L6 vS. L5-CustomizedpartsL6MB5Weeks0oChinaDellCustomerSupplierIntegrationManufacturingLogisticsCenterChassisL53rd PartyIntegrator(managedbyEquipmentManufacturers)L5 additional costMB1WeekDellSupplierManufacturingChassisLogisticsCustomerCenter5Weeks
L6 vs. L5 L5 MB Chassis 5 Weeks 1 Week Dell Manufacturing Customer Supplier Logistics Center 3 rd Party Integrator (managed by Equipment Manufacturers) L6 MB Chassis 5 Weeks China Integration Dell Manufacturing Supplier Customer Logistics Center : L5 additional cost ~~Customized parts
L6 vs.L5: Value ComparisonL5L6:Integrated inside a Dell facilityIntegrated offshore & outside a DellfacilityChassis shipped on water.Integratedmotherboard-insidechassis? MBs shipped by airshipped on water+ Increased SCflexibility+Labor savings-Increased MB air-freighting costs+MBair-freighting costs areeliminated- 3rd-party integration cost in US+ReducedMB packaging costsSeparatelogistical costsfor-Reduced SCflexibilitychassis and MBs-MoreMBs need tobere-worked intheeventofanMBECNL6 is more cost-effective than L5
7 L6 vs. L5: Value Comparison L5 • Integrated inside a Dell facility • Chassis shipped on water • MBs shipped by air + Increased SC flexibility – Increased MB air-freighting costs – 3 rd -party integration cost in US – Separate logistical costs for chassis and MBs L6 • Integrated offshore & outside a Dell facility • Integrated motherboard-inside chassis shipped on water + Labor savings + MB air-freighting costs are eliminated + Reduced MB packaging costs – Reduced SC flexibility – More MBs need to be re-worked in the event of an MB ECN L6 is more cost-effective than L5
ManufacturingCosts:L5>L6.CostsCommontoL5andL6Costsofdoing eitherL5orL6:TypeMaterialsRawmaterialcostsLogisticsChina materialstransportation costsLaborChinaassembler'scost(FoxconnperformingL1-->L5)Chassisocean-shipping costLogisticsLogisticsChassisUStransportationcost(trucks,rail)Chassis inventoryholdingcostat SLCInventoryHoldingLaborUSassembler'scostatDell(fromL7-->L10)L6OnlyCostsCostsofdoingL6,ratherthanL5TypeLaborChinaassembler'scost(FoxconnperformingL6)L5OnlyCostsCostsofdoingL5,ratherthanL6:TypeMaterialsMotherboardpackagingcostMotherboardair-freight/expeditecostLogisticsLogisticsMotherboardUStransportationcostMotherboardinventoryholdingcostatSLCInventoryHoldingChassis&motherboardUStransportationcostLogistics(fromSLCtolocal/regionalintegratorandback)LaborLocal/regional integrationcost(Accurate,Saberex)MotherboardreworkcostatDellLabor/QualityDellL5mgmtcost(e.g.ExpediteCouncil)Labor
8 Manufacturing Costs: L5 > L6. Costs Common to L5 and L6 Costs of doing either L5 or L6: Type Raw material costs Materials China materials transportation costs Logistics China assembler's cost (Foxconn performing L1->L5) Labor Chassis ocean-shipping cost Logistics Chassis US transportation cost (trucks, rail) Logistics Chassis inventory holding cost at SLC Inventory Holding US assembler's cost at Dell (from L7->L10) Labor L6 Only Costs Costs of doing L6, rather than L5: Type China assembler's cost (Foxconn performing L6) Labor L5 Only Costs Costs of doing L5, rather than L6: Type Motherboard packaging cost Materials Motherboard air-freight/expedite cost Logistics Motherboard US transportation cost Logistics Motherboard inventory holding cost at SLC Inventory Holding Chassis & motherboard US transportation cost (from SLC to local/regional integrator and back) Logistics Local/regional integration cost (Accurate, Saberex) Labor Motherboard rework cost at Dell Labor/Quality Dell L5 mgmt cost (e.g. Expedite Council) Labor
ProblemStatementSince July 2004, Dell and its contract manufacturers (CMs)have had to adapt an increasing % of L5 manufacturing:1. Empty chassis are shipped by ocean (L5) to Dell US &Europe first. MBs are then air-freighted to Dell US &Europe.2. Dell incurs MB expedite/air-freight cost and 3rd-partyintegration cost.3. CMs incur cost for idle labor dedicated for MB-chassisintegration
9 Problem Statement Since July 2004, Dell and its contract manufacturers (CMs) have had to adapt an increasing % of L5 manufacturing: 1. Empty chassis are shipped by ocean (L5) to Dell US & Europe first. MBs are then air-freighted to Dell US & Europe. 2. Dell incurs MB expedite/air-freight cost and 3rd -party integration cost. 3. CMs incur cost for idle labor dedicated for MB-chassis integration
L6MB5Weeks.0ChinaDellCustomerSupplierIntegrationManufacturingLogisticsCenterChassisMake to stockMake to orderPushPullIntegration?Components production planning?Product production planning?
L6 MB Chassis 5 Weeks China Integration Dell Manufacturing Supplier Customer Logistics Center Make to order Make to stock Integration? Components production planning? Product production planning? 10 Pull Push