Supply Chain Frontiers issue #8. Read all articles in this issue
Dell's Unconventional Success
Conventional notions of what will and will not work are not always true, said Michael Dell in the February 2005 issue of MIT Supply Chain Frontiers. And that applies to relatively new conventions, such as the rush to low-cost manufacturing centers in Asia. Dell continues to achieve robust growth across the globe yet the company's manufacturing network is not rooted exclusively in Asia, but in each of its major markets.
In fiscal year 2004 Dell increased shipments in the U.S. by 22%, a market it has led for five years. But calling the United States its home market is a stretch. Dell shipments in Europe, the Middle East and Africa were up more than 30% - twice the average for other companies - while in the Asia-Pacific and Japan it chalked up a 38% hike in shipments, versus eight percent for the industry without Dell.
In China it has climbed to number three in computer systems and services in just five years, and shipment growth was nearly 60% last year. The direct way Dell does business is not an American, European or Asian concept. "It is a customer concept," the company said.
That concept rests on four legs, customer experience, quality, velocity and cost, explained Nicky Hartery, Vice President of Manufacturing and Business Operations for Dell Europe, the Middle East and Africa. "Where the company manufactures its products has more to do with how these four indices are managed than where the lowest labor rates are to be found," he said.
Computer systems for the EMEA region are made in one factory in Limerick, Ireland, one of six manufacturing sites around the world--serving over 93 countries. The Limerick facility is unique in that it manufactures Dell's six product ranges, everything from consumer desktops and notebooks to high-end enterprise servers and storage. Hartery described Limerick as a medium-cost center and acknowledged that labor rates in Ireland are significantly higher than in Asia. However, the cost of labor is only one component of Dell's model.
Another component is productivity - crucial to an operation that runs on about four days of inventory compared to the 12 to 20 weeks for other companies in the industry, noted Hartery. Production lines in Limerick can be switched rapidly from one product to another, he said. The ability to use the same line for PCs and notebooks helps Dell to maintain high productivity levels and the flexibility to maximize inventory turns.
"Our obsolescence is miniscule if not zero," he said. Another important feature of the operation in Ireland is that an individual worker builds a complete machine. In Asian manufacturing centers many hands usually contribute to the building of a single unit, he said. This is part of Dell's "culture of operating excellence," observed Hartery.
Constant improvement and measurement reflected through Business Process Improvement and Lean programs is part of that culture, as is removing process waste, increasing value-add and improving productivity and velocity. "It's all about offering the best customer value and experience. We also share these business process improvements with our key suppliers and partners," he explained.
Intrinsic to the Dell model is the rapid delivery of tailored products to end customers, and again the company goes against the conventional wisdom to meet its goal. Rather than concentrating production operations in Asia and stretching the supply chain, it sites plants close to end markets.
Moreover, although best practices are shared and Dell plants throughout the world are similar, there are nuances that cater for local differences. For example, in the EMEA region there are two supplier fulfillment centers, in Tilburg, Netherlands, and Coventry, United Kingdom, where peripherals such as printers and scanners are added to the base computer products, made in Limerick. Hartery explains, "As there is no point in transporting peripherals to Ireland only to be shipped out again, it makes sense for our suppliers to store these items centrally."
This merging operation enables Dell to better serve the multiple markets and languages within the region. The United States is a more homogenous market, and peripherals are added at the manufacturing plant, said Hartery. In the future Dell plans to reinforce its local presence in the EMEA region with a second manufacturing facility in Central Europe to serve emerging markets and growth potential in Eastern Europe. "This would compliment the existing Limerick operation," he said.
But the belief that local markets are best served by a localized manufacturing network is not the only reason why Dell does not use remote contractors to build its product. "Manufacturing is a core competency in the company, we don't want to outsource that," Hartery said.
Also, outsourcing Dell's unique approach to the business would not be easy. Although manufacturing is part of his job title "I do not consider my job as manufacturing, but as end-to-end order management," Hartery noted. Neither does he see the enterprise as a manufacturer. "Dell is a supply chain company. It's a core part of our business model and the business benefit we offer to our customers - ultimately this is what makes Dell unique not just in Europe but across the globe."
That operational excellence was recognized recently at the European Supply Chain Excellence Awards when Dell took first place in three categories: high tech and electronics, logistics and fulfillment and the overall winner trophy.
Dell's Nicky Hartery will be a speaker at the 2005 Zaragoza Supply Chain Summit, Zaragoza, Spain, May 31-June 1. The theme is the future of globalization and offshore manufacturing. More information here or email summit@zaragozalogistics.com.
For Summit registration contact: Viajes Mapfre Congresos,
T: +34 (976) 20 03 68
F: +34 (976) 20 14 04
E: congresos.aragon@mapfre.com