Question 1: Why does L5 incur higher manufacturing and logistics costs than L6? Identify costs incurred by L5 and not by L6. Identify any costs incurred to only L6 and not L5.
For better understanding of the question, I will describe both levels of supply. On level L5 motherboards and chassis are manufactured in China in two different factories. Then motherboards are brought to supplier logistics center by air freight and chassis are shipped by sea. Then third party integrator is assembling these parts and further they are sent to Dell manufacturing. On level L6, motherboards and chassis are built in China in two different factories, then assembled in the same country and then shipped by sea to supplier logistics center, from which they are redirected to Dell manufacturing. There are some costs incurred by L5, which are not incurred by L6. These costs are: air freight and assembling chassis and motherboards in the United States or Ireland. Cost which is incurred by L6 and is not incurred by L5 is assembling these parts in China.
L5 is more expensive process, because it involves cost of air freight, which is more expensive than shipping and it also incurs cost of assembling parts in the USA or Ireland, where labor cost is much higher than in China.
Question 2: Which of the six proposed manufacturing solutions should Dell implement based on survey results (Fig. 6-1)? Why? What are the pros and cons of this recommendation?
There are six manufacturing solutions, which Dell could implement. In my opinion best solution would be fifth. Dell should hire third party manufacturer but directly manage it. That would be best solution, because delays are caused by inability of 3PI management to perform their work in timely manner. Dell has high quality management and they could handle such work without causing delays to whole manufacturing process. Pros of such approach would be that dell would be always aware of what is happening on every factory, which is assembling their computers and will be able to monitor and control work better. Cons would be that dell would need little bit more financial resources for hiring experienced managers and sending them to 3PI factories.
Question 3: What would you do if the chipset supply shortage further deteriorated?
Delays in supply of chipsets for Dell are causing in huge financial losses and this problem is not acceptable in such company. Management should do their best to avoid having such problems, because business, in which Dell is working, is very strict. New technologies are rapidly developing and changing and for being competitive they should work and deliver their products to the market timely.
If the chipset shortage further deteriorated I would impose money penalties on the factories which delayed supply. I suppose, such action would increase responsibility in management of those factories and in the future they would begin working more timely. Other thing that I would like to do is sending representatives in such factories, which would monitor their work and determine what causes delays and help factories to cope with these causes. Third thing that I could do is changing supplier to more responsible one, which would be able to fit the deadlines better.
Question 4: How good is the methodology employed by the Business Process Improvement (BPI) team to determine the optimum manufacturing option for Dell? Are there more effective approaches?
Methodology employed by the business process improvement team was good and very effective, because it involved survey in all departments and gave the answer to most important questions, how difficult will be to implement any of these methodologies and what will be the final price of the box. We can see on the table 6-1 that the cheapest methods were integration in Mexican factories and integration at DAO work cells, However Mexican variant was very complex. The easiest way was integration at SLC/HUB, but it was not cheapest way. Now management of Dell has to choose the medium option, which will be good ratio of cost and complexity. I think the best option would be 3PI factories managed by Dell, as I mentioned in previous question because it has medium complexity and price is also medium.
Question 5: What changes need to be made in the supply chain for Dell to effectively address the root causes contributing to the increase of L5 manufacturing? What would be the effect of these changes?
In the beginning of the answer let’s discuss what were root causes contributing to increase of L5 manufacturing. Dell could not predict when and how will increase additional demand on their product and when would they need to get more chipsets from their suppliers. Causes of this uncertainty was that sometimes delivered chipsets had defects and they needed to order new ones or demand on their computers increased therefore they needed to get more chipsets from suppliers. Were facing unexpected demand they could not supply product in a timely manner and this was causing delays. Dell preferred to use air freight, because it was faster and it did not affect cost so that further income from sales could suffer. Surplus in expenditures from air freight was somewhere around three percents. Air freight gave ability to make economy of time, therefore Dell was able to receive needed products faster and deliver to their customers faster.
In my opinion Dell has to increase accuracy of their future sales predictions. This would be possible by conducting surveys among customers. Such surveys could be conducted by professional third party companies. This practice is widely accepted among large corporations such as the Boeing Company. The second thing that they should do is to send their representatives to the factories, which are producing motherboards and chassis for monitoring their work and helping them to work in a timelier manner. The third thing is establishing quality control department in China, which will check all motherboards and chassis and identify defects, before sending to the USA and Ireland. These three changes would help the company to minimize uncertainties in quantity of needed products and to minimize number of defective motherboards delivered to the supplier logistics center. Sending representatives for monitoring subcontractor factories will help dell to have full information about possible delays and be ready to face such delays and plan their own production according to this schedule.
Question 6: What have you learned from this case study that you would be able to apply in an organization where you have previously worked or currently work?
Best way of learning on the mistakes, is leaning on the mistakes of others. From this case I learned many things that will help me to cope with similar problems in my work environment. First of all I learned how to choose optimal manufacturing process. I should not concentrate only on income, but also should analyze manufacturing complexity. The option which will be chosen should have best ratio of complexity and cost. I also learned that even biggest companies, such as Dell are making mistakes and suffer from delays in supply chain. I also learned how they are searching solutions and I will be able to implement similar methodologies in my work when I need them. From this case I also learned that sometimes it is better to implement more expensive method, as Dell used L5, if it can facilitate production process and help satisfying urgent customer demands.
Reference
Simchi-Levi, D., Simchi-Levi, E., & Kaminsky, P. (2008) Designing and Managing the Supply Chain. NY: McGraw-Hill
