Working Capital Management
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Dramatic improvements in computer technology and the growth in the Internet have
transformed the computer industry. Some companies have succeeded while others
have failed. Despite some recent setbacks, Dell Computer has clearly been one that
has succeeded: Its sales have grown from roughly $5 billion in 1995 to more than
$30 billion in 2000.
There are a lot of reasons behind Dell’s remarkable success over the past
decade. Perhaps the number one reason is the company’s impressive success in man-
aging its working capital, which is the focus of this chapter.
The key to Dell’s success is its ability to build and deliver customized comput-
ers very quickly. Traditionally, manufacturers of custom-design products had two
choices. They could keep a large supply of inventory on hand to meet customer
needs, or they could make their customers wait for weeks while the customized
product was being built. Dell uses information technology to revolutionize working
capital management. First, it uses information technology to better coordinate with
its suppliers. If a supplier wants to do business with Dell, it must link its information
system with Dell’s, and provide the necessary components quickly and cheaply. Sup-
pliers that adapt and meet Dell’s demands are rewarded with increased business.
Second, Dell uses information technology to collect data that enables it to better cus-
tomize products for its customers. For example, Dell has been able to capture most of
the Ford Motor Company’s PC business by anticipating and quickly filling its orders.
Sound working capital management is necessary if a company wants to com-
pete in the information age, and the lessons taught by Dell extend to other
industries. Indeed, Michael Dell, founder and CEO of Dell Computer, recently dis-
cussed in an interview withTheWallStreetJournalhow traditional manufacturers,
such as the automobile companies, can use the experience of Dell to improve
their operations. The article included Michael Dell’s five points on how to build a
better car:
- Use the Internet to lower the costs of linking manufacturers, suppliers, and dealers.
- Turn over to an outside specialist any operation that isn’t central to the business.
- Accelerate the pace of change, and get employees conditioned to accept change.
- Experiment with Internet businesses. Set up trials to see what happens when cus-
tomers can access information more easily, and in ways they never could before.
- Think about what could be done with the capital that would be freed up by shed-
ding excessive inventory and other redundant assets.
Sources:J. William Gurley and Jane Hodges, “A Dell for Every Industry,” Fortune,October 12, 1998, 167–172;
and Gary McWilliams and Joseph B. White, “Dell to Detroit: Get into Gear Online!” The Wall Street Journal,
December 1, 1999, B1.
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