Dell's Working Capital

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Dell’s Working Capital 1. How was Dell’s working capital policy a competitive advantage?
Dell had very unique working capital policy compared to its competitors. The most important characteristic of Dell's working capital policy is that they were using build-to-order manufacturing system, meaning that they would not build the product until a confirmed order for product is received. This system gave them a competitive advantage because of several reasons: * Low finished goods inventory balances * Low WIP * Less costly to move quickly and improve (Dell was able to bring new coponents technologyto the market within an average of 35 days, a third of the time it took competitors to move a new product through indirect channels) * no excess stock taking up space and absorbing capital (Dell had 10% - 20% stock while competitors had 50% - 70%)
Another characteristics of Dell's working capital policy is that they were selling directly to customers. They would contact the customers, receive the order and start manufacturing cycle. Dell was able to deliver a customized order within few days while his competitors were not able to do that.

2. How did Dell fund its 52% growth in 1996?
Dell was using its internal resources to fund its growth. First thing we have to do to figure this out is determine how much fund did Dell actually need to fund its growth.
The sales increased from 1995 to 1996 => 5296 – 3475 = $1,821M
Increase in Current Assets (excluded short term inv)=> (2148 – 591) - (1594 – 484) = $380M
Increase in Current Liabilities => 1175 – 942 = $233M
Increase in short Term Inv => 591 – 484 = $107M
Operating Assets in 1995 (in proportion of sales) => (1594 - 484) / 3475 = 31.94%
Operating Assets in 1996 (in proportion of sales) => (2148 – 591) / 5296 = 29.40%
Decrease in operating assets in 1996 compared to…...

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