No New Factories

With its move to product integration in 2003, Dell tackles a tall order

Shawn S. Jagodzinski, Senior Product Engineer
DAO Product Engineering Strategy, Dell Inc.

Bradley S. Keup, Senior Technical Strategist
PG Operations Strategy, Dell Inc.

Everyone knows this part of the story. Michael Dell started our company in a University of Texas at Austin dorm room in 1984 with $1,000 and the revolutionary idea to sell custom-built computers directly to the customer. Since then, Dell Inc. has grown into a multibillion-dollar global organization that still maintains a singular focus on customers. We stay on track by sticking with our direct model, which has five basic tenets:

• Find the most efficient path to the customer. Dell's direct model eliminates intermediaries that add to confusion and cost.
• Provide a single point of accountability. Dell is directly accountable to its customers.
• Build to order. As a build-to-order (BTO) company, Dell provides exactly what the customer wants, when they want it, with the best pricing and latest technology features.
• Be the low-cost leader. Dell delivers superior value through its highly efficient supply chain and manufacturing organization and through dedication to reducing costs through business process improvements.
• Use standards-based technology. Dell believes that standard technology best satisfies customers who are seeking relevant, high-value products and services.

Match Clicks With Picks

Dell is a very lean company to begin with, but we recently devised another way to take costs out of our worldwide operations and to grow without adding manufacturing infrastructure. We did it by connecting two processes: how our customers configure their orders at www.dell.com and how our factories assemble products. What if we could make these processes perfectly parallel? What if we could, as it were, match customer clicks to factory picks?

The key to making this thought experiment a reality was product integration. We determined that we could combine parts that had one-to-one relationships in order to achieve higher levels of integration in the components that were coming into our factories. For example, there is a one-to-one relationship between a chassis and a motherboard. Every chassis takes a motherboard. We are now designing these components so they can be integrated by our suppliers before they ever arrive at a Dell factory.

By going to higher levels of product integration, we will be able to focus solely on value-added work from the customer's perspective. That's all we want to do inside our own factories. By leveraging and optimizing our manufacturing supply chain, we expect to reduce costs without compromising our BTO model or our commitment to deliver a custom-configured PC within five business days.

To take our products to higher levels of incoming integration, we rely on a number of software tools, especially those that allow us to predict manufacturing and assembly costs early in design.  We use Design for Manufacture and Assembly (DFMA) software from Boothroyd Dewhurst, Inc., (Wakefield, R.I.) throughout product development to evaluate part cost, ease of assembly, and serviceability. DFMA is a fundamental business process for the Dell engineering team because it supports our holistic approach to cost. It helps us analyze our designs and make decisions that lower overall costs, not just product costs.

Unlike many other computer OEMs, Dell believes that best-in-class design extends to a consideration of supplier practices. We know that if we design our products so they are easier for our suppliers to manufacture and assemble, we will eventually see savings at Dell. Increased manufacturing throughput, reduced damage rates, higher quality, streamlined logistics, and faster delivery are all outcomes of weaving DFMA into the development cycle. The result for Dell is competitive advantage and a strong image among consumers as the preferred manufacturer of PCs.

Implementing Product Integration at Dell

Product integration is a huge, far-reaching project at Dell, as it would be for any company. To succeed, the project required executive-level interest and sponsorship. Over the course of many meetings, we refined the concept of product integration and gained executive support. Eventually we received approval from CEO Michael Dell and President Kevin Rollins to proceed.

Our first step was to create an analysis tool to quantify the costs and benefits of the project. We developed a business case template by supplementing existing Dell business case studies with concerns specific to product integration. These concerns were identified by group participants representing functional areas that would be affected by product integration. Participants included regional representation from our Ireland, Malaysian, and Chinese manufacturing facilities.

Product integration concerns

Dell's path to higher levels of product integration had many potential stumbling blocks. Our group identified a number of concerns to evaluate and control, including: freight/packaging savings, productivity improvements, quality savings, lost price declines, increased inventory in the supply chain due to transit method, impact of a quality event requiring screen/purge/rework/expedite of material, forecast accuracy, demand volatility, and reduction of capital expenditures to extend the life of our existing manufacturing facilities.

Three items in this list were of greatest concern, as explained below.

• Impact of a quality event requiring screen/purge/rework/expedite of material. A quality event is anything that occurs to adversely affect the customer's experience. Dell's Desktop products perform extremely well, and we maintain an inbound air network to quickly respond to quality events. However, any quality event can produce an enormously costly domino effect. We had to carefully analyze the effect a quality event would have on our entire system, now that we were designing components for suppliers to integrate.
• Forecast accuracy. Even though Dell is a BTO manufacturer, we still must provide suppliers with a demand forecast that tells them what to build and store in their hubs for our consumption. A missed forecast of platform mix, either high or low, and Dell may be unable to ship any product to customers or may incur increased excess and obsolete charges and holding charges.
• Demand volatility. Demand volatility refers to the unplanned large orders Dell receives. Combine these unexpected large orders with Dell’s commitment to ship a custom-configured system within five business days, the extremely low levels of inventory in house (two hours maximum), and the low inventory levels at our supplier hubs (ten days of sales inventory), and we face the challenge to expedite a lot of material to satisfy an order.
• Because a misstep in any of these three areas would have a large impact on platform costs, we built business cases and implemented mitigation strategies as a hedge against risk. Cost-benefit analysis using Boothroyd Dewhurst DFMA software was the cornerstone of business case creation, enabling the evaluation of alternative design proposals to identify the highest level of product integration possible at this time.

Evaluation and implementation

We used a specific criterion to evaluate platform candidacy for product integration. We divided platforms into three phases, depending upon the degree to which they met the criteria. The criteria were as follows:

• 1:1 motherboard-to-chassis relationship. Only one motherboard and one chassis can be used in the platform.
• Supply chain alignment. Motherboard manufacturer and chassis manufacturer must be the same company or must be located near each other.
• Suppliers located near each other must not be competitors.
• Suppliers must be willing to change their capabilities to meet Dell’s needs.

The next step was to create an oversight committee, called the Steering Committee. The Steering Committee is comprised of Dell executives whose functional areas are affected by higher levels of product integration. The purpose of the Steering Committee is to ensure consistent analysis methods and strategic alignment to execute integration. The members of the committee are responsible for making, driving, and defending the decision to proceed with integration on a platform. The Steering Committee may also decide to proceed with integration in a region having a negative business case, provided the holistic impact to Dell is positive.

Once we had developed the business case template, defined regional champions, and established the Steering Committee, we were able to perform platform analysis. The committee assigned the task of analysis to the platform core teams, each of which owns the schedule, financial analysis, issue resolution, and launch for an individual new platform.

After the core teams completed their work, Dell corporate finance compiled and validated all the business cases to ensure consistent assumptions and analysis. The compiled business cases were presented for executive review. All platforms, save one, were approved for product integration. That platform was denied because its end of life was too near. Each core team developed an implementation plan, paying special attention to concerns identified early in planning. Existing processes were leveraged as much as possible, and the focus expanded to include feedback from all functional factory teams. Throughout implementation, Dell corporate finance continually validated our predictions by tracking and measuring results.

Expected Benefits from Product Integration

Over the course of this project, the Steering Committee has successfully transformed the culture of Dell to an integrated mindset. Reaching for higher levels of product integration is now the norm instead of the exception, and a compelling business case must be presented if a platform will be arriving at Dell without integration. Dell and its suppliers are collaborating to increase the level of incoming integration without compromising the BTO model.

We expect to realize many benefits from higher levels of product integration, such as:  improved quality; reduced waste; increased factory capacity; extended facility useful life and reduced capital expenditures; simplified internal processes; and stronger quality-conscious behavior at the supplier and within Dell. As described above, DFMA plays a central role in deciding how to design Dell products for more integration.

• Improved quality. Product quality is crucial to maintaining our cost-leadership position while implementing product integration. With the help of DFMA software, we will be able to mitigate quality events by developing robust designs and processes at Dell and at our suppliers.
• Reduced waste. We expect to significantly reduce waste throughout the order fulfillment chain (supplier to customer). Product integration helps us improve inbound logistics: less freight and less packaging reduce handling, saving several dollars per box for every integrated component received at a Dell factory.
• Increased factory capacity. Faster throughput, fewer parts, and less rework lower overall costs. The time it takes to assemble a computer has been reduced by an average of 20%, process-induced damage has been reduced by an additional 30%, and the number of components handled in the assembly process has been reduced by an average of 10%.
• Extended facility life and reduced capital expenditures. Reducing build time and material to be received increases the capacity of our existing factories, extending their life by three to five years. This significantly delays large capital expenditures to erect new state-of-the-art manufacturing facilities to keep up with increased customer demand. It also reduces the capital expenditures needed to increase the productivity of existing facilities and allows Dell to focus its existing labor resources on value-added tasks.
• Simplified internal processes. Dell has separate motherboard commodity and mechanical (chassis) commodity buyers and planners. With product integration, these two roles can be combined into one. Similar streamlining is possible in the Supplier Quality Engineering organization. Likewise, a closer relationship between Dell, the motherboard supplier, and the chassis supplier will enable manufacturability improvements at the supplier.
• Stronger quality-conscious behavior. A strategy of product integration encourages the right behavior within Dell. Since our factories will be receiving components already integrated, it becomes more important to do the integration right the first time. This is as true for our inside design group as it is for our suppliers. Product integration also provides a framework for focusing other Dell functions, such as supply chain management, procurement, supplier quality engineering, and process engineering, on cost reduction and process improvement activities

Summary

Dell is always looking for innovative ways to reduce costs and improve the customer experience. Product integration is yet another means by which Dell will reduce costs while providing superior value. Our project was successful because of the high-level support established early, the active participation by functional representatives, the many open forums allowing thought-provoking conversations and candid feedback, and a widespread can-do attitude. At Dell, product integration is moving through implementation with a great deal of momentum, and early successes have opened the door for more integration in the future.