invest and compete in terms of price and innovation. Leveraging investments by these suppliers has freed Dell to focus on delivering complete solutions to its customers. However, because these components are available to all PC assemblers, it has become harder to compete in terms of end-product differentiation. Thus, a high premium has been placed on speed and process efficiency, blurring the traditional boundaries between supplier, manufacturer, and customer. For instance, peripherals, such as monitors, keyboards, speakers, and mice, need not be gathered in one location prior to shipment to the customer. Manufactured by separate suppliers and labeled with the Dell logo, shippers gather them from all over North America, match them overnight (merge-in-transit), and deliver them as complete hardware sets to customers as if they had come from the same location.

Dell's virtual integration has the following characteristics:

  • use of rapid, seamless communication to build direct relationships between customers, OEM, and suppliers

  • a clear definition of what Dell does best (i.e., core competencies, including branding, marketing, and selling through direct channels), with partnerships for the rest (capital-intensive and labor-intensive component fabrication processes and services). This enables Dell to be highly selective in its capital investments and to focus on activities that create the most value for customers and shareholders

  • selection of partners who are best in their respective fields, inviting them to become intimate parts of the business, and holding them to the same exacting quality and performance standards as in-house segments of the business

  • use of a minimum number of suppliers, to whom Dell is highly loyal as long as they maintain their leadership in technology, quality, cost, and delivery

  • use of the Internet, not just as an add-on to the business, but as an integral part of a strategy to eliminate boundaries between companies and promote effective integration

  • less emphasis on guarding intellectual assets and more emphasis on using assets rapidly before they become technologically obsolete

By using a highly integrated supply chain, Dell has enjoyed many of the advantages of vertical integration while simultaneously benefiting from the investments, innovation, efficiencies, and specialization of highly focused suppliers. Although the Dell model does not fit every situation,



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement