Improving the Flexibility of the Desktop PC Supply Chain

Presented By:
Group- 7

Members:
Shilpa Kumari( 120045)
Shivam Sahay (120046)
Shivani Kumari (120047)
Shubham Shrivastava (120048)
Shubhangi Singh (120049)
Smriti (120050)
Sujeet Kumar (12051)
 Company Background

• Founded in 1984 by Michael Dell in the University of

Texas- Austin.

• 3 manufacturing facilities in the United States:

 Austin, Texas
 Nashville, Tennessee
 Winston- Salem, North Carolina
 Q.1 Explain the direct model of Dell Inc. What was
the problem the company was facing in mid-2005?

Direct Model of Dell Inc.:

• The direct business model includes no retailers and starts and ends
with the customers.
• Low manufacturing cost than competitors.
• Low inventory cost
• Reduces the time from customer order to receipt of the system.
• Provides single point of accountability, because of which Dell can
more easily design its customer service model.
 Problems the company was facing in mid-2005:

Dell and its contract manufacturers (CMs) have had to adapt an

increasing % of L5 manufacturing:

• Empty chassis are shipped by ocean (L5) to Dell US & Europe first.
Motherboards are then air- freighted to Dell US & Europe.
• Dell incurs motherboard expedite/ air-freight cost and 3rd party
integration cost.
• CMs incur cost for idle labor dedicated for MB- chassis integration.
 Q.2 What is the importance of contract manufacturers in the
PC supply chain?

 The phenomenon of contract manufacturing began in the 1980s.

 Helps take advantage of Labor Cost Differences.
 Responsible for producing materials or unassembled components in
less expensive regions and shipping them to the OEM factories in the
United States or Europe for product assembly.
 By the late 1990’s, more contract manufacturers began to perform
some level of manufacturing/assembly for their customers.
 By 2005, almost all the desktop PCs sold in the United States were at
first produced by contract manufacturers in China.
 Compare and contrast the role of contract manufacturers in
the supply chain of Dell vis-à-vis other American PC makers.

Other American PC makers

• Had become “FABLESS”.
• Most CMs do everything from Manufacturing to shipping fully
assembled parts on behalf of OEMs (Original Equipment
Manufacturers).
DELL
• Retained manufacturing facilities in the US
• CMs is in ASIA.
• Ships half-assembled parts to US.
• Ships it to customers directly.
• Time prohibitive & Cost prohibitive.
 3. Why does L5 incur higher manufacturing and logistics
costs than L6?

L6 L5
●
● Integrated offshore & outside a Dell ●
Integrated inside a Dell facility
facility ●
Chassis shipped on water
●
● Integrated motherboard-inside ●
Motherboards shipped by air
chassis shipped on water ●
Increased motherboard air-
●
● Labor savings
●
● MB air-freighting costs are freighting costs
eliminated
●
3rd-party integration cost in US
●
● Reduced motherboard packaging
●
Separate logistical costs for
costs chassis and motherboards
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?

L5
Motherboard packaging
cost
Motherboard air
L6
freight/expedite cost
Chassis and motherboard
China assembler’s cost
US transportation cost
(Foxconn performing L6)
Local/regional integration
cost
Motherboard rework cost
at DELL
 4. Explain the root causes of increasing L5
manufacturing

1.Chipset Supplier de commit or supply issues

• Creates a disruption in the desktop PC supply chain
• Accounted for more than 60% of L5 manufacturing
2.Quality/engineering issues
• Leads to dysfunctional or problematic motherboards
• Create additional demand for motherboards
3.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
4. New Product Introduction
• Actual demand for new PC product is volatile, so need to air freight
extra motherboards.
• L5 manufacturer has higher overall manufacturing and logistic cost
than L6.
• Dell rising manufacturing cause by an increase in the utilization L5
manufacturing.
• Dell’s inability to provide motherboards in a timely fashion to
Contract manufactures.
 5. 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:
• Less Complex for Worldwide Procurement
• Supplier quality engineering management is reduced

Disadvantages:
• Most Complex for Cost Accounting
• Extra Production control & Inventory control headcounts are
required.
 6. How easily sustainable is your recommendation for the
previous question if the chipset supply shortage further
deteriorates?

• Yes, it would be sustainable up to some extent.

• Dell has direct control over the 3PI.

1
MB week

3PI Dell Customer

s
5 ek s
Chasis We

Lead time for MB is 1 week. The integration will

take place only after 5th week.
 7. 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
 smooth & sustainability process
 Cost per box
 Product Quality
 Capital Investment
 Material Handling
 Logistics
• Some other effective approaches can be
1.Push & Pull strategy
2.Geographical Location of suppliers
 8. How can Dell effectively address the root causes
contributing to the increase of L5 manufacturing?

• By providing motherboards in a timely fashion to CMs

• Ensuring that Chipset supplier does not 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
THANK YOU!!!