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    Case Study On Dell's Working Capital: Team 5

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    ashwini
    Dell was able to fund 52% growth in 1996 through efficient working capital management. By maintaining a low inventory of 10-20% compared to competitors' 50-70%, Dell had industry-leading inventory turnover and cash conversion cycles. This allowed it to operate with significantly less working capital than competitors. Dell's direct sales model of building products to order after receiving customers' specifications contributed to this advantage. Dell was able to internally fund $134.5 million of its 52% sales growth in 1996 by decreasing its asset contribution to revenue from 31.9% to 29.4% through these efficient working capital practices.

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    Case Study On Dell's Working Capital: Team 5

    Uploaded by

    ashwini
    72 views22 pages
    Dell was able to fund 52% growth in 1996 through efficient working capital management. By maintaining a low inventory of 10-20% compared to competitors' 50-70%, Dell had industry-leading inventory turnover and cash conversion cycles. This allowed it to operate with significantly less working capital than competitors. Dell's direct sales model of building products to order after receiving customers' specifications contributed to this advantage. Dell was able to internally fund $134.5 million of its 52% sales growth in 1996 by decreasing its asset contribution to revenue from 31.9% to 29.4% through these efficient working capital practices.

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    Dell was able to fund 52% growth in 1996 through efficient working capital management. By maintaining a low inventory of 10-20% compared to competitors' 50-70%, Dell had industry-leading inventory turnover and cash conversion cycles. This allowed it to operate with significantly less working capital than competitors. Dell's direct sales model of building products to order after receiving customers' specifications contributed to this advantage. Dell was able to internally fund $134.5 million of its 52% sales growth in 1996 by decreasing its asset contribution to revenue from 31.9% to 29.4% through these efficient working capital practices.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    72 views22 pages

    Case Study On Dell's Working Capital: Team 5

    Uploaded by

    ashwini
    Dell was able to fund 52% growth in 1996 through efficient working capital management. By maintaining a low inventory of 10-20% compared to competitors' 50-70%, Dell had industry-leading inventory turnover and cash conversion cycles. This allowed it to operate with significantly less working capital than competitors. Dell's direct sales model of building products to order after receiving customers' specifications contributed to this advantage. Dell was able to internally fund $134.5 million of its 52% sales growth in 1996 by decreasing its asset contribution to revenue from 31.9% to 29.4% through these efficient working capital practices.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 22

    Case study on

    Dells working
    capital
    Team 5

    Introduction
    Dell -1984 by Michael Dell
    Initially the company purchased IBMs

    Compatible PCs ,upgraded them and sold


    through mail order.
    On-site technical support & toll free telephone
    The company's operating profit hit $3.2 billion
    in Dell's 2015 fiscal year
    Customization, direct selling and build to
    order are its core strategy.

    Low prices:
    Commoditizeeconomical, affordable
    & indistinguishable
    from competitors
    price.
    Low cost manufacturer:
    Efficiency- Direct
    modelprofitableStagin
    lower price

    g&
    Pacing

    Small
    business in the
    ,
    US
    Regional manufacturing
    facility- E.g. Coimbatore
    in TN.
    Investing-Data transfer
    (LAN cable) and
    storage(hard disk & pen
    drive)

    Arena

    Economi
    c logic

    Differen
    tiator

    Products: Desktop,
    laptop, notebooks,
    workstations & storage
    devices.
    Services: Consulting,
    installation & webhosting.
    Market segments: Business
    segments-education, health
    care, enterprise etc..
    Geographic areas:170
    countries through offices
    in 34 countries.
    Technology: Internet
    Vehicl Value creation: Direct
    e
    Mode: direct model
    model

    B2C.
    Alliances: Intel
    processor
    Suppliers: JIT inventory
    Acquisitions: Wave
    Customer service.
    max audio
    Customizes products
    ,
    On-line technical
    support.
    Direct customer
    feedback

    Case summary
    Sep 1990-Aug 1993
    1990 1% of PC Market share
    Decided to expand so they broke their direct model to

    Superstore(CompUSA)
    In the next 2 years they went to retailing(Staples Inc.)
    Annual sales increased by 268%
    Attained the top 5 world wide market share.

    **Dell computer corporation fiscal 1993-95 annual report ,Exhibit 1 (case let)

    Conti
    First loss$76 million dollar loss in the year 1993
    Profit margin fell to 2%
    Dell was not concerned about its profit and loss

    statement.
    Sep 1993-Jan 1996
    Shifted its focus from growth to detailed P&L
    statement
    Started concentrating on ROI, inventory control,
    reporting and forecasting
    Vendor certification Program

    Objective of the case


    Working capital management of DELL
    Inventory policies of Dell and its competitors
    Effective use of working capital as source of

    internal funding for growth

    How was Dells Working Capital


    policy a competitive advantage?

    Working capital of DELL


    Competitive Advantage of Dell

    Direct selling Model


    Build to order
    Working with low stock
    Dell had 10 % - 20% stock while
    competitors(Compaq, Apple and IBM)
    had 50% - 70%

    Conti..
    Days supply of Inventory
    DSI, is a financial measure of a company's
    performance that gives how long it takes a
    company to turn its inventory into sales.
    Lower the DSI better for the company
    Dells DSI 32 days in (1995)
    1993

    1994

    1995

    DELL

    55

    33

    32

    APPLE

    52

    85

    54

    COMPAQ

    72

    60

    73

    IBM

    64

    57

    48

    ** Table A DSI from Dell computer corporation fiscal 1993-95

    Huge Competitive Advantage


    due to WIP of DELL
    High inventory turnover and low inventory

    days. This resulted in low cash conversion


    cycle (CCC)
    No stagnation of goods as stock
    Ability to adopt to change

    How did Dell fund its 52%


    growth in 1996?

    Reasons for Dells growth


    Dells re-entry into notebook market
    Introduction of computer systems based on

    Intels Pentium microprocessor chip.


    Demand increased and beat the competition
    in the market place.
    Converted its entire product line to Pentium
    technology.

    Internal Funding
    1995

    1996

    Sales

    $3475

    $5296

    Total Asset

    1594

    2148

    Short term investment

    484

    591

    Asset contribution to
    revenue

    (1594-484)/3475
    =31.9%

    (2148-591)/5296
    =29.40%

    Decrease in Asset contribution =(31.9-29.40) 2.54%


    Amount saved =(5296*2.54%) 134.5 Million

    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 increased? What
    steps do you recommend the company
    to take?

    Operating Asset= Total asset- Short-term

    Investment
    Profit Margin= Net Profit / Sales
    Asset Turn over ratio= Sales/ Total Assets
    DSI=Net inventory/(quarterly COGS/90)
    DSO=Net accounts Receivables/(quarterly
    sales/90)
    DPO=Accounts Payable/(quarterly COGS/90)
    CCC=DSI+DSO-DPO

    1996

    1997

    34.5

    34.5

    DSO

    47

    47

    DPO

    40.25

    40.25

    CCC

    41.25

    41.25

    DSI

    Inventory

    2431

    A/c Receivables

    4148

    A/c Payables

    2837

    Profit margin required for net profit

    $4085.135%

    How would you answers to the question


    3 change if Dell also repurchase $ 500
    million of common stock in 1997 and
    repaid its long-term debt.

    Dells investment requirement increased by:

    $500+$

    Conclusion
    Thus Dell by its efficient working capital

    Management and build to order strategy


    differentiated itself from many of its
    competitors and obtained a huge market
    share in the market.

    Thank
    you!

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