Activity Based Cost Management (ABC/ABCM)

Executive Summary

Analyse the Business models of the computer industry by comparing three industries using costing approach , pricing approach budgeting approach and Financial Statements for the past three years . In the course of the study , two models were identified including the traditional pc industry value chain and the built-to- value chain . Of the three companies studied , I found that Dell and Gateway have adopted the Built-to- model while HP still uses the traditional model . The concepts Process Management , Activity Based Costing and Activity Based Cost Management were also defined and their

importance identified . I concluded the study by recommending the built-to- model for HP and by recommending the use of process management for the Gateway Company so as to improve its built-to- model

Value Chain Analysis

Dell 's Business Model (Value Chain

In an effort to reach out to customers by itself , dell developed its direct model , which is simple in concept but difficult to execute (Kraemer et al , 2000 . Unlike other pc dealers who pass through third parties to distribute their products , dell sells directly to customers The direct model is presented in figure 1 below and for comparison purposes the traditional pc industry model is presented in figure 2 . As we can see by using the direct model , dell sources inputs from suppliers , assembles the computers and sells directly to customers without passing through any sales agents . On the other hand other firms in the pc industry use the traditional model whereby inputs are sourced from suppliers , PCs are manufactured and stored up in inventory , they are then supplied to distributors who again redistribute them to resellers who finally sell them to the end-user . This Business model took Dell 15 years to develop and put into practice (Kraemer et al 2000

Figure 1 : Dell 's Direct Business Model

Source (Kraemer et al , 2000

Figure 2 : The Traditional PC Industry Model

Source (Kraemer et al , 2000

Direct Sales

Dell builds its direct sales approach on two key items , which include direct customer relationship and targeting of products , and services to distinct customer segments (Kraemer et al , 2000 . Although Dell sells through resellers , this is only to a limited extent and especially outside the United States (Kraemer et al , 2000 . Using its direct sales model , it makes all efforts to reach out through its customers either using its sales force or through marketing and advertising (Kraemer et al , 2000 . According to Kraemer et al (2000 , Dell does not support the gross margins of the pc channel , that is , by not using the services of the channel such as selling through distributors or other agents whereby part of its sales revenue will be pad to them as sales commission

Direct Customer Relationships

Unlike other PC dealers who must rely on secondary research to gain more knowledge concerning their customers , Dell 's direct approach reportedly provides it with 6 cost advantage and also provides it with more information concerning its customers (Kraemer et al , 2000 . It is therefore possible for dell to...