It can reduce cost and respond to requirements of customers efficiently and effectively that Dell still kept their manufacturing facilities in the US and put unnecessary furniture production outside.
The push strategy is used in Dell manufacturer management from L1 to L5. Every type of computers has the same size chassis, and they also have their own model of chassis for heavy or bulky desktop products. Dell can put this part of production outside to contract manufacturers in China to decrease cost and resources. Meanwhile, because there is hardly special requirement of chassis, contract manufacturers can mass-produce the chassis at L5. Although it can reduce cost significantly, Dell did not put all productions to contract manufacturers, because of the fact that it could take longer time to react to the marketing change that the client special demand for a push supply chain. It probably saves much cost for Dell, but computers could be old fashion after long response time.
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However, the case indicates that" a customer orders online or via phone a computer system according to his preferred configuration, Dell manufacturers this computer, and Dell ships directly to the customer ". Also, computer is a fashion product, and its functions and components improve every single day and every single minute. Hence, we can see the demand uncertainty is considerable high in the case. Dell computer order system conforms to the character of pull-based supply chain strategy that high uncertainty. If there are manufacturing facilities in the US, Dell can produce as soon as it can when they receive an order. It save the time that from sending the order to China contract manufacturers produce and they ship the installed completely computer to the US, though this would cost higher.
Overall, to limited lead time and improve service level, there need a quick respond to their customers demand, so it is necessary for Dell remain manufacturing facilities in the US. This can help Dell customize components preferred for customer efficiently. Meanwhile, putting the basic furniture manufacturing outside, such as chassis, can save much cost for Dell. In other words, for saving cost and resources, Dell installed computers using supplied chassis and customers preferred software application, and did the final testing, finally delivered the fully finished products to customers. Therefore, it is reasonable that Dell kept production facilities in the US.
What would have caused the chipset supply shortage?
Chipset is the heart of motherboard. One motherboard is made up by many chipsets, and each one has their own function, the chipset also can decide the type of computer. In this case, L6 manufacturing is that integrate motherboard and chassis together, after that contract manufacturers spend five weeks to ship all of them to the supplier logistics center. However, Contract manufacturers in China did not make motherboard in L5, the motherboard and chassis are sent separately to the supplier logistics center, one week air-freight for motherboard and 5-week shipping for chassis. By 2005, L5 manufacturing grew more significantly than L6, because of the chipset supply shortage. There probably have two main reasons that cause this shortage.
Initially, as we mentioned before, Dell employed a pull strategy supply chain management. They service their customers by customer's preferred configuration. In other words, Dell produces the computer system according to the order which is received from customer online or by phone order. Obviously, the character of pull supply chain is that action base on customer demand and low level of inventory. Furthermore, computer is a volatile needed product, because the function and technology of it change sharply. There could be not enough stores to support the demand. So, it could be difficult for Dell to meet changing demand of customers and the development immediately. Therefore, the chipset needed currently could not be offered.
Next, the case shows that" since the lead time for manufacturing, assembling, testing, and delivering a chipset is on average 13 weeks". It is a common sense that the longer the time spent, the lower the forecast accuracy in the forecasting profession. Therefore, this is really hard to forecast for Dell. Due to the fact of this, chipset suppliers are probably unable to deliver exactly. The quantity of deliver could be under which of demand, and the type of chipset could be wrong type or obsolescence as well. Moreover, it is also may fail to react the demand information when the lead time is too long. These are all cause chipset supply shortage.
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There also have other reasons lead to shortage of chipset supply, for instance, quality issues, which could make a disruption in the desktop PC supply chain as well. Overall, all these reasons result in the fact that the percentage of L6 manufacturing decreased from March in 2005.
Do you think would be objective enough to develop a cost-effective solution?
I think Dell's BPI team would objective enough to develop a cost-effective solution. However there are some shortages in the survey done by Dell's BPI team and experts.
Firstly of all, the scores are subjective. The survey is worked out by the experts in different departments. They could be not familiar with other departments' situations, and give a lower mark on one fact which benefits to their sections, as well as just pay more attention to their own departments. All of these are result in the scores which are not objective enough.
What' more, the result is discreditable. The team evaluates the options are reasonable or not depending on total first. However, the total cannot show the detail of the option's each factor. Sometimes the most importation respect of one plan, which can save much investment and reduce the cost, is marked lower than others which may cost more but more stable , in terms of surface, its total of complexity is a bit higher than other 5 options. This would affect the final result. Therefore, the survey is not believable enough.
Further to this, there is no standard to judge the scores given to the options in every aspect. Taking "supplier quality engineering" an example, the option1, opton4 and option 5 are marked of 10, 5 and 7 respectively. Others are given of 1 score. Is option1 really far higher than others which scored 1? How to judge the value of the marks?
Overall, despite these elements, the team probably also can develop a cost-effective solution, if they look details of each factor not only the total.
If you were a contract manufacturer in Australia with some excess manufacturing capacity, would you be interested to bid for Dell's manufacturing contract? What value would you add and how far up the manufacturing levels (Level 1 to 10) would you target?
If I were an Australian contract manufacturer with exact production capacity, I will evaluate follow things to engage in Dell's manufacturing contract.
Are existed facilities meeting the demand of Dell's manufacturing? If I have the facility which is need, it could be one basic condition to service Dell's production. On the other hand, if all of my equipments are useless for production, I will analysis it is benefit to buy new stuff for being a contract manufacturer of Dell. Next, it is the other side of practical details analysis. Do I have enough staff with needed technological skill of production? Meanwhile, are resources and raw materials available for my manufacturing? Also, the costs of staff and resources should be reasonable. Finally, it is the total logistics cost. It includes purchasing materials and producing cost, as well as transportation fee. It is a meaningful business that the revenue is larger than the cost. Overall, all of these elements affect company's service level and competition.
Recently, as is mentioned in the text, all contract manufacturers of Dell are in China. Both resources and labors in China are cheaper than in Australia. The distance and shipping time from the US to Australia are as long as to China, and even longer. So if I am interested to bid for Dell's manufacturing contract and want compete with Chinese contract manufacturer, I decide to improve the quality of products. Choose the suitable equipments to produce, and reduce the rate of broken. Also, prepare a warehouse for Dell's components and semi-finished products. Moreover, speaking English is one of advantages for us. We can communicate with Dell easily and directly and do not need to translate the production plan in to another language for making. It could reduce the lead time due to this. So we can target at L6 manufacturing, we can respond immediately to produce the customers preferred PCs, because of direct communication and shorter lead time.