The Dell difference

25 Sep 2003

Dell’s European Manufacturing Facility (EMF3) in Raheen, Co Limerick, extends to about 450,000sq ft. That is a lot bigger than the average football pitch. At one end 40-foot articulated lorries pull up at 40 docking bays to disgorge components. At the other, more lorries roll up to outbound docking bays to be loaded up with finished product, ready for distribution in 93 countries around Europe, Middle East and Africa (EMEA).

Limerick is unusual among Dell production facilities in that it makes virtually the full range of Dell branded products, from Optiplex desktops to Latitude notebooks and from Powervault servers to Dell/EMC co-branded Clariion CX300 storage boxes.

In 2002, Dell’s exports of €7bn were equivalent to 38.3pc of the entire computer sector’s national exports and accounted for 7.8pc of all Irish exports.

Despite its enormous size, there is one thing missing from EMF3 that exist in most other factories — warehouses. A factory without warehouses? A bizarre concept it would seem but one that is central to Dell’s unique production philosophy, which is all about holding stock for as little time as possible to keep costs to an absolute minimum. The inventory is held not at the factory but at an inbound logistics centre a mile away, which holds components for as short a time as possible, in some cases one or two days, in others eight or nine.

“We talk about days and hours of inventory rather than months and weeks,” states Nicky Hartery, vice-president, manufacturing and business operations, EMEA. “Carrying so little inventory gives you zero obsolescence — we don’t like obsolescence in this company.” He explains that Dell’s direct-to-customer model means the company knows exactly what the demand is like in the marketplace at any given time and it can feed this information back up the supply chain to its component suppliers, which can adjust their production scheduling accordingly.

The Dell production bible has three words: quality, velocity and cost. Quality and cost speak for themselves. Velocity is about fulfilling customer orders in as short a time as possible. This means that customers anywhere in Europe will usually have the products in their hands within days of placing an order. Velocity also refers to the time it takes to actually build a product in the factory — from the moment an order is received to the departure of a lorry from the outbound loading bay. “The hours and minutes in the factory and the time it takes the truck to travel around Europe are the only two barriers to velocity,” says Hartery.

Dell’s production operation is a ‘pull’ system. The activity of building, boxing and shipping a server, desktop, laptop or storage system is triggered or ‘pulled’ by a customer order. The orders are harvested from all Dell’s sales channels throughout EMEA and consolidated into its data centre in Limerick. When an order is received, two things happen. First, at least an hour in advance of a machine being built, an electronic message is sent to Dell’s inbound logistics centre specifying the components needed to build that machine and telling the truck driver which docking bay to come to. Second, an online order form is sent down to the factory floor, which in turn prints off a unique barcode.

The actual assembly begins when a line operator takes an empty plastic kitting tray, sticks the barcode on the side and sends it down the conveyor belt. As it reaches each component bay, a reader scans the barcode checking whether that component is needed for that order. If it is, the tray stops and a light goes on to alert the line operator, who then pulls out the component, scans it, pops it into the tray and then switches off the light in preparation for the arrival of the next tray.

When a tray is full it is automatically routed to the next available building bay or ‘cell’ where a technician assembles the components, an operation that takes an average of only three minutes. Once it is built, the computer moves to the next stage of production where it is loaded with software directly from the network and exhaustively tested. Further random quality inspections are carried out down the line before the machine is finally boxed for shipping.

Every supply chain needs a guru. In Dell’s case it is Hartery. Since he joined Dell in January 2000, Hartery has transformed the manufacturing operations at Limerick, using the latest management and production techniques to push down cost and drive up efficiency. In the process, the Limerick facility has moved up to first place among Dell’s six manufacturing sites worldwide, outperforming low-cost countries such as China and Malaysia in the process. As Hartery proudly puts it: “For 11 straight quarters we’ve been the most efficient factory in the Dell world.”

Much of this success can be attributed to the impact of a new system called business process improvement (BPI). Derived from the famed ‘Six Sigma’ programme devised by Motorola, BPI uses quality tools to provide a structured approach to improving processes and productivity, not just in manufacturing but in all business operations. Since BPI and associated programmes were introduced, Dell Ireland operations have saved more than US$90m and this year the savings will be even greater — US$125m to US$150m — according to Hartery.

BPI is not limited to Dell’s own business operations. The system has been extended to its component suppliers to push the benefits of BPI back up Dell’s supply chain and ensure quality is built into every machine. “We sell warranties on our machines that can cost us a lot of money if the machine is not robust and strong,” explains Hartery. “So we have introduced the BPI system to our vendors and we are working together on it.”

Where it makes sense to do so, Dell outsources key parts of its supply chain. So, for example, it is Flextronics and not Dell that owns and manages the in-bound logistics hub that shoots out components on an as-needed basis. “We don’t need to own everything in our supply chain but we do need to control it — that’s very clear,” says Hartery. “Information is power and we’ve got the information on how everything’s being driven.”