News.com (sourced from HBS Working Knowledge) traces Dell’s story and how it transformed itself after 1994:
Account selection: Dell purposely selected customers with relatively predictable purchasing patterns and low service costs. The company developed a core competence in targeting customers and kept a massive database for this purpose.
Demand management: “Sell what you have” was the phrase that Dell developed for the crucial function of matching incoming demand to predetermined supply.
Two surprises greeted the Dell executives who were creating this new process.
First, as inventory dropped, lead-time performance improved. This happened because Dell was not simply carrying component inventory against forecasted sales, but rather was aligning inventory and sales, managing profitability on a daily, weekly and monthly basis.
Second, as inventory disappeared, the company’s returns grew disproportionately. Not only did Dell avoid carrying costs and obsolete stock, but it was also saving enormous amounts of money on purchasing components because the component prices were dropping 3 percent per month.
Dell+T
