Dell Computer Corporation (DELL) has long been recognized for its innovative approach to managing its working capital. Describe how Dell pioneered the management of net working capital to free up resources in the firm.
To address Dell, they indeed were considered pioneers of the industry in freeing up resources/working capital to address specific needs and innovations for the company. What Dell did to drive this new trend was improve their operations model by “lowering its inventory by 50 percent, improving lead time by 50 percent, as well as reducing assembly costs by 30 percent, and reducing obsolete inventory by 75 percent. The net result was that inventory dropped because Dell was aligning its inventory with sales and not holding inventories in anticipation of future sales. Furthermore, as its inventory disappeared, the company’s profitability grew disproportionately because Dell avoided not only the carrying costs of holding inventories but also the losses associated with obsolete stock”(Keown). Basically, by clearing a lot of the sitting inventories, Dell reduced their illiquidity, therefore improving its risk-return ratio or “trade-off” (Campbell and Viceira). Basically, Dell looked at factors that influence the market value of a firms stock, analyzed their own company, and made moves that would benefit their future stock price and value to investors. The move turned out to be ingenious, and paid off handsomely for Dell.