Dell Inc. Case Paper
Dell Computer Company founded in 1984 uses the business model of eliminating retailers from the sales channel and selling directly to customers. Dell used this model to deliver customized systems to customers with lower than market average prices. To assist Dell in accomplishing this achievement, Dell used contract manufacturers to build and supply various components of its computer equipment. However, Dell has identified issues arising from its L5 and L6 manufacturing processes regarding motherboard availability and the resulting increased cost of manufacturing and logistics. In this paper, I will review and evaluate the L5 and L6 manufacturing and logistics cost, the manufacturing solution to best minimize the issues, and address the chipset supply concerns In addition, the business process improvement methodology will be reviewed, supply changes recommended, and the application to other industries and work environments.
L5 versus L6 Manufacturing and Logistics Costs
The L5 manufacturing and logistics process includes the assembly of desktop PC chassis, floppy disc drive, fan, and depending on chassis configuration, the power supply. On the other hand, the L6 process includes all the processes in L5 plus the installation of the motherboard in the chassis. Currently, Dell suffers from the inability to provide contract manufacturers sufficient motherboards in a timely fashion. Several factors contribute to Dell’s inability to provide sufficient motherboards: chipset supplier decommits or supplier issues, quality and engineering issues, Dell forecast accuracy, and new product introduction (NPI). Bakker, Zheng, Knight, and Harland (2008) comment, “When operating in a volatile market ‘agility’ is required and information technology is focused on exchange of demand information, whereas in a stable market ‘lean’ is required, which allows working on forecasts and inventory-focused information exchange” (p. 317, para. 2). As a result of these factors, L5 manufacturing processes incur additional costs of expediting motherboards to meet L6 NPI. In addition, third party integration adds cost to the L5 process. Currently L6 has no additional costs compared to L5.
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Six manufacturing solutions have been proposed by Dell’s business improvement team. Based on the data obtained from Table 6.1 above, Dell should implement option 3A for several reasons (Simchi-Levi, Kaminsky, & Simchi-Levi, 2008, p. 187). Because Dell suffers from the inability to provide motherboards in a timely fashion because of issues with suppliers, quality and engineering, forecast accuracy, and NPI, these issues must be addressed. Therefore, these issues and the relative ease in which these factors can be modified and changed contribute to the decision to recommend implementing option 3A.
Advantages and disadvantages exist for option 3A. Advantages of implementing option 3A include the lowest complexity score from Table 6.1. In addition, capital expenditures will be low. Furthermore, the changes recommended by option 3A will not negatively influence the manufacturing process. On the other hand, several disadvantages exist for the implementation of option 3A. The bottom line cost per box increases from the original $7 per box to $7.54 per box. In addition, compared to the original process, cost accounting and logistics become more difficult.
Chipset Supply Shortage
Currently the chipset supply is volatile and unreliable at best. If the chipset supply does not improve or continues to deteriorate several changes must occur to avoid additional delays. Among the processes to improve and implement include the avoidance of single source suppliers. Using more than one source provides Dell the ability to have a backup plan if the primary source develops issues and cannot meet demand. Integrating the supply chain using vendor managed inventory (VMI) capabilities in conjunction with material resource planning (MRP) allows suppliers to view the demands Dell has for various components including chipsets for motherboards. As a result, an even flow of chipsets can be manufactured and shipped economically to meet changes in demand like customer preference changes and NPI. As a result, the integration of the supply chain minimizes the bullwhip effects of too little inventory where it is needed and too much inventory where it is not needed.
Business Process Improvement (BPI) Methodology
The use of Dell’s business process improvement model provides a large amount of information. The process identified the issues Dell has with providing chipsets when needed. Upon further review several factors contributed to this delay. Whereupon the causes of the delays occurred various alternatives were presented to improve the contributing factors causing the delays in providing chipsets.
The use of a completely numeric table is beneficial because of the ease in which individuals can locate important information like the modified cost per box figure instead of using strictly a text format that is cumbersome and confusing. The data outline makes comparisons between each manufacturing option easy to read and to identify large discrepancies. The ability to compare quickly and contrast variables assists in eliminating options that do not offer the solutions that Dell is seeking. Vital and important information can quickly be found without reading several pages of text and numeric values.
The use of process charting to improve understanding processes leads to improvements in performance. The comparison of current activities and processes in the form of AS-IS activities to where an organization wants to be in the form of TO-BE activities is an important aspect in the BPI methodology. Balanced score cards and measuring key performance indicators also contribute to more effective BPI. Based on the measurements of various key performance indicators (KPI)’s revealed the availability issue of chipsets was resulting in the inability to provide ample motherboards. In conjunction with these activities Dell gathered information from those that dealt with the issues causing the problems with providing and receiving chipsets and motherboards in a timely fashion. Therefore, issues and solutions were identified and measured by those that would need to make the necessary changes. Employee and department input generated support that permits realistic transition improvement alternatives.
Supply Chain Changes
Supply changes will be necessary for Dell to address effectively the root causes contributing to the increase in L5 manufacturing. Dell will find it necessary to modify its supply chain configure to order business to maintain a competitive advantage. According to Reeve & Srinivasan (2005), “Competitors may deploy supply chains that give them a competitive advantage” (p. 51, para. 1). Dell will have its own factory associates assemble motherboards into L5 Chassis in a supplier logistics center (SLC). As a result, Dell will be required to install new equipment at the SLC. Affects will occur because of the changes in the supply chain. Dell expects minimal effects because of the supply chain modifications. Capital expenditures on new equipment will be low. Furthermore, Dell expects no impact on the manufacturing process.
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- James Tallant (Author), 2010, Dell Inc. Case Paper, Munich, GRIN Verlag, https://www.grin.com/document/169010