Founded by Michael Dell in 1984.  Based on a simple business model.  Dell became number 1 in 2001.  Dell started three major manufacturing facilities.  Selling directly to the customers has become Dell·s key strategy & strength.  Its manufacturing cost was kept lower than that of its competitors. y Saves money by selling directly to customers, y Raw material inventory is low, y Time was reduced from ¶customer·s order to receipt of system.  New concept of ¶Contract Manufacturing· came up.

To take advantage of labor cost differences, many original equipment manufacturers (OEMs) initiated business engagements with Contract Manufacturers (CMs), as they lacked in: - Capability,
- Manufacturing Competitiveness, -Technology. 

Introduction of first PC- non-mainframe computers (LINC, PDP-8)

in 1960s. - Expensive and Bulky.  First microcomputers hit the market in 1970s. - Emergence of single-chip microprocessor lowered the PC prices. - Apple II- first successfully sold desktop in 1977. In 1980s, computers became increasingly cheaper & gained popularity among home & business users.  Introduction of first commercially available portable computer ² Osborne in 1981. In 1990s the PC became more powerful & capable of handling more complex tasks. Introduction of multi-user PCs in 1990s. - Increased usage by studios, universities, governments, etc.

Chipset AMD Intel

Motherboard ASUS Foxconn Intel MiTAC
Desktop PC Acer Apple Dell Fujitsu Siemens Gateway HP Lenovo/IBM

Printed Circuit Board BTI Electronics Compeq GCE Plato Electronic Desktop Chassis ASUS Flextronics Foxconn MiTAC Lite-On

LAN Chip Broadcom Intel


China Integration

5 Weeks
Supplier Logistics Center Dell Manufacturing


Chassis L5
3rd Party Integrator (managed by equipment Manufacturers)

MB 1 Week

: L5 additional cost

Chassis 5 Weeks

Supplier Logistics Center



L6 ‡ Integrated offshore & outside a Dell facility ‡ Integrated motherboard-inside chassis shipped on water + Labor savings + MB air-freighting costs are eliminated + Reduced motherboard packaging costs ± Reduced supply chain flexibility ± More motherboards need to be re-worked in the event of an MB ECN

L5 ‡ Integrated inside a Dell facility ‡ Chassis shipped on water ‡ Motherboards shipped by air + Increased supply chain flexibility ± Increased motherboard air-freighting costs ± 3rd-party integration cost in US ± Separate logistical costs for chassis and motherboards

Costs of air-freighting MBs and 3PI integration have been increasing.
MB-Airfreighting & 3PI Integration Costs
Q3FY05 Act

Q4FY05 Act

Q1FY06 Act EMF


Q3FY06 Act Total




AMF includes 3PI integration cost. EMF and APJ don·t as integration is done in Dell factory.

Dell Worldwide L5 vs. L6 Shipments Received from a Typical Contract Manufacturer
100% 11% 90% 80% 70% 60% 50% 89% 40% 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 93% 96% 86% 7% 6% 5% 4% 14% 9% 6% 4% 10% 15% 27%

L5% L6%

L5 shipped % has been increasing since March 2005.
94% 95% 91% 94% 96% 90% 85% 73%


L5 manufacturing has higher overall manufacturing and logistic cost than L6. Dell rising manufacturing cause by an increase in the utilization L5 manufacturing. Most of the root causes of the rise of L5 manufacturing have to do with Dell inability to provide motherboards in a timely fashion to contract manufacturing

Chipset supplier decommit or supply issue y When a chipset supplier is unable to deliver the previously agreed quantity of chipsets, its create disruption in pc supply chain. y 63% Quality/ Engineering issues y This issue lead to dysfunctional or problematic motherboard that need to be repair or replaced by a new supply. y Which can subsequently create on additional unexpected demand of motherboard. Dell forecast accuracy y When the actual demand surpasses the forecast, Dell needs to source extra chipsets or risk the possibility of not meeting customer demand. y The lead time of manufacturing, assembling, testing delivering a chipsets is on average 13 week.

y Long lead time make it difficult for the chipset supplier to provide

the additional chipsets in order y 8.3% New product introduction NPI y Actual demand of a newly released PC product can be specially volatile, the forecast uncertainty can create air fright extra. y Mother boards normally not require when the product is in a mature stage with sable level of demand and a constant level of L6 manufacturing turning. y Mother board chassis assembly in the united state in order to reduce time to market for a newly launched product. y 3.8%

Majority of expedites are caused by chipset supply shortage.

AMF Expedite $ by Root Cause (January to June ·05) 15 

A task force, Business Process Improvement (BPI) team was formed.  The team identified six manufacturing options viz.- Keeping of safety stock, - Dell America Operations (DAO) cellular integration to perform L5 to L10 manufacturing works. - Offline integration at Supplier Logistics Centre (SLC). - Offline integration at Dell-leased building. - 3rd Party Integrator (3PI) managed directly by Dell. - L6 from equipment manufacturers· Mexico plants.

Worldwide Procurement Regional Procurement Master Scheduler Production Control Operations DAO Quality Processing Engineering Supplier Quality Eng (Regional) 10 Supplier Quality Eng 1 (Global) Cost Accounting 5 Inventory Control 1 Logistics 5 Total: 57 Cost per Box $10.07

Option 2 Option 2 Option 1 (original) (revised) 10 1 1 8 5 5 5 5 5 5 10 10 1 10 10 5 10 10 1 10 10 1 1 1 5 1 60 $7.00 1 1 1 5 1 60 $7.90

Option 3A 1 5 5 7 5 5 5 1 1 10 5 5 55 $7.54

Option 3B 1 5 5 7 5 5 5 1 1 10 7 5 57 $7.70

Option 4 5 5 5 7 1 1 1 5 1 10 10 5 56 $7.61

Option 5 10 10 5 5 1 1 1 7 10 1 1 10 62 $7.00

Legend: The ´Cost per Boxµ data has been modified to respect Dell·s data confidentiality. Option 1: CM-managed 3PI Option 3A: Integration at SLC/hub

Option 2: Integration at DAO work cells Option 3B: Integration at Dell-leased bldg Option 5: Integrated chassis from Mexico

Option 4: Dell-managed 3PI 

Adopted the best marketing strategy to reduce the price.  Very effective approach of addressing the problem.  Managing the safety stock for motherboard was the best means of smooth running of inventory.

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