DELL INC. SUPPLY CHAIN CASE STUDY
Dell Inc.: Improving the Flexibility of the Desktop PC Supply Chain
Maria Franco-Cortes
Liberty University
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DELL INC. SUPPLY CHAIN CASE STUDY
Abstract
Personalized computers became more popular, accessible, and affordable to the general public in
the 1980s. Michael Dell, a student at the University of Texas, invented a new business model for
selling personalized computers in 1984 from the comfort of his dorm room. Michael's strategy
was based on a business model that eliminated retailers from the sales chain and allowed
customers to buy directly. By cutting out the middleman, a company could offer personalized
services to its customers at below-market rates with this business model. In desktop PC
manufacturing, the degree of assembly can be broken down into ten levels. Level five includes
the assembly of desktop PC chassis, floppy disk drive, and fan. Level five also has higher
manufacturing and logistics costs than level six. Most of the root causes of the rise of level five
manufacturing have to do with Dell's inability to provide motherboards in a timely fashion to
CMs. A cross-functional business process improvements team was assembled at Dell to solve
continuously rising manufacturing costs. Therefore, Tom Wilson and the rest of the BPI team
must select and implement a solution that would deliver advantages to Dell from both a cost
angle and an operational complexity perspective.
Keywords: manufacturing, supply chain, flexibility, Dell, inventory, forecasting,
sustainability, supply shortage, lead time, supply chain collaboration
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DELL INC. SUPPLY CHAIN CASE STUDY
Dell Inc.: Improving the Flexibility of the Desktop PC Supply Chain
L5 versus L6 Manufacturing and Logistics Costs
For a variety of reasons, L5 has higher costs than L6. One of these reasons is that L6 is
integrated outside Dell's facilities in China, whereas L5 is integrated within a Dell facility. L6
has labor savings that L5 does not have as a result of this difference. L6 also saves money by
transporting motherboards (MBs) via water inside the chassis. L5 also ships the chassis via
water, but the motherboards are shipped separately and via air freight, which has a higher
overhead cost than other shipping methods. According to estimates, the average freight cost per
ton for rail transport is three times that of water transport, 35 times that of truck transport, and 83
times that of air transport (Rojo et al., 2018). L5 gives Dell more supply chain flexibility, but it
comes at a cost, thanks to third-party integration costs in the United States, separate logistical
costs for the chassis and motherboards, and higher air freight costs. Rojo et al. (2018) reaffirm
that flexibility is widely acknowledged as an essential strategic capability. Supply chain
flexibility (SCF) is broadly concerned with the ability to reconfigure essential supply chain
resources to maintain competitiveness rapidly. Therefore, L6 has hampered supply chain
flexibility, and more motherboards manufactured using this method require rework. However,
because the MBs and chassis are shipped together, L6 saves Dell money through labor savings,
the elimination of air freight, and reduced motherboard packaging costs.
Manufacturing Solution
To help Dell deal with its mounting costs, the BPI project team devised six potential
scenarios. These six scenarios were evaluated based on process smoothness and sustainability,
cost per box, product quality, capital investment, material handling/cost accounting, and
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DELL INC. SUPPLY CHAIN CASE STUDY
logistics. The goal of sorting the scenarios by these attributes is to find the best one for Dell to
use. Based on the survey results for these solutions, Dell should implement Option 4 or 3A.
Option 4 also has the lowest complexity score of all the operations, DAO quality, and process
engineering options. Option 4 also has a low per-box cost of $7.61, comparable to the best option
3A, further discussed. The other current options are more expensive and more complicated.
Therefore, Option 4 has the most significant advantage in that Dell will have direct control over
the process, resulting in lower logistical costs and a reduction in backlog. As the number of
touchpoints decreases, lead times should improve dramatically. Option 3A is also a viable option
for Dell to consider because it requires less complex global procurement and less supplier quality
engineering management.
Zhen et al. (2019) explain that the third-party platform has been widely used in addition to
the traditional retail channel to sell products. Therefore, Option 4 will increase Dell's control
processes, production, and accounting control without the use of third-party integrators.
Especially in terms of accounting and inventory management. These processes will become more
complex, making inventory management more difficult than ever before. The inventory control
process is complicated by many inventory items (Simchi-Levi et al., 2021). Option 4 has this
issue, but if Dell implements 3A, it will become the most complex for cost accounting. Option
3A will also require additional production control and inventory control headcounts, making it a
less appealing option for Dell. Despite the advantages and disadvantages discussed above, the
options discussed, particularly option 4, allow Dell to concentrate their efforts on the more value-
added aspects of the MB-chassis integration and should be beneficial to the company in the long
run.
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DELL INC. SUPPLY CHAIN CASE STUDY
Recommendation’s Sustainability if the Chipset Supply Shortage Deteriorates
Option 4 and 3a, based on the above recommendations, are ideal for improving Dell's
current problems. Option 4 would not be a better choice if the issue of chipset shortages
worsened, though none of the six proposed options will be easily sustainable. This is because the
chipset integration in the MB happens before the L5 and L6 manufacturing processes. The
chipset shortage will cause a delay in desktop production regardless of which step of the process
is altered. Option 3A would be the most sustainable option because it has simpler global
procuring, allowing Dell to better manage shortages by controlling the initial suppliers. The
gradual removal of trade barriers emphasizes the importance for businesses to compete
effectively in open markets, not just for business but also for suppliers (Rowan & Laffey, 2020).
Effectiveness of the Methodology Employed by the BPI Team
Dell's BPI team has a suitable methodology because it focuses on the complex
management of the procedure that leads to the final products. The brainstorming session is
effective as the team included employees from various departments. In other words, the BPI
team's methodology was thorough and accurate, considering both complexity and costs, essential
to all departments and stakeholders within the company. Other approaches they could take
include a balanced push-pull strategy and a strong contractual obligation, which would help them
avoid defaults and make Dell a priority among their vendors. Contractual relationships between
client and vendor organizations and contract management are critical to the outsourcing project's
success (Chen, 2018).
Addressing the Root Causes Contributing to the Crease of L5 Manufacturing
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DELL INC. SUPPLY CHAIN CASE STUDY
Dell would have to address several issues in order to help improve the L5 manufacturing
process's increased costing problem. One of them concentrates on getting motherboards to CMs
on time; this could be critical in reducing lead times. Businesses must change their traditional
operating models to improve quality, cut costs, and eliminate non-value-added waste to impact
lead times significantly. Another focus should be on forecasting demand to avoid demand
fluctuations; for example, chip suppliers should not have multiple suppliers and always have a
safety net of stock. Forecasting establishes a foundation for business process planning. Finally, it
all boils down to devising a more efficient forecasting demand for new products as they enter the
market and reduce any quality issues during the manufacturing process. Ponte et al. (2018)
explain that great times significantly affect the production and ordering decisions made by all
types of firms. It interacts with other sources of inefficiencies in supply chains, such as the
variability of consumer demand, and managing inventories becomes much more complex.
Therefore, the more significant and highly variable lead times entail dealing with a greater
degree of uncertainty.
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DELL INC. SUPPLY CHAIN CASE STUDY
References
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Rojo, A., Stevenson, M., Lloréns Montes, F. J., & Perez-Arostegui, M. N. (2018). Supply chain
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Zhen, X., Shi, D., Li, Y., & Zhang, C. (2019). Manufacturer’s Financing Strategy in a Dual-
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