Dell's Manufacturing

[Tigerotor77W]

Most of you all probably know most of this, but some of the stats are amazing... it takes one worker about five minutes to build a PC, about 2% of a PC's cost is labor. That's kinda scary -- we're paying the other 98% for over-priced components. But gotta love Dell... crazy people.

Who's Afraid of China?

December 19, 2004
By GARY RIVLIN





Austin, Tex.

SHAYNE MYHAND, the day-shift manager of Dell's flagship
factory here, does a lot of chaperoning. As many as four or
five times a day, he finds himself playing host to
corporate chieftains and midlevel scouts who come to marvel
at the dazzlingly efficient assembly plant that may be the
best hope for keeping blue-collar jobs in the United
States.

A 31-year-old with a crisp, militarylike bearing, Mr.
Myhand begins each tour the same way, moving to a display
case and grabbing an unimpressive wooden plaque
commemorating Dell's production of 49,269 personal
computers in the last three months of 1991. "On a good day,
during peak demand, we'll exceed that number by lunchtime,"
he said, with a slight nod and a faint smile gracing his
lips. He told a visitor that even now, during the Christmas
season rush, an order that hits the factory floor at 9 a.m.
is typically stacked in the back of a truck motoring down
an interstate highway by 1 p.m.

Inside Dell, the world's largest computer maker, executives
study the assembly process with the intensity of Alfred
Kinsey and his researchers. They wheel in video equipment
to examine a work team's every movement, looking for any
extraneous bends or wasted twists. Designers give one
another high-fives for eliminating even a single screw from
a product, because that represents a saving of roughly four
seconds per machine built - the time they've calculated it
takes an employee, on average, to use the pneumatic
screwdriver dangling above his or her head.

Computer software clocks the assembly-line performance of
workers, whether they're putting together PC's or the
servers and storage equipment that Dell sells to large
companies. The most able are declared "master builders" and
then videotaped so that others may watch and learn. The
weak are told that it takes a special set of talents to cut
it on the Dell factory floor - and shown the door.

Steely-eyed cold, to be sure, but at a time when economists
and politicians fret over the future of American
manufacturing as China emerges as the workshop of the
world, Dell isn't just defying a global trend; it's helping
to set the standard. "When everybody is outsourcing - when
everybody is outsourcing - Dell continues to manufacture in
the United States because over two decades of fine-tuning,
they've figured out how to do it cheaper and smarter," said
Charles R. Wolf, an analyst at Needham & Company who has
been following Dell since 1991. (He has also been reaping
the financial rewards as a longtime Dell shareholder,
seeing a 33-fold return on his investment.) "They're truly
in the 21st century when it comes to manufacturing."

No other major computer maker produces computers in the
United States. Long ago, Dell's top rival, Hewlett-Packard,
outsourced assembly of its PC's to third parties, primarily
based in Asia, as did I.B.M., the world's third-largest PC
maker. And I.B.M., which created the PC market in 1981, is
leaving the business, announcing this month that it is
selling its PC unit to Lenovo, the Chinese computer giant.
"It's been a long time since one of our competitors
actually made a computer," said Michael S. Dell, the
founder and chairman of the company that bears his name.

Dell, by contrast, operates three giant assembly plants in
the United States - two in Austin and the third outside
Nashville. Each is large enough to house six contiguous
football fields. Last month, the company announced that it
would build a fourth plant, twice as big as the others,
near Winston-Salem, N.C. And, inside the company,
executives talk about opening a fifth one, probably in
Nevada, where it would build computers according to each
customer's specifications. At a White House conference on
the economy on Wednesday, Kevin D. Rollins, Dell's chief
executive, boasted, not quite accurately, that all the
computers the company sells domestically are made right
here in the United States. "None is outsourced; none is
made in other countries and shipped in," he said, though
Dell laptops are in fact assembled overseas.

Dell's decision to expand its American manufacturing
presence, however, has nothing to do with patriotism.
Executives here say their decisions are based on the bottom
line as well as on geography; it is simply more efficient
to stamp out computer equipment closer to the customer.
"The reason we continue to manufacture in the United States
is that it's the optimal place to do so, and we can do it
most cost effectively," said John Hamlin, who oversees
Dell's entire consumer line.

Few rivals know that better than Lenovo itself. The
questions that many analysts have been asking in the wake
of the I.B.M. deal is how well Lenovo, based in Beijing,
can compete with Dell outside China, given how cheaply Dell
can make its machines.

Dell has run a factory in Xiamen, China, since 1998 - but
that's to produce computer equipment that the company sells
to its Asian customers. Similarly, Dell's factory in
Limerick, Ireland, makes machines for Europe. This month,
Mr. Dell announced that his company would probably build a
second European plant sometime soon.

Dell is also bucking global trends on another front. In an
era when a call center is more likely to be in India than
Indiana, the company has announced that it is building a
new customer assistance facility in Oklahoma City. Earlier
this year, it opened a call center in Edmonton, Alberta.
And while Dell's laptops are produced in Malaysia, they are
built by Dell employees working inside a Dell-owned
factory.

"I tell employees all the time that we're in a race on
costs," said Dick Hunter, who, as the Dell executive who
oversees manufacturing in the United States, is Mr.
Myhand's boss. "When we lose the race on costs to Asia or
wherever, that puts our own security in jeopardy."

EVER since 1984, when Michael Dell began selling personal
computers from his University of Texas dorm room, his
company has been able to sell cheaper PC's by cutting out
the middleman, selling directly via the phone or, nowadays,
the Internet. But the reason Dell continues to dominate as
a low-cost leader - whether selling a PC, a server or, more
recently, plasma televisions and portable music players -
is its fanatical determination to save every penny it can.
Mr. Dell may not quite be the Henry Ford of our time, but
his company is certainly the Wal-Mart of the
high-technology industry, for better or worse.

"I set irrational goals, Michael and I together, to
encourage our team so they don't think of conventional
solutions," Mr. Rollins said in an interview. "If we asked
for a 10 or 15 percent increase in productivity, we'd get
conventional solutions. But if we ask them to double their
productivity, then they have to rethink everything."

This year, their goal was a 30 percent increase in the
number of machines that the company's factories spit out -
a target that Mr. Myhand says he is confident they will
hit. Among the recent changes was a rerouting of cable so
that it no longer had to be laced over and under other
parts, and the decision to replace L-shaped tables with a
single workbench, to avoid time-consuming twists. A
decision was also made to apply one fewer sticker per
machine. "We're going to get there by saving four seconds
here, and four seconds there," Mr. Myhand said. The labor
costs of a PC are "roughly 10 bucks," Mr. Rollins said,
meaning that payroll costs account for maybe 2 percent of
the overall cost of the typical Dell PC. Five years ago, it
took two workers 14 minutes to build a PC; it now takes a
single worker roughly five minutes to do the same.

NOT surprisingly, the Dell factory is a place of reverence
for those who take philosophical pleasure in the
elimination of wasted movements, or at least the extraneous
movements of others. "Shock and awe" is the way Mr. Wolf of
Needham & Company described the sensation he felt after
visiting the flagship Austin plant; Jonathan Eunice, an
analyst at Illuminata, a research firm in Nashua, N.H.,
called Dell "remarkable." Fast Company might have trumped
them all when the magazine labeled Dell "one of the
fastest, most hyperefficient organizations on the planet."

In 2000, when the company's flagship plant opened, no
structure in it was more than maybe 10 feet high. Four
years later, the plant is now laced with triple-decker
conveyor belts that rise as much as 40 feet above the
factory floor. Black bins filled with parts are dispatched
via these belts and then lowered mechanically to any one of
the hundreds of employees who assemble the machines
according to each customer's specifications. The completed
machines are then transported by conveyor belt to a
shipping area, where they are boxed - largely by robots,
which were installed only recently - and routed to dozens
of idling big trucks. Typically, the trucks drive away with
full loads 30 minutes after they arrive.

A dozen years ago, Dell stored roughly 30 days of inventory
- the outer casings, motherboards, Intel chips and other
components needed to feed the beast - in warehouses around
the Austin area. The company, based just north of Austin in
Round Rock, Tex., no longer operates any warehouses;
instead, it requires suppliers to stock 8 to 10 days' worth
of goods no further than 90 minutes from its assembly
plants. Its de facto warehouse, therefore, is the lineup of
semi-trailers parked in the 48 truck bays that line one
wall of its plant. "If a truck is four minutes late," Mr.
Myhand said, "I have an entire line standing and waiting."

Technically, Dell does not take possession of a part until
it is wheeled off a truck and into its factory, and yet
that same part will be a component of a complete machine
within a couple of hours. A minimum of inventory translates
into huge savings on Dell's books, and it also means that
when the company switches, say, to standard 40-gigabyte
hard drives, it doesn't have to blow through weeks of
outmoded 20-gig drives.

All of that places a huge burden on Dell's suppliers, each
of which Dell rates weekly for performance. "To many
suppliers, Dell is like having Wal-Mart for a client," said
Mr. Eunice of Illuminata. "You love the volume, but not the
constant grinding pressure on price, terms, conditions and
timing."

Dell executives say they have close working relationships
with all their suppliers. The company says it helps them
keep pace, if for no other reason than the more efficient a
supplier, the better the price it can offer.

One executive at a Dell supplier, who spoke only on the
condition of anonymity ("Dell is too critical to our
business"), said: "They're constantly reminding you about
competitors. It's mostly a strategic card, but it also
makes sense. It's the same as what Wal-Mart does. You say
you want to sell pillows? So sell them to us for 10 cents
apiece because otherwise I have all these people who'll
sell them to me for 15 cents."

Not everyone, of course, is in awe of Dell. Scott McNealy,
the chief executive of Sun Microsystems, which competes
with Dell among corporate customers, dismisses the company
as a "grocery store" rather than a technology innovator -
an accusation repeated by Hewlett-Packard's chief
executive, Carleton S. Fiorina. Mr. Eunice is inclined to
render a more mixed verdict, slapping on Dell a phrase -
"virtuoso vanilla" - that is at once a compliment and a
dig.

Dell, Mr. Eunice said, performs "brilliantly" when stamping
out commodity products like laptops, desktop computers and
printers. But he has been much less impressed when Dell
"ventures into territory that requires new invention or
significant investment in research and development."

As an example, he points to a fast-growing category of
computers called "blade servers," lower-cost machines that
companies increasingly use to run their data centers and
Web sites. "When Dell's blade servers weren't overheating,
they still weren't very good," Mr. Eunice said.
"Competitors like I.B.M. and H-P that are more
innovation-focused have done significantly better there -
both in terms of product design and in terms of market
share."

FAR more impressive has been Dell's entry into the printer
business. It has been selling Dell-brand ink-jet and laser
printers for just 19 months, and has only recently
broadened its stable to include the range of offerings that
corporate customers demand. But through the first nine
months of this year, Dell has already captured a 13 percent
share of new ink-jet printer sales, a category dominated by
Hewlett-Packard, according to IDC, a research firm.

"Dell is going to let H-P and others break their toenails
first to see exactly how the market works," said Roger Kay,
an analyst at IDC, "And then they move in. And once they
ramp up the machine, it's 'watch out market,' because
profit margins drop, and Dell ends up taking half of it."

In October, Dell aggressively jumped into the plasma
television market with a 42-inch high-definition version
that it sells for roughly $2,000 less than the
competition's. "We like to go after areas where we see high
profit pools, and figure out how to save customers money
while still remaining profitable," said Gerry Parrish
Smith, the Dell executive responsible for the company's
line of television products.

Research and development is one way Dell tamps down costs.
The company devotes 2 percent of its bottom line to this
area, much less than its rivals. Innovation inside Dell is
instead more about how one produces, packages and markets a
product than it is about improvements in the product
itself. "We have some competitors who are spending 5 or 6
or 8 percent on R&D," Mr. Rollins said, "but our financials
suggest our R&D model is the right model."

Others, however, wonder if those cost savings come with a
long-term cost. According to the Dell supplier quoted
anonymously above, when Dell squeezes the profit out of a
market it also squeezes out everyone's ability to innovate
in any meaningful way.

There is also the long-term impact of Dell's ability to
keep increasing "units per labor hour," a favorite
measurement inside the company. People may marvel over
Dell's manufacturing prowess, but the company is proving so
efficient that it expects to employ only 1,500 people at
its new North Carolina plant when it is fully operating.

And Dell's commitment to keep jobs in the United States has
its limits. To produce most of the new products the company
has started to sell in recent years, from televisions and
music players to electronics organizers and printers, Dell
has turned to third-party manufacturers, primarily
overseas. "We seek the most cost-effective place to
manufacture so we can pass along the savings to our
customers," said Mr. Hamlin, the Dell executive, sounding
very much like those at other companies who explain their
outsourcing and offshoring strategies.

EVEN so, computer equipment accounts for the bulk of Dell's
revenues, and it is still produced by Dell workers inside
Dell factories. That is why companies continue to beat a
path to Dell's door to study from the wizards of
efficiency.

"We have hundreds of companies come through here each year
to learn from us," said Dick Hunter, Dell's manufacturing
chief. Last year, he said, the company gave 2,000 tours to
10,000 customers, including a team from General Motors that
included G.M.'s president for North America, Gary L.
Cowger.

"He brought his whole staff down here around a year ago,
people from manufacturing, engineering, production, and
they pumped us with questions over the course of a very
long day, for 12 or 15 hours, about how we do things," Mr.
Hunter said.

Mark R. Anderson, a longtime friend of Mr. Dell's who is
also the publisher of The Strategic News Service, a weekly
digest for the computer and communications industries, said
he believes that nearly every company could benefit by
studying Dell. "No one does it as well as Dell, but even
those companies that try and fail still succeed," he said.
"Car companies, TV companies, whoever: they're able to
wring out costs by studying under Professor Dell. And
they're all that much more efficient by studying with the
master."

http://www.nytimes.com/2004/12/19/bu...cc4143e1b21ae6

[norbx]

wow, cool stats, well i really think dell need to worry with such competitors like compaq and sony coming more in the light of making nice laptops and i feel pretty tempted.