Chapter 105 Section 3 Dell's Virtual Factory

A traditional manufacturing industry needs to go through seven links: product design, raw material procurement, warehousing and transportation, processing and manufacturing, order processing, wholesale operation and retailing to recover investment and obtain profits. (Of course, products need marketing and advertising.) An enterprise or investor needs to invest money first, and then make money after going through such a large circle.All companies are always trying to reduce the cost of each link as much as possible to obtain higher profit margins than their peers.In the 1960s, the Japanese extended the concept of the production line in the factory to warehousing, transportation and the entire processing and manufacturing, which greatly reduced the cost of manufacturing.In many Japanese factories, there are no parts in stock. When the first batch of parts is used up, the second batch has been delivered by car, while the third batch is on the way, and the fourth batch is on the assembly line at the previous factory.Similarly, when the product comes off the assembly line, the car bound for the port is ready for loading.This kind of high efficiency makes "Made in Japan" defeat American and European manufacturing, and quickly occupies the world market.In order to further reduce costs, major companies in Europe, America and Japan began to build factories in Southeast Asia and China to minimize the cost of processing and manufacturing.

In fact, the smartest way is to directly reduce one or several of these links, so that the funds can be recovered from the investment to the fastest and the utilization rate is the highest. The computer manufacturer Dell (Dell) has done the best in this regard. The number of links was reduced to two, making it one of the largest computer manufacturers in the world, beating out compatible machines. Dell is named after its founder, Mike Dell.Like Gates and Jobs, Dell is also an entrepreneur who did not finish college.Like countless people who saved PCs in Zhongguancun, Dell started selling PCs when he was an undergraduate student at the University of Texas in Austin in 1984.One summer vacation, he earned a BMW car. Dell, who had tasted the sweetness of saving PCs, simply dropped out of school to save PCs full-time, and established Dell Corporation.Compared with IBM at the time, or even Compaq, the leader of compatible computers, Dell had no technical advantages to speak of.When PCs started in the 1980s, there were countless compatible computer companies larger than Dell.However, Dell has improved the traditional manufacturing process from design to sales in terms of business model, making the price of Dell computers much lower than its competitors, and its market share has gradually grown. In 2000, it finally became the largest personal computer manufacturer in the United States. .

Like many outsourced manufacturing industries, Dell does not set up factories at all in order to reduce costs, but uses OEM factories in Southeast Asia, mainly Taiwan.In this way, it does not need to invest money in the construction and maintenance of factories.Next, Dell outsourced product design altogether.Readers who have saved their own PCs will know that the design of PCs is actually not very knowledgeable, just like building blocks.As for the procurement of raw materials, Dell negotiates agreements with several major PC chip and accessory manufacturers such as Intel, AMD, and Seagate every year. These companies will directly deliver the goods to those OEM factories, which saves raw material procurement and half of the storage and transportation. link. (The warehousing and transportation of finished computer products from OEM factories to customers has not yet been omitted.) Finally, Dell made a fuss about sales channels to minimize the profits of wholesalers and retailers.

For products like computers, design, manufacture and sales (including marketing) used to account for 30%, 30% and 40% of the selling price respectively.That is to say, for a microcomputer with a retail price of 10,000 yuan, the manufacturing cost is only 3,000 yuan, and the development cost is roughly the same, while the cost and profit of advertising, wholesale and retail account for 4,000 yuan.Now that Dell has minimized the cost of development and manufacturing, it is now starting to think about wholesale and retail.Dell has always insisted on direct sales. It basically does not have wholesalers, and has rarely distributed through retailers for a long time.Dell has its own sales force responsible for promoting products to large enterprise-level customers.For individuals and small businesses, Dell previously only offered purchase methods such as phone order, mail order and online order.In recent years, in order to compete with HP for market share, Dell has sold computers through chain stores such as Wal-Mart and Costco.Dell's direct sales method is very simple. It distributes price lists of computers with various configurations to customers. The price of personal computers above is much lower than the retail price of other brands of computers.Many customers will be attracted by its price. Just call or go online to choose a model and provide Dell with its own payment method. The whole process does not take five minutes.Dell gets the order and notifies its OEM factories in Taiwan and China directly.The factory produces computers on the production line of the order quantity every day, and then ships them to the address provided by Dell.These finished computers don't even have to go through Dell to get to customers.In this way, Dell also saves the other half of warehousing and transportation, so Dell does not need to have a warehouse at all.Dell’s direct sales method above not only saves the cost of wholesale and retail, greatly reduces the price of products, but also is very transparent in price, and saves the trouble of bargaining for individual consumers.Dell has developed an online ordering system. On one end, customers fill in the computer configuration and personal information they want to buy, and on the other end, the factory is automatically notified of production and delivery, and the profits automatically flow into Dell.This is a typical money printing machine business model.The only thing Dell has to do is to firmly control the two links of order processing and retail (mainly marketing).

Countless companies started making compatibles at the same time as Dell.China's state-owned computer company, Great Wall Corporation, was born almost at the same time as Dell, but it has taken a so-called "technology, industry, and trade" road that it was quite proud of at the time, but now it is a big detour. Not many, let alone compete internationally.Great Wall Company developed all the software and hardware of microcomputers by itself, built its own factory in Guangdong, purchased components by itself, had its own warehouse, and finally developed a large number of wholesale and retail agents.It is not difficult to see that Great Wall Company is taking the opposite route to Dell Company everywhere.When Great Wall Computer proudly owned all of this, its capital utilization rate was much lower than Dell's, and its product prices were much higher.In today's globalized world, this so-called combination of technology, industry and trade cannot compete with Dell's money printing machine model that uses money to directly generate money.

Dell's excellence lies not in its technology and market capabilities, but in its simplification of the seven traditional manufacturing links to two. This is a remarkable business revolution.It is precisely because of this revolutionary business model that Dell can stand out from many compatible machine manufacturers and become the world's mainstream microcomputer manufacturer. A good business model is essential to the success of a company, and the best business model is a money printing machine. It does not require much manpower, and once it is in operation, it can generate profits by itself and continue to develop.