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Logistics & Technology  Reprint permission
Dell Gets Domestic By locating assembly, shipping sites closer to home,
Dell is putting some of the "U.S." back in the U.S. computer industry while speeding production and delivery cycles. The computer maker will open its third domestic plant in the fall of 2005, a step that could have significant supply chain implications. Dell is counting on logistics efficiencies generated by its direct-to-consumer sales model to offset higher U.S. labor costs. "While everyone else is running around the globe looking for the next place with lower wages, Dell is executing strategy and looking for facilities maybe in the United States," said Scott Elliff, president of supply chain consulting firm Capital Consulting & Management in Charlottesville, Va.
Dell's decision shows how closely logistics and manufacturing are linked in the era of global supply chains and mass customization. Dell's manufacturing, logistics and shipping strategies make it possible to customize computers for individual consumers at a low cost and for a low price. Dell plans to keep that competitive advantage by bringing assembly and distribution closer to its customers. With its dominant share of the PC market, its distribution plans also are closely watched by competitors and logistics providers. Dell held 30.4 percent of the U.S. market and 16.8 percent of the worldwide market in the third quarter, and it shipped nearly 7.9 million PCs in the quarter, according to the Gartner Group research and consulting firm. Dell's new plant will be in North Carolina's Piedmont Triad region, bordered by Greensboro, Winston-Salem and High Point. The size and cost of the facility will depend on its final location, said Michele Blood, Dell public affairs manager in Round Rock, Texas. The plant will employ 700 workers the first year and 1,500 total within five years. Blood said she didn't know whether the new facility would employ a third-party logistics provider or would be operated by Dell itself; the company has both types of plants. The North Carolina location will shave five to eight hours off the delivery time of Dell Dimension and Optiplex desktop computers that will be assembled at and shipped from the plant. Dell's largest customer base is on the U.S. East Coast, she noted, and "the quicker we can get the systems to our customers, there are some savings there." Dell also has assembly plants in Austin, Texas, and central Tennessee (in addition to distribution centers in Reno, Nev., and one announced last month to be near Cincinnati), and facilities in Brazil, China, Malaysia and Ireland. Elliff said where assembly occurs is key. Dell is the only major PC manufacturer with assembly plants in the United States. Most computer makers buy parts and assemble overseas, then ship finished product to warehouses in the United States. This can lead to not only impracticably long supply chains but also to delivery delays that risk missing sudden changes in demand or obsolescence of evolving products such as personal computers, he said. By bringing truckload quantities of parts from overseas to U.S. assembly plants, Dell saves on shipping, Elliff said. Being close to consumers reduces delivery time and increases customer satisfaction. But are these enough to offset U.S. labor costs that are multiples over what computer makers pay in Asia? Amy King, spokeswoman at Dell in Round Rock, said the company's entire direct-to-consumer business model, not just its logistics approach, gives it cost and price advantages over competitors. Dell gets a two-to-three point cost advantage by delaying assembly until a customer's order is received, King said. This approach scales operations to actual customer demand, which further enhances the effect. Business process improvement initiatives that encourage employees and managers to find more efficient ways of doing things further reduce cost, King said. Depending on the project and the savings to the company, workers may get cash compensation, management recognition or other benefits from their contribution. Dell keeps three or four days' finished inventory on hand versus 30 to 45 days' worth at some competitors, King said. Parts inventory is replenished as often as every 90 minutes. Supply chain efficiencies from lean inventory management bring an additional four or five points cost edge. Dell maintains strong relationships with "best-in-breed" suppliers such as Microsoft, Oracle and Intel, King said. Suppliers integrate their supply chain management with the computer manufacturer and often locate close to Dell plants, though King emphasized, "It's up to each supplier to best manage working with us." Eliminating middlemen gives Dell another five-to-10-point leg-up on competitors' costs, King said, while mining customer order information for forecasting purposes gains the company another 14 or 15 cost points. Overall, she said, Dell research indicates the company enjoys a 6.5 percent price advantage over competing computer makers. Is all that enough to make a U.S. computer assembly plant a paying proposition? Dell is a star performer on the S&P 500, Elliff notes. "The proof is in the pudding," he said.
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