Dell Inc

By-
Surbhi
Swarnim
By- Group 8Swati
Surbhi
Vivek
Swarnim
Gr 8
Swati 1
Vivek
Explain the direct model of Dell Inc. What was the problem the
company was facing in mid-2005?

• Direct Model of Dell

– Starts and Ends with the customer
– Order online/phone (Customize his configuration)
– Dell manufactures & ships directly to customers
– Eliminating the retailers from the Sales Channel
– Selling Directly to the Customers
– Customized Products at Lower than average market price
– 3 major manufacturing units in US

Gr 8 2
Problem in mid-2005

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

an increasing % of L5 manufacturing:
1. Empty chassis are shipped by ocean (L5) to Dell US & Europe
first. Motherboards are then air-freighted to Dell US &
Europe.
2. Dell incurs motherboard expedite/air-freight cost and 3rd-party
integration cost.
3. CMs incur cost for idle labor dedicated for MB-chassis
integration.

Gr 8 3
What is the importance of contract manufacturers in the
PC supply chain?

• Importance of CM
– Helps take advantage of Labor Cost Differences
– Capacity
• OEM cnt make the item or easily acquire this capability and must
seek a supplier
– Manufacturing competitiveness
• The supplier has a low cost, faster availability and so forth.
– Technology
• The supplier version of the item is better

Gr 8 4
Compare and contrast the role of contract manufacturers in the
supply chain of Dell vis-à-vis other American PC makers.

• In Other American PC makers

– Had become “FABLESS”
• Most CMs do everything from Manufacturing to
shipping fully assembled pdts on behalf of OEMs

• DELL
– CM is in ASIA
– Ships half-assembled pdts to US
– Factory at US performs further fulfillments
– Ships it to customers directly

Gr 8 5
Why does L5 incur higher manufacturing and logistics
costs than L6?
L6 L5

 Integrated offshore & outside a  Integrated inside a Dell facility

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

Gr 8 6
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?

• 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 (Foxconn performing
L6)

Gr 8 7
Explain the root causes of increasing L5 manufacturing.

• Dell’s inability to provide motherboards in a timely fashion to CMs

– Chipset Supplier decommit or supply issues
• Creates a disruption in the desktop PC supply chain
• Accounted for more than 60% of L5 manufacturing

– Quality/engineering issues
• Leads to dysfunctional or problematic motherboards
• Create additional demand for motherboards

– 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

– New Pdt Introduction

• Actual demand for new PCGrpdt
8 is volatile, so need to air frieght extra 8
motherboards
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.

Gr 8 9
How easily sustainable is your recommendation for the previous
question if the chipset supply shortage further deteriorates?

Gr 8 10
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

Gr 8 11
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 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

Gr 8 12
Thank You

Gr 8 13