DELL Supply Chain Integration

SUPPLY
CHAIN
INTEGRATIO
N OF
DELL
PRESENTED BY:
DEEPAK KHANDELWAL
INTRODUCTION
 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.
 Saves money by selling directly to customers,
 Raw material inventory is low,
 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.
HISTORY OF PC INDUSTRY
 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 –

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.
COMPONENTS OF A DESKTOP PC & MAJOR
COMPONENT MANUFACTURERS
Chipset
AMD Motherboard
Intel ASUS
Foxconn
Intel
MiTAC
Printed Circuit
Board Desktop PC
BTI Electronics Acer
Compeq Apple
GCE Dell
Plato Electronic Desktop Chassis Fujitsu Siemens
Gateway
ASUS
HP
Flextronics
Lenovo/IBM
LAN Chip Foxconn
Broadcom MiTAC 4
Intel Lite-On
LEVELS 1-5 OF DESKTOP PC
ASSEMBLY
LEVELS 6-10 OF DESKTOP PC ASSEMBLY
L6 vs. L5
L6
MB
5 Weeks
China Dell
Integration Supplier Customer
Logistics Manufacturing
Center
Chassis
L5 3rd Party Integrator

(managed by
equipment
Manufacturers)
: L5 additional cost
MB
1 Week
Dell
Supplier Manufacturing
Chassis Logistics
Center Customer
5 Weeks
L6 vs. L5: Value Comparison
L6 L5
• Integrated offshore & outside a Dell • Integrated inside a Dell
facility facility
• Integrated motherboard-inside • Chassis shipped on water
chassis shipped on water • Motherboards shipped by air
+ Labor savings + Increased supply chain
+ MB air-freighting costs are flexibility
eliminated – Increased motherboard air-
+ Reduced motherboard packaging freighting costs
costs – 3rd-party integration cost in
– Reduced supply chain flexibility US
8
– More motherboards need to be re- – Separate logistical costs for
worked in the event of an MB ECN chassis and motherboards
L5 Driving Increasing Operational Cost
Costs of air-freighting MBs and 3PI integration have been
increasing.
MB-Airfreighting & 3PI Integration Costs
Q3FY05 Act Q4FY05 Act Q1FY06 Act Q2FY06 Act Q3FY06 Act Q4FY06 FCST
Americas EMF APJ MDS Total

9 AMF includes 3PI integration cost. EMF and APJ don’t as integration is done in Dell factory.
L6 vs . L5 S hi pmen ts : %Co mp aris on
L5%
Dell Worldwide L5 vs. L6 Shipments Received from a Typical L6%
100% Contract Manufacturer
5% 4% 4%
7% 6% 9% 6%
11% 10%
14% 15%
90%
27%
80%
70% L5 shipped % has been

60%
increasing since March
2005.
50%
93% 94% 95% 96% 94% 96%
89% 91% 90%
86% 85%
40%
73%
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
10
ROOT CAUSES OF INCREASING L5
MANUFACTURING
 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
CAUSES
Chipset Supplier Quality/ Engineering

decommit supply issue issues
CAUSES
CAUSES
New product
Dell forecast accuracy
introduction
 Chipset supplier decommit or supply issue
 When a chipset supplier is unable to deliver the previously
agreed quantity of chipsets, its create disruption in pc supply
chain.
63%
 Quality/ Engineering issues
This issue lead to dysfunctional or problematic motherboard
that need to be repair or replaced by a new supply.
Which can subsequently create on additional unexpected
demand of motherboard.
 Dell forecast accuracy
When the actual demand surpasses the forecast, Dell needs
to source extra chipsets or risk the possibility of not meeting
customer demand.
The lead time of manufacturing, assembling, testing
delivering a chipsets is on average 13 week.
Long lead time make it difficult for the chipset supplier to
provide the additional chipsets in order
 8.3%
 New product introduction NPI
Actual demand of a newly released PC product can be
specially volatile, the forecast uncertainty can create air
fright extra.
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.
Mother board chassis assembly in the united state in order to
reduce time to market for a newly launched product.
3.8%
Root Causes Analysis
Majority of expedites are caused by chipset supply

shortage. 3.8%
8.3%
Chipset supplier decommit

or supply issues
24.5% Quality/Eng Issues
Dell Forecast Accuracy

63.5%
NPI
AMF Expedite $ by Root Cause (January to June ’05)

15
COMPLEXITY MANAGEMENT
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.
COMPLEXITY ANALYSIS
Option 2 Option 2
Option 1 (original) (revised) Option 3A Option 3B Option 4 Option 5
Worldwide Procurement 10 1 1 1 1 5 10
Regional Procurement 8 5 5 5 5 5 10
Master Scheduler 5 5 5 5 5 5 5
Production Control 5 10 10 7 7 7 5
Operations 1 10 10 5 5 1 1
DAO Quality 5 10 10 5 5 1 1
Processing Engineering 1 10 10 5 5 1 1
Supplier Quality Eng
(Regional) 10 1 1 1 1 5 7
Supplier Quality Eng
(Global) 1 1 1 1 1 1 10
Cost Accounting 5 1 1 10 10 10 1
Inventory Control 1 5 5 5 7 10 1
Logistics 5 1 1 5 5 5 10
Total: 57 60 60 55 57 56 62
Cost per Box $10.07 $7.00 $7.90 $7.54 $7.70 $7.61 $7.00
Legend: The “Cost per Box” data has been modified to respect Dell’s data confidentiality.
Option 1: CM-managed 3PI Option 2: Integration at DAO work cells
Option 3A: Integration at SLC/hub Option 3B: Integration at Dell-leased bldg
17 Option 4: Dell-managed 3PI Option 5: Integrated chassis from Mexico
CONCLUSION
 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.
19 12/08/2021
THANK
YOU

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SUPPLY

 First microcomputers hit the market in 1970s.

In 1980s, computers became increasingly cheaper & gained

 Introduction of first commercially available portable computer –

Introduction of multi-user PCs in 1990s.

L5 3rd Party Integrator

Americas EMF APJ MDS Total

70% L5 shipped % has been

 Dell rising manufacturing cause by an increase in the

 Most of the root causes of the rise of L5 manufacturing have

Chipset Supplier Quality/ Engineering

Majority of expedites are caused by chipset supply

Chipset supplier decommit

24.5% Quality/Eng Issues

Dell Forecast Accuracy

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

A task force, Business Process Improvement (BPI) team

 The team identified six manufacturing options viz.-

 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

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