Major HBR cases concerns on a whole industry, a whole organization or some part of organization; profitable or non-profitable organizations.
How to Write a Summary of an Article? Dell Computer Corporation has proven to be one of those companies that revolutionize an entire industry. They were Dells working capital ones to introduce the Build-To-Order business model in the computer manufacturing sector, which gave them a tactical as well as competitive advantage over other companies.
We forecasted, using the percent of sales method, for the financial statements of and The financial ratios of our pro forma balance sheets were calculated, and the information was used to figure out the external funds needed by Dell to finance its growth.
As per the analysis there was no requirement of any external funds because the EFN External Funds Needed came out to be negative. Due to factors like its Build-To-Order model, working capital management, and its inventory system, Dell has enough resources to finance its growth Dells working capital and without any need for external financing.
Also, the company has the potential to payout its long-term debt and increase its dividend policy by using its internal funds. All this can be done without harming the prospect of future growth and expansion potential.
Dell designs, manufactures, sells and services personal computers. JIT, system gave Dell the upper hand over its competitors. Dell has much smaller investments in working capital than its competitors because of this Build-To-Order model.
It also helps Dell to take advantage of the benefits of reductions in component prices and to introduce new products in the market more frequently.
Over the years, since its inception, Dell has grown quickly and has been able to finance its growth internally by its efficient use of working capital and its profitability. As mentioned earlier, Dell introduced its Build-To-Order model to the industry, which allowed customers to have customized computers systems with the latest technology.
These models proved very good for keeping costs low, but Dell also wanted to capitalize on the prospect of future growth. The most important questions facing Dell was — how to grow and at what cost. It was a bold new business model that changed the rules of the industry.
While competitors focused on forecasting future sales, Dell developed the Build-To-Order model. This allowed for Dell to maintain their inventory cost at a minimum, which in turn lowered their cost of goods sold.
Dell definitely set itself apart from the competition. Dell made sure to master this process which allowed them to provide a service to the market that the competition could not deliver on as quickly as Dell.
This means that Dell was selling its inventory nearly twice as quickly as the closest competitor. This type of advantage is what propelled Dell as a top competitor within this market. In Januaryfor example, Dell had inventory to cover 32 days of sales while Compaq Computer had inventory to cover 73 days of sales.
The build to order set up also enabled Dell to easily make changes to their systems as new updates were available. This was extremely evident in when Intel Corporation found that their chip was flawed. Unlike Dell, the competition had so much inventory that it had to continue to sell the flawed systems.
Dell was able to start selling their new systems with the unflawed chips. Another strong example took place inwhen Dell had the competitive advantage of being able to add the Pentium technology to their entire line, while the competition were not able to adopt the technology as quickly because of their large inventory.
Dell was able to fund this expansion in by addressing the financial requirements from several angles. First we must understand exactly how much working capital Dell needed to come up with in order to fund the growth.
The percentage of sales method can be applied to any increase in sales to find the additional cost of Operating Assets needed in relation to sales.
Exhibit 7 shows that the projected balance sheet using the percentage of sales method. Two sets of projections are made. In both, Operating Assets Total Assets less Short-Term Investments are assumed to grow with sales based on account balances as percent of sales. Short-Term Investments are assumed to be constant.
If profit margin of 4. Assuming that liabilities remain constant as detailed in the Fixed Liabilities projection in Exhibit 7. The Proportional Liabilities projection assumes that the liabilities grow as sales grow based on the sales ratios. In all actuality Dell was able to cut the proportion of operating assets to sales from to This decrease of 2.This new business model along with its working capital management and allocation of resources provided Dell with the opportunity for substantial growth in the ’s.
Dell's Working Capital Began from purchasing and selling the upgraded IBM compatible personal computers directly to businesses by mail order, Dell then marketed and sold its own brand personal computer shipping directly to customers, which was Dell’s core strategy, combining with distribution through advertising in computer trade magazines.
Working Capital Management Strategies for Improving Working Capital Management by Dorothy Rule, Director and Global Head of Liquidity and Investments, Citigroup Global Transaction Services n , treasurers worldwide continue to strive to manage working capital more efficiently.
More about Essay about Dell's Working Capital Case . Dell’s Working Capital. alphabetnyc.combarti Professor of Finance IIM Calcutta The Questions How was Dell’s working capital policy a competitive advantage?/5(9).
The extent of Dell’s working capital advantage over its competitors can be assessed using data contained in Table A of the case on days sales of inventory (DSI) for Dell and its competitors.
In and , Dell’s DSI was about half the level of its competitors. Dells Working Capital Case Solution,Dells Working Capital Case Analysis, Dells Working Capital Case Study Solution, Dell Computer Corporation manufactures, sells and services personal computers.
The company sells its computers directly to .