TEAM 3Abhishek Sharma

Alok kaushikArjun Bhattacharya

Grishma DesaiGunjan Agarwal

Samrat PaulSaurabh Agarwal

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

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 1981DELL:• 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

• Dell’s 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?

Dell’s 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• Dell’s direct model departed from the industry’s 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 Dell’s suppliers

very closely to its assembly factories and order-intake systems

Critical Components of a desktop PC and major component manufacturers

Manufacturing 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? Dell’s 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.

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.

Q1. Why does L5 incur higher manufacturing and logistics costs than L6?

CONTD..

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) Operationsb) 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 4PROS:• 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 3rd 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 Dell’s hand.

• Dell will possess greater opportunity to deal with product quality related issues

Pros and Cons for Option 4CONS:• 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)

• 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

Q3: How easily sustainable is your recommendation for the previous question if chipset shortage further deteriorates? (CONTD..)

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 don’t 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 de-commit or supply issues (63.5%)Quality/en-gineering issues(24.5%)Dell forecast accuracy NPI

Recommendations for Future:PUSH-PULL APPROACH

Dell’s 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, customer’s 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.