Dell's Working Capital

Richard S. Ruback; Aldo  Sesia

Case | HBS Case Collection | August 2000 (Revised December 2003)

Dell's Working Capital

Abstract

Dell Computer Corp. manufactures, sells, and services personal computers. The company markets its computers directly to its customers and builds computers after receiving a customer order. This build-to-order model enables Dell to have much smaller investment in working capital than its competitors. It also enables Dell to more fully enjoy the benefits of reduction in component prices and to introduce new products more quickly. Dell has grown quickly and has been able to finance that growth internally by its efficient use of working capital and its profitability. This case highlights the importance of working capital management in a rapidly growing firm.

Keywords: Financial Management; Working Capital; Manufacturing Industry; Computer Industry;

Language: English

Format: Print

6 pages

Educators Purchase

Citation:

Ruback, Richard S., and Aldo Sesia. "Dell's Working Capital." Harvard Business School Case 201-029, August 2000. (Revised December 2003.)

Sean Witty and Jason Premo acquired MC Tools, a machine shop located in South Carolina in 2007 with the intent to transform it into a precision manufacturer. Witty and Premo were able to more than double revenue to $6 million in their first year of managing MC by expanding production capabilities and adopting best practices. It seemed that their plan to use cash flow from MC’s business to fund the transformation into precision manufacturing was well underway. However, the Great Recession substantially reduced the demand for the high quality tools MC made; many of the existing orders were cancelled while most new ones went to low quality-low price competitors. The two partners laid off 34 of their 57 employees, cut the salaries and workhours of those remaining, and negotiated with their creditors to delay the repayment of their $3 million debt.

ALAC International (ALAC) was awarded the U.S. distributorship of di-isononyl phthalate (DINP) which provided ALAC an opportunity to increase its sales and profits. But the opportunity required a significant additional investment in working capital. The DINP, shipped by boat from Taiwan, had a four month cash conversion cycle; after purchasing the DINP, it took two month to arrive in the U.S., another month to sell and distribute it, and then another month to collect the receivables. ALAC planned to double the number of shipments in 2011 to twelve from the six in 2010. ALAC needed to estimate its working capital needs and then evaluate alternative ways to finance its needs. Teaching Note for HBS No. 211-065.

Faculty & Research

Dell's Working Capital

Abstract

Citation:

About the Author

More from the Author