Ireland can compete on cost, says Dell


16 Sep 2003

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A top Dell executive has entered the great national competitiveness debate by claiming that Dell’s plant in Limerick can compete indefinitely with lower cost economies.

In an interview with siliconrepublic.com, Nicky Hartery, vice-president manufacturing and business operations, Dell Europe Middle East and Africa (EMEA), has claimed that the computer maker’s European production facility in Limerick can retain its cost advantage over rival Dell plants.

He warned, however, that as soon as the facility ceased to be competitive its future would be threatened.

“The company’s position is that we will be the cost leader,” explained Hartery. “Cost leadership is critical to us as a success factor, so if manufacturing became weak we would have to make an adjustment. But that’s no different to any company and what you’ve got to do is stay ahead of the curve.”

Asked whether he felt Dell’s plant, in Raheen on the city’s outskirts, could do this on a permanent basis, he answered: “Absolutely.”

As well as Raheen, Dell has five other production plants: two in the US (Austin, Texas and Nashville, Tennessee) and one each in Brazil, Malaysia and China.

Dell rates Raheen as the most efficient of these. In the past four years selective factory automation and the impact of cutting-edge methodologies such as business process improvement (BPI) have taken cost out of the business and yielded annual double-digit productivity growth. Hartery said that the quest for efficiency is an ongoing challenge. With this in mind, the company employs a team of up to 18 engineers to continually re-engineer the supply chain process to generate ongoing improvements and cost savings.

In Hartery’s view, it is “fatalistic” to argue that Ireland cannot compete with countries like China where labour costs are a third or a quarter what they are here.

“Labour costs are very important. Every cost is important but the total cost is what’s critical … What we’ve got to make sure at all times is that there is a differential between what we do here and what our colleagues in Asia will do,” he argued.

Hartery stressed at the same time that it was not possible to predict what Dell’s manufacturing requirements would be in future years and said that if the company was to meet its growth objectives of doubling its size within five years to become a US$62-64bn business, it would be doing some things differently compared to today.

“Some of the products will be different; some will be the same. Some we’ll make; some we won’t make. It’s not as if we have to make everything ourselves. We have a model that offers significant advantages by going direct [to customers]. Therefore we can take products from other manufacturers who meet the Dell criteria … and take those to market … and still make money out of them,” he said.

He added that the operations covered by the Dell facility in Ireland are much broader than those of a typical Irish manufacturing plant. “In most factories in Ireland they are making widgets, whereas we control many more elements than just making the widgets. What we control here is the end-to-end customer experience … so what’s on the site here is not a manufacturing unit; it’s very much a European function. There are 600 to 700 people on this site dedicated to Europe, who have nothing to do with day-to-day [production]. There would be another 200 working in the supply chain/procurement area.”

Somewhat ominously, he confirmed that if manufacturing ceased to be competitive Dell could close its production facilities while still running the other pan-European operations from Limerick.

Hartery also revealed that Dell was concerned about the peripheral location of Ireland in Europe and the impact that had on “velocity” – Dell’s preferred term to describe the time it takes to get its products into customers’ hands. Currently, Dell products take a tortuous route to European markets from Limerick. The goods are carried by articulated trucks from Ireland to Holyhead/Liverpool, down the length of the UK and across the Channel before finally reaching distribution hubs in France and Holland. The whole journey can take two or three days.

To speed up distribution, Dell is seriously investigating the possibility of airfreighting product from the factory instead of shipping by road and sea, said Hartery. “Conceptually, there is an airport in Shannon. It has large runways. We could fill a Jumbo. If the economics were right we could land that in Europe within two hours. So we could cut two days out of the system… If some air transport company would come to us with the right cost, we’d certainly be open to it.”

By Brian Skelly