Supply Chain Integration: Improving The Flexibility of The Desktop PC Supply Chain

Supply Chain Integration:
Improving The Flexibility Of The Desktop PC Supply Chain
TEAM 3
Abhishek Sharma
Alok kaushik
Arjun Bhattacharya
Grishma Desai
Gunjan Agarwal
Samrat Paul
Saurabh Agarwal
HOW IT ALL STARTED!!!

Computers in general:
The first successfully sold desktop was Apple II introduced by Apple Computer in 1977 and
the first commercially available portable computer was Osborne 1 in 1981
DELL:
Dell was started by Michael Dell in his dorm room at the University of Texas in 1984
It used the direct model of eliminating the retailers from the sales channel and selling directly
to the customers with the aim of delivering customised systems to customers at lower than
average market price
In 1993, Dell was among the top 5 computer system makers worldwide
In 2001, it became the leader in computer systems worldwide
Three major manufacturing facilities:
Austin, Texas
Nashville, Tennessee
Winston-Salem, North Carolina
Dells Revenue for the last 4 quarters totaled $ 56 billion and employed 65,200 employees
worldwide.
DELL PRODUCTS
CURRENT PORTFOLIO:
Desktop computers
Notebook computers
Network servers
Workstations
Storage products
LCD TVs
Printers
Projectors
Handhelds
HOW DO THEY DO IT?

Dells success is a combination of:
Direct Sales.
Inventory Management
Supplier Integration
Together, these allow for maximum effectiveness with
minimum cost.
CORE ELEMENTS OF STRATEGY
Mass customization (end result: Delivers exactly what the customer wants)
Partnerships with suppliers
Direct sales
Customer service
DELL DIRECT MODEL
DELL DIRECT MODEL

Dells direct model departed from the industrys historical
standards on several fronts:
The company outsourced all components but performed
assembly
It eliminated retailers and shipped directly from its factories to
end customers
It took customized orders for hardware and software over the
phone or via the internet
It designed an integrated supply chain linking Dells suppliers
very closely to its assembly factories and order-intake systems
Critical Components of a desktop PC and major component

manufacturers
Manufacturin
g Levels
Process defining L5 and L6: An overview of the related

Supply Chains
Q1. Why does L5 incur higher

manufacturing and logistics costs than
L6?
Dells inability to provide Mother Boards(MBs) in a timely
fashion to Contract Manufacturers(CMs) forces it to switch
to L5 manufacturing.
These situations occur when Chipset supplier de-commits or supply issues
Quality/Engineering Issues
Dell Forecast Accuracy
New Product Introduction
All of the above situations creates an additional unexpected

demand of MBs that were not part of agreed forecast.
Q1. Why does L5 incur higher manufacturing and

logistics costs than L6?
CONTD..
Effect: Forces Dell to switch to L5 Manufacturing where
Many stakeholders touch the process i.e. too much movement
of inventory: Contract Manufacturers, SLC management, 3PI staff,
CM staff managing the 3PI production, Dell factory associates and
engineers.
Too Many Cooks In The Kitchen Situation : Many changing
hands handling the inventory => More complex processes =>
increased management issues, confusions, frustrating situations and
last minute fires related to MB quality issues.
Overall Effect : Increased manufacturing time and costs, logistics
time, lead time, and difficulty in managing overheads in L5.
What are the cost that incurred in L5 and not in L6?

Cost of integration with 3PI which includes:
Management and collaboration overheads as stakeholders
involved increases
Inventory movement/Logistic cost between SLC and 3PI site
Local (US) Integration Cost i.e. integrating the components Chassis
Floppy disk drive
Fan/Heat sink
Power supply
INCREASED LOCAL LABOUR COST WHICH IS

ALSO MORE EXPENSIVE
In L5, EXTRA AND SEPARATE LOGISTICAL
COSTS - PACKAGING, TRANSPORTATION and
INVENTORY HOLDING COSTS of MBs (shipped
by air) and Chassis (shipped on water) => Therefore,
increased MB air-freighting costs.
What are the cost that incurred only in L6

and not in L5?
In L6, 3PI related costs are eliminated as integration is
done offshore and outside Dell Facility (in China)
So, the new additional cost in L6 is the China
integration cost done by a CM. This is, however, cheaper
than local integration in L5.
More motherboards need to be reworked in the event of
a MB Engineering Change Notice
Q2: Which of the Six manufacturing solutions should Dell

implement based on the survey result? Why?
Based on the survey result, Dell should implement option 4 which is Dell-Managed 3PI. The Project
study mainly talks about DAO (Dell American Operations) and Factory operational improvement and
not about increasing the demand forecasting abilities.
These qualities will be purely shown by the complexity of 3 things:
a) Operations
b) DAO Quality
c) Process Engineering.
The complexity score of option 4 in the above mentioned standards is the lowest. It equals option 5
in these three standard but loose out on the other started.
Also the cost per box for option 4 is $7.61 which is not so high as compared for the next best option
which is option 3A (Integration at SLC/hub)
Both cost and complexity is lower in Option 4 vs Option 1, that is, the current option (Worldwide
and regional procurement is easier as no dependence on 3PI managed by CM)
Complexity Analysis
Pros and Cons for Option 4

PROS:
The biggest advantage that Dell will get is that it will have the a direct and full control of over the 3PI
(Third Party Integration). This leads to reduced logistics costs and backlogs due to the 3 rd Party
Integration
Since Dell will not be needing to develop a huge infrastructure (as in case of Integration in Dell leased
building), the manufacturing infrastructure will be low in the process. This will also mean less impact
on the supply chain
Lead time for product delivery decreases
DAO quality is improving as 3PI is managed by Dell and not by OEMs, therefore touch points
reduces (less stakeholders touching the process)
A self owned 3PI will also imply clearer quality issues as ownership is in Dells hand.
Dell will possess greater opportunity to deal with product quality related issues
Pros and Cons for Option 4

CONS:
Since the 3PI is managed directly by Dell, control processes
(Production, Inventory, Accounting) increases.
Most complex for Accounting and Inventory Control. This option
makes it difficult to manage inventory cost at a Dell-managed 3PI
Option 4 enables Dell to focus on the more

value- added portion of the MB-chassis
Integration
Q3: How easily sustainable is your recommendation for the

previous question if chipset shortage further deteriorates?
If we look at the problem (operational complexity) presented in the
case, option 4 ( Dell managed 3PI) most reliably solves the these issues
However, if a problem like acute chipset shortage crops up, none of the
options provided ( including option 4) will be easily sustainable
This is because the chipset integration with the motherboard occurs
before the L5 and L6 manufacturing stages
Thus when a chipset shortage occurs, no matter what option we choose,
a delay in production of the desktop will occur since the motherboard
cannot be manufactured without the chipset (produced by companies
like Intel, AMD)
Q3: How easily sustainable is your recommendation for the

previous question if chipset shortage further deteriorates?
(CONTD..)
In the case when Dell manages the 3 PI (option 4), Dell directly interacts with the
suppliers and contract manufacturers
Hence, it is easier to control and manage inventory and thus, take care of any
kind of supply shortfalls
Eventually, if we had to choose an option in case of chipset shortage, the best
option would have been option 3A ( integration at SLC/hub)
This might be because as compared to option 4, 3A has more simpler worldwide
procurement, better regional and global supplier quality engineering which will
allow Dell to manage shortages better by controlling the suppliers
Q4. How good is the methodology employed by the BPI team to determine
the optimal manufacturing option for Dell? Are there more effective
approaches?
The BPI Team came up with 6 different manufacturing options which were
evaluated on different factors such as ability to procure materials (both regional
and worldwide), Production control, Operations, Process Engineering, Supplier
Quality & Quantity, Inventory Control, Logistics and Cost per box.
The adopted methodology by the BPI was comprehensive as it involved a trade
off between complexity and cost which was based on inputs from all
Departments/Stakeholders such as Operations, Logistics, Quality,& Accounting
and thus the resulting solutions are very holistic in nature.
Some other effective approaches can be:
Push & Pull strategy
Strong contractual obligations with the chip manufacturers in order to avoid
any defaults.
Q5. How can Dell effectively address the root causes contributing to the
increase of L5 manufacturing?
Ensuring the Chipset supplier
dont trackback or have any
other supply issues :
-Have Multiple Suppliers
-Have buffer stock
Forecast accurately to
avoid demand fluctuations
by investing in market
research
Reduce customization
Dell AMF expenses
Chipset
supplier
decommit
or supply
issues
(63.5%)
Quality/en
gineering
issues(24.5
%)
Recommendations for Future:

PUSH-PULL APPROACH
Dells approach can be classified as a Push-Pull Strategy

Push Portion (Prior to Assembly)
Component Inventory is managed by Dell
Company pushes several options to customers, based on options that company could effectively control
Pull Portion (From Assembly)
Final assembly is in response to a specific customer request
In other words, customers choice is pulling demand for Dell
Since Dell has to manage demand fluctuations in the short run while maintaining its
capability to fulfill the steady demand => It makes sense for Dell to go for a Push-Pull
Supply Chain Strategy in future
=> But in this case, Dell would need to control the options offered to its customer base
via its push strategy which would drive the pull options for customer.

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Supply Chain Integration:

Improving The Flexibility Of The Desktop PC Supply Chain

HOW IT ALL STARTED!!!

HOW DO THEY DO IT?

CORE ELEMENTS OF STRATEGY

DELL DIRECT MODEL

DELL DIRECT MODEL

Critical Components of a desktop PC and major component

Process defining L5 and L6: An overview of the related

Q1. Why does L5 incur higher

All of the above situations creates an additional unexpected

Q1. Why does L5 incur higher manufacturing and

What are the cost that incurred in L5 and not in L6?

INCREASED LOCAL LABOUR COST WHICH IS

What are the cost that incurred only in L6

Q2: Which of the Six manufacturing solutions should Dell

Pros and Cons for Option 4

Pros and Cons for Option 4

Option 4 enables Dell to focus on the more

Q3: How easily sustainable is your recommendation for the

Q3: How easily sustainable is your recommendation for the

Dell AMF expenses

Recommendations for Future:

Dells approach can be classified as a Push-Pull Strategy

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