Welcome Sub Tier Supplier Conference

Agenda
Welcome Sub Tier Impact Sub Tier Supplier Mgt SQE Procurement Engineering Reliability Break Testimonials Your Actions Q/A
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FY06 Partner Priorities

Growth & Globalization
Drive volume & efficiencies through value propositions Continue growth WW by aligning regional fulfillment & support capabilities Maintain continuity of supply to support growth opportunities Align regionally with design centers

Customer Experience
Achieve FIR/VLRR targets/goals Continue warranty cost reduction Establish & implement support avoidance cost initiatives

Product Leadership
Support first to volume leadership that drives mutual advantage Achieve lowest lifecycle structural cost Invest in high growth businesses Imaging, Displays, Handhelds Flawless execution and transition management

Quality

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Field Incident Rate Performance

Ownership of the Customer Experience is Equally Shared Between Dell and Its Partners
3-Year FIR Performance - Relationship
FY02 FY03 FY04 FY05 FY06 Target

1-Year FIR Performance - Transactional

FY02 FY03 FY04 FY05 FY06 Target

Optiplex

Latitude

Enterprise

Inspiron

Dimension

Average 16% YoY improvement over the last three years Customer reliability expectations increasing faster than current performance Latent failures on sub-tier components have resulted in costly proactive actions and customer dissatisfaction Must contain going forward FY06 FIR CE goal set to 25% improvement

Sub-Tier Supplier Management key to Hitting Goals

Issue Contribution - FY05
100% 2nd Tier

90 Million

80% 60% 40% 20% 0%

1st Tier Dell

Tier 2 suppliers represent 19% of holds but 50% of latent excursions requiring proactive action Impact: $90M FY05 warranty expense for PFRs and significant customer disruption Majority of 2nd tier excursions are process related Focus on 2nd tier quality management and process controls is a must for success

$1.1 billion FY05 Warranty cost $700 million parts related

PFR Proactive Field Replacement Holds Factory holds or stop ships IFIR Failures in Field from 0-30 days FIR Failures in Field after 30 days
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Holds

IFIR

FIR

PFR

90Million US$ in PFRs due to Sub Tier

PFR cost due to 2nd Tier
50 45 40 35 30 25 20 15 10 5 0
2 ha ss ie /R iv ot H ea d/ HD D 1 B/ In du ct or PS ap ac ito r ap ac ito r Fa n

Root Cause
Capacitors Manuf process Inductor Thermal Issue PS FET failures Chassis Rivet process HDD Head contamination Fan Thermal Issues

Cost in Millions

Commodities

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Design vs Process
1s t Tie r Pr oce e s s or De s ign

Sub Tier Process or Design

Process Control
Des ign Is sues Proc es s is sues
Design Issues Process Issues

WW VLRR TREND
700 600 500 400 300 200 100 0
Fe b02 A pr -0 Ju 2 n0 A 2 ug -0 O 2 ct -0 D 2 ec -0 Fe 2 b03 A pr -0 Ju 3 n0 A 3 ug -0 O 3 ct -0 D 3 ec -0 Fe 3 b04 A pr -0 Ju 4 n0 A 4 ug -0 O 4 ct -0 D 4 ec -0 4

Sub Tier FIR

85% at 5 Supplier Process main focus We are succeeding at 1st Tier Apply what we know works

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Sub-Tier Supplier Management Model

Component Engineering

SQE

Procurement

Sub Tier Model 4 major elements SQE Engineering Procurement Reliability Need all 4 to effectively manage sub tier

Reliability

Sub-Tier Management Model

Supplier Quality Engineering

Sub-Tier Management Model

FY06 Challenge Drive and Track Product Quality, VLRR, in Sub-Tier
Dell Factory

Success using the Dell SQE Model Measure Incoming/In-Process Quality (VLRR) Establish Control points (SPC) Drive first pass yield Stretch to 5 sigma goals Award business based on Quality Focused Supplier Reviews 10 worst

Dell SQE Model Supplier Factory 1st Tier

Sub-Tier Management Model

FY06 Challenge Drive and Track Product Quality, VLRR, in Sub-Tier
Dell Factory Sub-Tier

Use Dell SQE Model to drive subtier supplier to 5 Show progress on Managing Sub-Tier Suppliers in Q2 QBRs 40% of QBR Quality points will be awarded on Sub-Tier results

Sub-Tier Dell SQE Model Supplier Factory Sub-Tier

Sub-Tier Management Model

Component Engineering

Sub Tier Management Model

Component Engineering
Migrate Dell AVL to ODMs when beneficial in Cost and Quality Dedicated Dell CE resources to work with Tier 1 suppliers Component Qualification Processes Component Specifications Increase the rigor of sub tier component qualification processes First Article Inspection data for all key parameters Capability studies (cp/cpk) for critical parameters Ensure compliance to entire specification Certificate of compliance for lead free components Perform joint ODM BOM scrubs to identify high risk components/suppliers Standardize on Common AVL

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Sub-Tier Management Model

Reliability Engineering

Sub Tier Management Model

Reliability Engineering (RE) Objective: Ensure that reliability of the product is maintained from development throughout the manufacturing life. RE Tools available for ongoing testing
HALT or HASS Eng and Manuf Variation De-rating of Components Pre/Post ORT High voltage screens Mechanical Stress Testing Critical design and process parameters Need to identify early indicators of VFIR though RE testing prior to RTS Deploy appropriate ongoing reliability tasks for each commodity Improve engagement: Reliability plan reviews, Training, BOB
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Sub-Tier Management Model

Procurement

Sub Tier Management Model

Procurement Agreements with Sub Tier that match Dell agreements with 1st Tier Sub Tier Hub located near 1st Tier Drive 1st Tier suppliers to align with Dells preferred Sub Tier Continuity of Supply Provide 12+ week demand outlook Sub-tier suppliers to provide 12+ week demand/supply plan Supplier rating system Hold quarterly QBRs with Sub-tier COS, Cost, Quality, Service, Engineering Supplier selection criteria, sourcing model, and development model TAM Split - Award POs based on both cost & quality
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Investment
QDI and Mitac made a choice to improve their Quality Enhanced their sub tier management year over year Passed down the leanings Chose the right people and invested in them Partnered with sub tier Process Training Constantly raised the bar on what they expected Achieved results Are being rewarded for their efforts More business from Dell Improved Customer Satisfaction Less Defects Lower cost Better COS
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Dells Investment
Changes in SQE organization SQE Org for Sub Tier Austin -20 Asia -13 Component Engineering Austin -27 Formed a Dell Governance Process for critical Sub Tier Core teams => Commodity teams => Business Strategy Teams Ties Eng, Procurement, Quality, Operations into one Strategy Critical Sub Tier brought to 1st tier Status as a first priority Fans, PS, Cables, Heatsinks Dell is ready to invest in you! Are you ready, willing, and committed?

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Next Steps
Joint update and training on supplier mgt tools in May/June Scope SQE Procurement Engineering Reliability Sub tier application of Tools Start in June Roll out sub Tier mgt tools to all Sub Tier Hands on focus on PS, Fans, Heatsinks, Cables

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Your Actions
1. ODM and OEM Exec Mgt accepts total responsibility for sub tier regardless of who selects and buys the parts. 2. Commitment to assign resources SQE, Procurement, Engineering 1. Commitment to Share BOB practices for Tool development 2. Attend training of 1st tier Teams in May/June 3. Coach and Mentor sub tier and help them improve 4. Assign a team for each commodity Engineering, Procurement, SQE 5. Deliver results Drive 50% S-VLRR reduction. Improve Reliability

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Sub-Tier Supplier Management key to Hitting Goals

Issue Contribution - FY05

100% 80% 60% 40% 20%

0%

R e R r L co V - S S in BR n Q io % t c 0 u 4 d = e r % SM 0 T 5 S
2nd Tier 1st Tier Dell
Sub Tier Process or Design

$1.1 billion FY05 Warranty cost $700 million parts related

Holds

IFIR

FIR

PFR

Design Issues

Process Issues

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Training
Dell encourages joint trainings with your Sub-Tier suppliers. Trainings Available from Dell: Contact is Kirk_Chi@Dell.com
BPI (Six Sigma) Green Belt SPC and Process Capability Other classes available BPI Six Sigma Black Belt Classes (1) Advanced Methods (2) Statistics (3) Design of Experiments BPI Six Sigma Executive Belt Design for Six Sigma QFD (Quality Function Deployment) FMEA (Failure Mode Effective Analysis) Mentor Development Facilitation Skills Managing BPI (Six Sigma) BPI Six Sigma Project Management

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Banner
Partner with Dell Drive Sub Tier Supplier MGT Build Reliable Products No More Defects Achieve 5

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Q&A

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