Dell Computers (A) : Field Service for Corporate Clients
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Dell is considering expanding into the large server business by outsourcing field service to Decision One. This would allow Dell to leverage Decision One's experience while maintaining its strategy of outsourcing non-core functions. Financial projections estimate an initial loss of $38 million but profitability going forward. Outsourcing to Decision One is determined to be the best option to support the new large server business while maintaining Dell's customer-centric and low-cost business model.
Dell Computers (A) : Field Service for Corporate Clients
- 1. Dell Computers (A) : Field Service for Corporate Clients S.Vijay
- 2. Dell Strategy ? • Dell Direct Customer Data & Product Choice Dell Personalized Product Customer Service & Support Component Suppliers/ Distributors Outsourced Field service Advantage : 1) Eliminating Intermediateries & Retailers 2) Production/Assy based on Orders , hence no Inventory 3) Amount Receivable < 5 Days 4) Amount Payable > 58 Days ( less Working Capital & Liquidity Requirement) 5) Focused more on Service & delivering Solution. 6) Integrated Supply chain 7) Value Chain Ensure Customer Demand Driven System 8) No need of Forecasting 9) Easy Understanding customer Preference & Emerging Technologies 10) Huge Customer Data Base & Happy Customers
- 3. Customer Premier Pages E-Product Catalog Product Selection & Pricing Tailored /Own Pricing Online Purchase Order to dell Supplier Customized Product Production Customer Logistic -Delivery through Couriers Performance of Product Tailored Service & Support ( Online & Onsite) Ending with Customer Starting with Customer E- Interface with Dell Variety of Product Paperless Doc No Manual Error Customer Driven Production Customer Need Emerging Trends No Retail On Time “ Ship to Target” E- problem Report Customer Satisfaction Monitoring On Time & First Time Fix Happy Customer Initial Field Incident Rate End to End Solution? Critical Success Factor for dell a) Low Cost Product b) Logistic & Superior Service
- 4. What is dell Corporate Philosophy ? • Dell Direct - Premier Pages for Largest Global Customers - 90% Corporate Customers • Low Inventory -Reduced from 13days in 1997 to 5 days in 2001 • Low Cost product & Superior Service - Operating Expense Reduced from $340 in 1997 to 243 in 2001 (28.5%) - Account Payable Increased from 54 days in 1997 to 58 days in 2001 - Profit/Employee Increased from $50048 in 1997 to $54000 in 2001 - Outsourced Field Service & Continuous Monitoring of Customer Experience
- 5. Dell Direct Low Cost product Logistic Service & Support High Customer satisfaction SWOT Analysis Highly recognized for Service & Support Outsourced Field Support ( critical for Large Server business) Need to Depend on Suppliers Less Inventory ( Hardware Support is required during Issue) Technology Competency Current Approach on Service & Support through FAQ, Self Service, Online may not Adequate. Desktop PC Sales is declining Market Capitalization is in downward Trend Heavy Competition in Large Server Business Huge Potential segment Still Untapped ( IBM : 35.9 % Market Share). Small Server Business is growing ( 4% in 1997 to 19% in 2001) Existing Corporate Customers May Prefer Dell Large Server
- 6. Making a Decision Outsource to Whom ? & Why ? Shall Rely on Dell Support ? Why Should Prefer Dell Product?
- 7. Critical Success factor for Large Server Business is Field Support Option 1 : Outsourced to IBM Pros 1) Experience & Skilled Employees 2) More Technician / Customer ( 11 Nos Per Customers) 3) Market leader in Larger Server Business & Proven Service records Cons 1) Direct Competitor 2) Efficiency of Dell will depend on IBM 3) Need to Share the core Competency with Competitor IBM 4) IBM will more Expose to Huge customer Base of Dell
- 8. Critical Success factor for Large Server Business is Field Support Option 2: Decision One Pros 1) Experience & Skilled Employees 2) Based in 150 Location in USA and Canada Cons 1) May not Honor Dell’s Extraordinary Commitment 2) Efficiency of Dell will depend on Decision One 3) May not Accept the Dell Corporate Philosophy.
- 9. Financial Statement Analysis Details 1997 1998 1999 2000 2001 2002 Remarks Existing Existing Existing Existing Existing Existing New Server Business Total Net Revenue 7759 12327 18243 25265 31888 25132 1453.95 26586 5% of Total Medium & Large Server Cost of Revenue 6093 9605 14137 20047 25445 19876 1163.16 21039.5 Gross Margin 1666 2722 4106 5218 6443 5256 290.79 5546.46 Operating Exp 952 1406 2060 2955 3780 2932 329.61047 3261.28 Operating Exp ( % of Net Rev) 12.27% 11.41% 11.29% 11.70% 11.85% 11.67% 22.67% 0.34335 Due to Inefficiency, Operating Exp Doubled Net Income 518 944 1460 1666 2177 1768 -38.82047 1728.85 Net Revenue by Small Server 310.36 1109.4 2371.6 4295.1 6058.7 4242 - Day of Supply in Invenory 13 7 6 6 5 6 6.8 Existing Business Mov.Avg (6 days)+20% Increase of Inventory due to Large Server Business Days of Sales in Account Receivable 37 36 36 34 32 34 40.8 Account Receivable/Day 209.7 342.42 506.75 743.09 996.5 739.18 35.64 774.81 Days in Account Payable 54 51 54 58 58 57 45.33 Account Payable/Day 112.83 188.33 261.8 345.64 438.71 350.76 25.66 376.42 Avg Total Revenue per Unit 2700 2600 2350 2250 2050 2217 764736.84 Expected Customer Base is 1900 Nos (12000*1453/9145) Net receivable/day 96.869 154.08 244.95 397.45 557.79 388.42 9.9780882 398.396 No of Customer in Million 2.9 4.7 7.8 11.2 15.6 11.3 0.0019 Operating Exp/ Unit in $ 331 297 265 263 243 259 173479.192
- 10. Outsource Expense Analysis Details IBM No Of customer 12000 (0.012 Million) Market Share 31% Net Revenue Mid & large Server 9145 Million $ Cost Revenue 5487 ( 60% of Net revenue) Gross Margin ( Net-cost Rev) 3658 Operating Exp (80% of Gross Margin) 2194.4 Employee Expense (80% of Opr.Exp) 1865.24 (assumption) Total Emp Expense/ Customer 155436.6667 Total no of Employee 135000 No of Employees 11 Empl/Customer Expense/Employee 14130.60606 To Provide the Service equivalent to IBM or Inline with Dell Other Product, Dell has to spend 14130$*20900= 295 Million $. Due to Inefficiency & Training , Operating Expense will Increase from 11 % to 22% (Expected). Hence Total Expense will be +295*22%+295= 329 Million $
- 11. Conclusion : Making a Decision • Decision one Supplier is technical ly sound. Hence Dell Will Outsource the Field Service to Decision one ( for other advantages as well). • Presently Dell Existing Customers ( Including PC + Small Server) are being Handled by Outsourced Services. They have Proven service records & Good Customer Satisfaction Index. Hence Handling the Outsourced field Service wouldn’t be Complicated. • Based on Financial Calculation, Large Server will have Loss of 38 Million $ (Expected). But Net Income (1728 Mil $) will be more than 2000 Financial Year. • Net Receivable /day (398 Mil $) will be more than Expected 2002 result or More than 2000 Result. • Loss from Larger Server Business (38 Mil $) is Negligible (1.75% of 2001 Net Income). • Product Diversification will Improve the Declining Market Capitalization & Improve the Revenue in upcoming Financial Year. • Inventory, Payable & receivable are reasonable par with Dell Philosophy. This Approach will not have any substantial Impact on Dell Philosophy. Over the period, This can be reduced . • Addition to Outsourced field Support , Existing Critical Success Factors like Low Cost product Logistic & CRM will Provide the Competitive Advantage than Competitors. Hence Kapoor will Prefer the Dell Larger Server.
- 12. Thank You