MithraPraveen Padala

SaileshS P Varma

DELL Inc. Improving the flexibility of desktop PC supply chain

HISTORYStarted 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

Chassis

5 WeeksChina

IntegrationDell

ManufacturingCustomerSupplier

Logistics Center

DELL SUPPLY CHAIN ISSUES

L5 Manufacturing:

Components arrive at the SLC

3PI integrates the components and delivers back to SLC

More cost

MB

Chassis

5 Weeks

1 WeekDell

Manufacturing

CustomerSupplier

Logistics Center

3rd Party Integrator

(managed by Equipment

Manufacturers)

Dell Worldwide L5 vs. L6 Shipments Received

from a Typical Contract Manufacturer

89% 93% 94% 95% 96%86%

91% 94% 96%90%

85%

73%

11% 7% 6% 5% 4%14%

9% 6% 4%10%

15%

27%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05

L5%L6%

DELL worldwide L5 versus L6 shipped percent

6 times

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

24%

8%

4%

63%

Dell AMF expedite expenses by root cause

Quality / engineering issues

Dell forecast accuracy

NPI

Chipset suppler decommit

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

Option 1Option 2(original)

Option 2(revised) Option 3A Option 3B Option 4 Option 5

Worldwide Procurement 10 1 1 1 1 5 10Regional Procurement 8 5 5 5 5 5 10Master Scheduler 5 5 5 5 5 5 5Production Control 5 10 10 7 7 7 5Operations 1 10 10 5 5 1 1DAO Quality 5 10 10 5 5 1 1Processing Engineering 1 10 10 5 5 1 1Supplier Quality Eng(Regional) 10 1 1 1 1 5 7Supplier Quality Eng(Global) 1 1 1 1 1 1 10Cost Accounting 5 1 1 10 10 10 1Inventory Control 1 5 5 5 7 10 1Logistics 5 1 1 5 5 5 10

Total: 57 60 60 55 57 56 62Cost per Box $10.07 $7.00 $7.90 $7.54 $7.70 $7.61 $7.00

Complexity and cost analysis of the six potential manufacturing plants

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 cellsOption 3A: Integration at SLC/hub Option 3B: Integration at Dell-leased

bldgOption 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?

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

Questions??