Finally, Dell focused on the risks posed by holding inventory. His company used daily information exchanges with suppliers in as many cases as possible, to avoid holding any inventory at all. Finished components, such as monitors from third party suppliers were ordered to match the actual demand of each day’s customers. In essence, Dell figured out a way to knit together a system that minimized his use of cash and his risks of loss.

In 1998, only a large company with sophisticated information technology capabilities such as Dell could have built a business that essentially took advantage of information sharing to involve suppliers across the globe and focus on the single factor where Dell added value: understanding what the customer wanted and how those tastes changed over time, and continuously meeting those needs. At the time, a solo business that attempted to emulate Dell’s approach would have found it prohibitively expensive, if not impossible.

Today, the Rule of Decreasing Support Costs has changed this calculation. Easy-to-use communications services have now made it possible for even the smallest business to easily incorporate the core ideas that Michael Dell recognized as leading to his own success: outsource everything, focus your energy relentlessly on where you add value, integrate with multiple partners so that you play a clear role in the chain of product and service creation, and hold as little cash-draining inventory as possible.

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