DELL Inc.

Improving the flexibility

of desktop PC supply chain

Mithra
Praveen Padala
Sailesh
S P Varma
 HISTORY
Started in Michael Dell’s dorm room at the university of
Texas in 1984.

Has “3” major manufacturing facilities in US

Dell’s revenue for FY 2005 was $56 Billion

Their approach was direct business model.

 Case Synopsis

CM: Contract manufacturers

( By 2001, its worth was $178 billion )

OEM: Original equipment manufacturers

Reasons for opting contract manufacturers:

 Capability
 Manufacturing competitiveness
 Technology

By 2005, most of the products of CM are from China

Critical components of Desktop PC
Different levels in manufacturing process of DELL desktop PC
Different levels in manufacturing process of DELL desktop PC
 DELL SUPPLY CHAIN ISSUES

L6 Manufacturing:

 Chassis and MB are integrated at china Integration plant

 Optimized cost

MB
5 Weeks
China Dell
Integration Supplier Customer
Logistics Center Manufacturing

Chassis
 DELL SUPPLY CHAIN ISSUES

 L5 Manufacturing:

 Components arrive at the SLC

 3PI integrates the components and delivers back to SLC

 More cost
3rd Party Integrator
(managed by Equipment
Manufacturers)

MB
1 Week
Dell
Supplier Manufacturing
Chassis Logistics Center
Customer
5 Weeks
 DELL worldwide L5 versus L6 shipped percent

6 times L5%
Dell Worldwide L5 vs. L6 Shipments Received
L6%
from a Typical Contract Manufacturer
100%
7% 6% 5% 4% 6% 4%
11% 9% 10%
14% 15%
90%
27%
80%

70%

60%

50%
93% 94% 95% 96% 94% 96%
89% 91% 90%
86% 85%
40%
73%

30%

20%

10%

0%
Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05
 DELL SUPPLY CHAIN ISSUES
Reasons for opting L5 manufacturing rather than L6.

4 main reasons:

 Chipset supplier decommit

 Quality / engineering issues
 Dell forecast accuracy
 New product integration

Dell AMF expedite expenses by root cause

24%
Quality / engineering issues

Dell forecast accuracy

NPI

8% Chipset suppler decommit

63%
4%
 DELL’S BPI TEAM
 Task Force employed by dell.

 Consisted employees from different organizations of DELL

 Mainly from organizations affected by CHIPSET SUPPLY SHORTAGE.

SIX manufacturing options.

 Keep as current
 Dell America Operations (DOA)
 Offline Integration at the SLC
 Offline integration at a dell-leased building
 3PI managed directly by DELL
 L6 from equipment manufacturers’ MEXICO plants
 Complexity and cost analysis of the six potential manufacturing plants
Option 2 Option 2
Option 1 (original) (revised) Option 3A Option 3B Option 4 Option 5
Worldwide Procurement 10 1 1 1 1 5 10
Regional Procurement 8 5 5 5 5 5 10
Master Scheduler 5 5 5 5 5 5 5
Production Control 5 10 10 7 7 7 5
Operations 1 10 10 5 5 1 1
DAO Quality 5 10 10 5 5 1 1
Processing Engineering 1 10 10 5 5 1 1
Supplier Quality Eng
(Regional) 10 1 1 1 1 5 7
Supplier Quality Eng
(Global) 1 1 1 1 1 1 10
Cost Accounting 5 1 1 10 10 10 1
Inventory Control 1 5 5 5 7 10 1
Logistics 5 1 1 5 5 5 10
Total: 57 60 60 55 57 56 62
Cost per Box $10.07 $7.00 $7.90 $7.54 $7.70 $7.61 $7.00

Legend:
The “Cost per Box” data has been modified to respect Dell’s data confidentiality.
Option 1: EM-managed 3PI Option 2: Integration at DAO work cells
Option 3A: Integration at SLC/hub Option 3B: Integration at Dell-leased bldg
Option 4: Dell-managed 3PI Option 5: Integrated chassis from Mexico
 QUESTIONS

1. Why does L5 incur higher manufacturing and logistics cost than L6? What
are some of the costs that are incurred in L5 but not in L6? Are there any
costs that apply to only L6 but not L5?

2. Which of the six proposed manufacturing solutions should DELL implement,

based on the survey result? Why? What are the pros and cons of this
recommendation?

3. How easily sustainable is your recommendation for the previous question if

the chipset supply shortage further deteriorates?
 QUESTIONS

4. How good is the methodology employed by the BPI team to

determine the optimal manufacturing option afro DELL? Are there
more effective approaches?

5. How can Dell effectively address the root causes contributing to the
increase of L5 manufacturing?
Questions??