Dells Working Capital Case Essay examples

2530 Words Apr 17th, 2012 11 Pages
Harvard Business School

9-201-029
August 16, 2000

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Dell's Working Capital

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Dell Computer Corporation had reported impressive growth for fiscal year 1996 with its sales up 52% over the prior year. Industry analysts anticipated the personal computer market to grow 20% annually over the next three years, and Michael Dell expected that his company, with its build-toorder manufacturing system, would continue its double-digit growth. Although Dell Computer had financed its recent growth internally, management needed a plan for financing the future growth.

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Company Background

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Dell Computer Corporation was founded in 1984 by then nineteen-year-old Michael Dell.
The company designed, manufactured, sold and
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Dell’s build-to-order manufacturing process yielded low finished goods inventory balances. By the mid-1990s Dell’s work-in-process (WIP) and finished goods inventory as a percent of total inventory ranged from 10% to 20%. This contrasted sharply with the industry leaders, such as Compaq, Apple and IBM, whose WIP and finished goods inventory typically ranged from 50% to 70% of total inventory, not including inventory held by their resellers.

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Professor Richard S. Ruback and Research Associate Aldo Sesia prepared this case from published sources as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

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201-029

Dell's Working Capital

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Dell maintained an inventory of components. The cost of individual components, such as processor chips, comprised about 80% of the cost of a PC. As new technology replaced old, the prices of components fell by an average of 30% a

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