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This approach allows Dell to keep its customized, build-to-order strategy in place for the notebook market, Neland said. The company is unique in its reluctance to use indirect channels, such as retail stores, to reach customers.
If Dell was to leave the final assembly in the hands of its manufacturing partners, it would have to predict what types of configurations its customers are likely to order, and therefore carry more inventory than it would prefer, he said.
So in order to deliver a notebook to a buyer, Dell has to ship the partially assembled notebooks to its assembly facilities, coordinate the delivery of the key components from suppliers' warehouses, assemble the notebook and then ship it off to its destination. In a twist for a historically low-cost manufacturer like Dell, this actually increases its manufacturing costs to a certain degree, Neland said.
The company believes that it recoups that increased cost through its ability to offer buyers a specialized product, Neland said. Dell depends on business customers for the lion's share of its revenue, and those can be very exacting on the specific configuration of components they require, he said.
Will it work?
Dell has been able to make this approach work for many years because of its size and aggressive cost management, said Samir Bhavnani, an analyst at Current Analysis. But its rivals are catching up. HP has made
But as long as Dell wants to continue to worship at the altar of the direct model, it's likely to keep running its notebook factories like it always has, analysts said. Jeff Clarke, senior vice president of Dell's Product Group, said at a recent dinner that while "
Some analysts believe Dell is smart to stay the course. IDC predicts that notebook shipments will overtake desktop shipments in 2008 in developed economies like the U.S. and Western Europe. As the market grows, Dell might have an edge over competitors who are tied to their manufacturing partners, IDC's Shim said.
"As the market shifts more and more toward mobility, the bar is essentially going to rise," where unique products and service matter more than cost, he said.
If he's right, Dell might wind up ahead of its rivals with a unique manufacturing strategy that could be hard to duplicate.
Again.
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notebook computer,
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desktop computer,
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