*CASE STUDY

CASE 1: DELL INC: IMPROVING THE FLEXIBILITY OF THE DESKTOP PC

SUPPLY CHAIN
Case Question 1: Why does L5 incur higher manufacturing and logistics costs 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?

L6 L5

1. Integrated offshore & 6. Integrated inside a Dell facility

outside a Dell facility 7. Chassis shipped on water
2. Integrated motherboard- 8. Motherboards shipped by air
inside chassis shipped on 9. Increased motherboard air-freighting
water costs
3. Labor savings rd
10. 3 -party integration cost in US
4. MB air-freighting costs are
11. Separate logistical costs for chassis and
eliminated
motherboards
5. Reduced motherboard
packaging costs

Root causes of increasing L5 manufacturing

•Dell’s inability to provide motherboards in a timely fashion to CMs
A. Chipset Supplier decommit or supply issues.
 Creates a disruption in the desktop PC supply chain.
 Accounted for more than 60% of L5 manufacturing
B. Quality/engineering issues
 Leads to dysfunctional or problematic motherboards
 Create additional demand for motherboards.
C. Dell forecast accuracy
 Due to faulty forecast, Dell needs to source its extra chipsets or risk not meeting
 the customer demand
 Long Lead Time in chipset makes things difficult for the supplier.
D. New Pdt Introduction
 Actual demand for new PC pdt is volatile, so need to air freight extra
motherboards
Cost incurred in L5
–Motherboard packaging cost
–Motherboard air freight/expedite cost
–Chassis and motherboard US transportation cost
–Local/regional integration cost
–Motherboard rework cost at DELL
Cost incurred in L6: China assembler’s cost
Case Question 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?

Option 3A: Integration at SLC/Hub

Advantages
1. Less Complex for Worldwide Procurement
2. Supplier quality engineering management is reduced
Disadvantages
3. Most Complex for Cost Accounting
4. Extra Production control & Inventory control headcounts are required.
Case Question 3: How easily sustainable is your recommendation for the previous question
if the chipset supply shortage further deteriorates?

It would be sustainable up to some point. Dell having its own factory can control the 3PI. Lead time
the integration will take place only after 5th week. 

Case Question 4: How good is the methodology employed by the BPI team to determine the
optimal manufacturing option for Dell? Are there more effective approaches?
Methodology of BPI team was GOOD
 Process smoothness & sustainability
 Cost per box
 Pdt Quality
 Capital Investment
 Material Handling
 Logistics
Some other effective approaches can be
 Push & Pull strategy
 Geographical Location of suppliers

Case Question 5: How can Dell effectively address the root causes contributing to the
increase of L5 manufacturing?

Answer:
  By providing motherboards in a timely fashion to CMs
 Ensuring that Chipset supplier dnt decommit or have other supply issues: Have
Multiple Suppliers, have some safety stock
 Reduce Quality/engineering issues: TQM, Benchmark Standard Operating
procedures
 Forecast Accurately to avoid demand fluctuations
 Plan demand in a better way for New Product introduction

CASE 2: THE GREAT INVENTORY CORRECTION

Case Question 1: How has Altera modified its strategy? Why?

Altera is shifting its supply chain strategy from a push based supply chain strategy to a push-pull
strategy in order to reduce inventories. Also, Altera is hoping that this new strategy will help them
better plan with respect to supply and demand. This increased clarity into the actual demand will
also help them to reduce the risk of their inventory becoming obsolete.

Case Question 2: Do you think Altera’s new strategy will be successful? What are some
advantages and disadvantages of the new strategy?
I think their new strategy will be successful, because their new strategy offsets some of the risk
associated with carrying too much inventory, since they only build finished products to customer
orders and build die banks to stock. The intent of this strategy was to improve visibility into
customer information, inventories and build plans, facilitate product development collaboration,
and improve Altera’s inventory management. This allows them to reduce safety stock levels and
inventory holding costs as well. Also, they will likely have more transparency into their supply
chain which will reduce variability and the lower the impact of the bullwhip effect. However, there
are some disadvantages to this new strategy as well. For instance, there may be less efficiencies
with respect to economies of scale

Case Q3: How do you anticipate Altera’s customers will react to this new strategy? What
are advantages and disadvantages for Altera’s customers?

Initially, Altera’s customers may be reluctant to some extent; however, once weighing the pros
and cons I feel that the customers will find it easier to manage. Some advantages and
disadvantages for Altera’s customers include:

Advantages: Close-tie collaboration (mutual benefits), Ability to better customize products to

the new market trend, Lead time to better plan production levels

Disadvantages: Strategic information disclosure, Limited organizational and financial abilities

and interest, longer lead time mature and customer.

Case Q4. What information does Flextronics have that its clients do not? Why?

How can Flextronics leverage this information? As orders poured in, Flextronics and other
electronics manufacturing services (EMS) companies could see the magnitude of the aggregated
supply they were producing. Couldn’t they have warned their clients? “In general, I don’t think
any of [the EMS companies] did that before,” says Pleshko. “I think that will happen going
forward. ” With that said, Flextronics provide a good track of historical data, business cycle and
product life cycles. Moreover, they have a good record of demand via aggregated supply that
Flextronics and other EMS companies were producing.

This benefits both their suppliers for vender managed inventory and their customers for better
knowledge of market demand.

Case Q5: How does IBM manage its suppliers in order to make its pull strategy more
effective?

IBM manages its supplier by means of material hubs that are located close to the suppliers’
facilities. They also provide visibility of inventory levels of IBM, limit the number of suppliers,
and enable e-business and EDI to save time and better collaborate with suppliers. Additionally,
to cope with the unexpected change in demand, IBM provides detailed forecasts for all levels of
the supply chain.