Dell Inc.

: Improving the
Flexibility of the Desktop
PC supply chain

BY : GROUP 4 (Sec B)
NISHANT RAJ 120089
NITISH KR MISHRA 120090
NUTAN JYOTI 120091
PRASHANT KUMAR 120092
PREMLATA SHARMA 120093
PRIYANKA CHOURASIA 120094
Q1. Explain the direct model of Dell Inc. What was the problem the
company was facing in mid-2005?

 DELL’S business was based on a simple business model –

 Eliminating the retailers from the sales channel and selling directly to customers.

 The company outsourced all components but performed assembly.

 It took customized orders for hardware and software over the phone or via the internet.

 The direct model also reduces the time from customer order to receipt of the system.

 It designed an integrated supply chain linking Dell’s suppliers very closely to its assembly factories

and order-intake systems.

 Problem the company was facing in mid-2005?

 By 2005, most PC makers utilized contract manufacturers to produce high tech electronic
products.

 DELL was not able to take the advantage of the lower cost structure of the contract manufacturers.

 DELL had to rely more on 3rd party integrators (3PIs) who performs the integration unit testing.

 The company also faced the difficulty in forecasting for the 3PIs, on how much manufacturing
capacity they should be able to support to meet DELL’s demand.

 In the same year, there was an increase in Level 5 manufacturing which was the alarm for DELL
as from company’s perspective it will add costs to the overall manufacturing process.

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Q2. What is the importance of contract manufacturers in the PC supply chain?
Compare and contrast the role of contract manufacturers in the supply chain
of Dell vis-à-vis other American PC makers.

 The contract manufacturing basically started in 1980s. It mainly includes production of materials as

well as unassembled parts in a lesser expensive region followed by shipping them to original

equipment manufacturer (OEM) factories for the purpose of assembling.

 Till 2005 it became a more common criteria used by PC producers to produce high tech. Electronic

products. The concept of contract manufacturer became so common which led to a scenario in 2005

where all the desktop PC had been sold in USA was produced by the contract manufacturers of

China. 4
 Role of contract manufacturers in the supply chain

 Talking about the comparison about role of contract manufacturers, the other American PC

companies became totally fables i.e., a company which designs microchips but contracts out

their production rather than owning its owning factory.

 On the other hand Dell retained manufacturing facilities in US. Dell follows a more time

prohibitive and cost prohibitive approach of contract manufacturing in comparison to other

American PC makers.

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

There are numerous factors that impact the manufacturing and logistic costs of L5 and
L6. In order to answer the questions pondered, we need to look at the reasons why Dell
must use the L5 Level. One of these reasons is Dell’s inability to timely provide Mother
Boards to manufacturers. This may occur due to issues with new product introduction,
engineering or forecasting. Additionally, as mentioned in case, there are many
stakeholders involved in the process and this creates extensive inventory movement. The
increased costs is the effects of the hurdles faced by Dell. When we compare the costs in
L5 and L6 level, we are able to appreciate that L6 eliminates the 3PI costs due to offshore
integration in China which is cheaper than local integration.

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4. Explain the root causes of increasing L5 manufacturing.

⬡ Dell was failed to provide motherboards to contract manufacturers in timely

fashion which causes delay.
⬡ The root cause for the above mention reason are:
∙ Supply issue due to chipset supplier decommit
∙ Issue related with quality and engineering
∙ Accuracy in forecasting of dell
∙ New product Introduction

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5. 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?
⬡ 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 complexity of 3 things:
∙ Operations
∙ DAO quality
∙ 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 lose out on the other standard.
⬡ Also cost per box for option 4 is $7.61 which is not so high as compared to the next best option 3A
(integration at hub)
⬡ Both cost and complexity is lower in option 4 Vs Option 1 i.e. in the current option (worldwide and regional
procurement is easier as no dependence on 3PI managed by CM)

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⬡ Pros:
∙ The biggest advantage that dell will get is that it will have a direct and full control 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, the manufacturing
infrastructure will be low in the process, therefore less capital expenditure. This will also
mean less impact on the supply chain and lead time.
∙ DAO QUALITY IMPROVES as 3PI is managed by Dell and not by OEMs, therefore
quality control is better.
∙ Less manufacturing infrastructure change required, less impact on existing Supply Chain
Network
∙ A self-owned 3PI will also imply effective quality control as ownership is in Dell’s hand.
As More Clear Definition of Quality Ownership is possible => Dell will possess greater
opportunity to deal with product quality related issues.
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⬡ Cons:
∙ Since the 3PI is managed directly by dell, control processes (production,
inventory, and accounting control) increases.
∙ In particular, more complex for accounting and inventory control. This option
makes it difficult to manage inventory cost at a dell-managed 3pi

⬡ Thus, Option 4 enables Dell to focus on the more value- added portion of the MB-
chassis Integration

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6. How easily sustainable is your recommendation for
the previous question if the chipset supply shortage
further deteriorates?
⬡ If we look at the problem (operational complexity) presented in the case, option 4
(Dell managed 3PI) most reliably solves 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)

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⬡ 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 better
option would have been option 3A (integration at SLC/hub).
⬡ This might be because as compared to option 4, 3A has simpler worldwide
procurement, better regional and global supplier quality engineering which will
allow Dell to manage shortages better by controlling the suppliers.

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Q7. How good is the methodology employed by the BPI team to determine the
optimal manufacturing option for Dell? Are there more effective approaches?

The methodology which BPI team had employed was fairly good due to the following reasons:

● Product Quality
● Capital Investment
● Smooth and sustainability process
● Cost per box
● Material Handling and Logistics
There are few effective approaches which the BPI team could have employed for determining the
optimal manufacturing option for Dell are as the following:

● Considering the geographical location of the supplier

● Adopting the Pull and Push strategy 13
Q8. How can Dell effectively address the root causes contributing to the
increase of L5 manufacturing?

Following point shows ways to effectively address the root cause contributing to the increase of L5
manufacturing are:

● Reduce quality/engineering issues i.e. TQM and benchmark standard operating procedures
● Accurate forecast needs to be done to avoid demand fluctuations
● Having multiple suppliers and some safety stock so that no issue of supply occurs and ensuring
that even if any Chipset suppliers does not fulfils the supplies, then also suply chain remains
undisrupted.
● Forecasting the demand of new product in a better way.
● Timely deliveries of the motherboards to CMs.

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⬡ THANK YOU

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