L6 vs.L5: Value ComparisonL5L6:Integrated inside a Dell facility:Integrated offshore & outside a DellfacilityChassis shipped on water.Integrated motherboard-inside.Motherboards shipped by airchassis shipped on water+Increased supplychain+Laborsavingsflexibility+MB air-freighting costs areIncreasedmotherboardair-eliminatedfreighting costs+Reduced motherboard packaging-3rd-party integration cost in UScostsSeparatelogisticalcostsforReducedsupplychainflexibilitychassisandmotherboardsMoremotherboardsneedtobere-worked intheeventofan MB ECNL6 is morecost-effectivethan L5.6
6 L6 vs. L5: Value Comparison L5 • Integrated inside a Dell facility • Chassis shipped on water • Motherboards shipped by air + Increased supply chain flexibility – Increased motherboard airfreighting costs – 3 rd-party integration cost in US – Separate logistical costs for chassis and motherboards L6 • Integrated offshore & outside a Dell facility • Integrated motherboard-inside chassis shipped on water + Labor savings + MB air-freighting costs are eliminated + Reduced motherboard packaging costs – Reduced supply chain flexibility – More motherboards need to be reworked in the event of an MB ECN L6 is more cost-effective than L5
ManufacturingCosts:L5>L6CostsCommon to L5andL6Costsof doing either L5 or L6:TypeMaterialsRawmaterial costsChina materials transportation costsLogisticsChinaassembler'scost(FoxconnperformingL1-->L5)LaborChassisocean-shipping costLogisticsChassisUStransportationcost(trucks,rail)LogisticsChassis inventoryholding costat SLCInventoryHoldingLaborUSassembler'scostatDell(fromL7-->L10)L6OnlyCostsCostsofdoingL6ratherthanL5TypeLaborChinaassembler'scost(FoxconnperformingL6)L5OnlyCostsCostsofdoingL5,ratherthanL6:TypeMaterialsMotherboardpackagingcostMotherboardair-freight/expeditecostLogisticsLogisticsMotherboardUStransportationcostInventoryHoldingMotherboardinventoryholdingcostatSLCChassis&motherboardUStransportationcostLogistics(fromSLCtolocal/regionalintegratorandback)LaborLocal/regional integrationcost(Accurate,Saberex)Labor/QualityMotherboardreworkcostatDellDellL5mgmtcost(e.g.ExpediteCouncil)Labor
7 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 andits contractmanufacturers (CMs) have had to adapt anincreasing % of L5 manufacturing:1.Empty chassis are shipped by ocean (L5) toDell US & Europe first. Motherboards arethen air-freighted to Dell US & Europe.2.Dell incurs motherboard expedite/air-freightcost and 3rd-party integration cost.3.CMs incur cost for idle labor dedicated forMB-chassis integration
8 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. Motherboards are then air-freighted to Dell US & Europe. 2.Dell incurs motherboard expedite/air-freight cost and 3rd-party integration cost. 3.CMs incur cost for idle labor dedicated for MB-chassis integration
L6MB5Weeks0ChinaDellCustomerSupplierIntegrationManufacturingLogisticsCenterChassisMaketostockMaketoorderPushPullIntegration?Components production planning?Productproduction planning?
L6 MB Chassis 5 Weeks China Integration Dell Manufacturing Supplier Customer Logistics Center Make to stock Make to order Integration? Components production planning? Product production planning? 9 Pull Push
6.1Introduction* Effective ScM (by definition) implies:* Efficient integration of suppliers, manufacturerswarehouses,andstores.* Coordinate activities across the supply chain*Improveperformance:reduce cost, increase service level, reduce thebullwhip effect, better utilize resources, and effectivelyrespond to changes in the market place.How to integrate?Issues?Challenges?10
6.1 Introduction Effective SCM (by definition) implies: Efficient integration of suppliers, manufacturers, warehouses, and stores. Coordinate activities across the supply chain Improve performance: reduce cost, increase service level, reduce the bullwhip effect, better utilize resources, and effectively respond to changes in the market place. How to integrate? Issues? Challenges? 10