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How Its Business Model Sweetens Its Financial Statement

How Its Business Model Sweetens Its Financial Statement. Elise Huyen. 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

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How Its Business Model Sweetens Its Financial Statement

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  1. How Its Business Model Sweetens Its Financial Statement Elise Huyen

  2. 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

  3. 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 information electronically from Dell as customers place orders

  4. 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 from 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

  5. 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

  6. Downside of pushing cost savings Dell started outsourcing its call center activities led to growing complaints about long wait times 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

  7. Discussion 1 Investigate the financial ratio of inventory turnover. Find current information about Delland 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?

  8. Inventory Turnover of Dell All these numbers are not as impressive as the number mentioned in the case, 107 times per year.

  9. Discussion 1

  10. 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?

  11. 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

  12. 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

  13. Discussion 3 If you were the CEO of HP, how would you repond to Dell's direct approach to selling?

  14. 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

  15. 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

  16. Discussion 4 What lessons can a young entrepreneurial firm learn from Dell's experiences?

  17. 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=LkL17lqMq90

  18. 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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