Market-Oriented @ Dell

By selling directly via the Internet, catalogs and the telephone, it maintains direct contact with customers and can regularly gauge their sensitivity to price changes. It also routinely polls customers on their willingness to pay for new technologies, such as whether they would substitute flat-panel displays for bulkier monitors.

The company's 25 main suppliers and dozens of others provide regular updates on their costs and prices, enabling Dell to forecast prices for each component in its computers several months into the future. Last year, the company set up Internet "portals" for many of its suppliers so that it could share with them regular updates on its own inventories and customer purchases. All this pooling of information provides early warnings of potential material shortages and helps Dell and its suppliers schedule production to avoid overproduction or costly overtime runs.

"They feed forecast changes to me on a weekly basis," said Gil Christie, vice president of operations at video-graphics maker ATI Technologies Inc., Thornhill, Ontario. Mr. Christie says that of all the PC companies that ATI sells to, "they are the only one I'm dealing with that have it." Dell's weekly purchasing forecasts, he says, help ATI plan its own production and purchasing more precisely, which holds down costs.

Suppliers say Dell makes it clear that it expects them to push down prices just as hard as it does. "There isn't a standard fixed price" with Dell, says Andrew G. Gort, senior vice president at computer-board maker Celestica Inc. "They change their price to a customer, and we're expected to participate in that," he says.

Information collected from suppliers and Dell's own factories is grouped into a spreadsheet called a "cost package" that sales managers use to find out precisely what each product costs Dell to make now and to project what it will cost six months into the future. The company now aims to go beyond collaborative planning with suppliers to collaborative design, using the Internet to swap information among its own and suppliers' engineers.

The cost package is available online to all Dell business managers, who set profit goals for all their accounts. The team that collects the information also sends e-mail alerts when costs move unexpectedly. After a late 1999 jump in memory-chip prices hurt profits on sales under existing fixed-price contracts, Dell renegotiated many contracts to incorporate the unexpected increases.

With open access to cost information, Dell sales representatives can adjust PC prices based on quantity, profit targets and proposed delivery dates.