Case 1
Questions for advance preparation
Core strategy：
Built-to-order model
1990-1993：
Strategy: Break from direct-only business model, began to sell PCs through indirect distribution channel, pursuit of foreign market.
Outcome:
 Annual sales increased by 268% within two years, became the top five in worldwide market share
 $76 million dollar loss for second quarter of 1993 (from the sell-off of excess inventory and the cost of scrapping a disappointing notebook computer line).
 European operations redundant and inefficient
 Profit margin fall to 2% which is much lower than their target
$32 million in cash and cash equivalents left.
1993-1996:
Strategy: new focus shifted from exclusively growth to liquidity, profitability, and growth.
Exited the low margin indirect retail channel.
Instituted goals on ROIC and CCC.
Took measures to improve its internal systems for forecasting, reporting, and inventory control.(reduce suppliers number, ensure component quality, improve delivery performance)
Brought in seasoned managers to lead the company during its next stage.
Outcome:
 Company recovery
 Direct contact with customers helped it anticipate demand for newly developed
Pentium-based systems and its low inventory of 386 and 486 technologies made it less costly for it to move quickly.
 Became the first manufacturer to convert its entire major product line to the Pentium technology.(July 1995) Dell was able to offer faster systems at the same price.
 Able to quickly manufacture systems with the “updated” Pentium chip.
 Able to bring new component technology to the market within an average of 35 days.

1996: revenue $5.3 billion and net income $272 million, revenue was up 52%
The results suffered somewhat from component shortages.
How was Dell’s working capital policy a competitive advantage?
Dell’ supply of inventory was significantly lower than its competitors.
Because dell built their products when customers wanted, they didn’t have a lot of inventory taking up space and soaking up capital.
Reduced obsolesce risk
Lower inventory cost
Stick to the technological development
Calculate working: (table A)
The competition average DSI= (54+73+48)/3=58days
The DSI of Dell is 32days
DSI = 365*Average Inventory/COGS
COGS of Dell is 2737(exhibit 4)
Average inventory = DSI*COGS/365=$239.95million
While under the same COGS, the competition average is about $434.92million
How did Dell fund its 52% growth in 1996?
Working capital = cash +account receivables + inventories – account payables
The working capital for 1996 = 55 + 726 + 429 – 466 =744
The working capital for 1995 = 43 + 538 + 293 – 403 =471
The gap between two years is 744 – 471 =273mn (exhibit 5)
Now we look at the possible fund resources: retained earnings and common stock growth
242+311=553mn > 273mn
This means that dell has sufficient asset to support the 52% growth.

Assuming Dell sales will grow 50% in 1997, how might the company fund this growth internally? How much would working capital need to be reduced and/or profit margin