems (FPS), Order to Delivery (OTD) and Ford Retail Network (FRN) that are currently underway will make their supply chain run more smoothly with less bottlenecking, reduced inventory, and better overall...
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