In 1984, Michael Dell launched his company out of his college dorm room. He recognized that sophisticated computer buyers wanted customized, high quality, technical machines at an affordable cost. This is not something they could get from IBM, which dominated the market at the time.
Dell targeted users by offering customized machines that were built-to-order. Customers would simply dial a toll-free number, place a customized order, and wait for their computer to be delivered by mail.
Dell turned the traditional PC sales model on its head with build-to-order and direct sales. He disrupted the PC industry with customized, high quality, affordable PCs by avoiding retail locations, high-touch sales, and minimizing inventory and inventory depreciation costs.
Dell grew from PCs assembled in a dorm room in 1984 to a $300 million business just five years later.
1. Take customized orders and get paid
In 1984 Dell begins to take customized PC orders over the phone. Buyers determine their exact specifications and pick from a variety of PC components. In 1996, the company brings its direct model to the Web and automates build-to-order.
2. Build the product
Dell purchases components from PC equipment wholesalers and builds the customized machine himself (just-in-time production) based on the customer’s order. He is able to keep the cost of his machines under $1,000.
3. Manage your just-in-time supply chain
Contrary to a traditional PC manufacturer, Dell stays away from heavy costs of inventory management, retail, and logistics. Products are built-to-order. This requires Dell to develop excellence around a new set of activities: just- in-time supply chain and production.
4. Pass on cost savings to customers and disrupt the market
Dell’s build-to-order model avoids unsold PCs and value depreciation. In addition, Dell’s direct model and wholesale component purchases further reduce production and distribution costs. This allows him to pass on cost savings in the form of disruptive prices for high quality PCs.