By September 6, 2008 9 Comments Read More →

Dell Gives Up on Manufacturing?

Dell Is Considering Selling Its Factories – Yahoo! News

Dell Plans to Sell Factories In Effort to Cut Costs – WSJ.com

As a former Dell employee (1999-2000), I was surprised and maybe a bit angry when they announced, earlier this year, that they were shutting down a factory I had helped open in 2000.

Now, I’m just sad. Maybe it’s the realization that the world changes quickly in a 10-year span. In 1999, Dell was considered the best of a new breed of companies that succeeded due to operations and supply chain excellence. Now, they want to be like Apple — designing and selling, but not building anything.

From the WSJ:

Dell Inc. is trying to sell its computer factories around the world, a move to sharply overhaul a production model that was long a hallmark of the PC giant’s strategy but is no longer competitive.

In recent months, according to people familiar with the matter, Dell has approached contract computer manufacturers with offers to sell the plants. One person briefed on the plan said he expects the company to sell most — and possibly all — of its factories “within the next 18 months.” Other factories could close, this person said. Dell would enter into agreements with the contract manufacturers to produce its PCs.

Is this a “Lean” issue? Well, I think it’s made a Lean issue anytime that word gets used to describe Dell — a word that I’ve always thought was completely inaccurate when describing Dell (as I’ve written about before, specifically here). The WSJ does it again:

Dell, which led the industry in lean manufacturing approaches and build-to-order PC manufacturing, now finds itself lagging rivals in wringing the most savings by outsourcing operations to production partners.

What Dell did was their own system. It was not copied from Toyota, in the least. In recent years, there HAVE been efforts to try to use “TPS” principles at Dell, but people I know involved in that effort have always been terribly frustrated because the TPS mindset was so foreign to Dell and their culture, it was very incompatible.

The Yahoo News story says:

Dell is tightening its belt by another notch. As part of its continuing effort to cut costs and increase its competitiveness, the computer maker is reportedly considering selling its factories.

This is not “belt tightening.” This is “giving up.”

I think history will write that Dell was a “flash in the pan” company (relatively speaking) as opposed to being a company that could evolve and sustain greatness. The build-to-order model made sense in an era of desktop PC’s that were highly customized by customers (giving them what they wanted FAST) and in an era when parts prices fell so quickly that Dell had a cost advantage over rivals.

That has all changed in an era of cheap laptops. And Dell couldn’t evolve. They tried adding all sorts of other products (TV’s, printers, etc.) — but never applied the “direct model” — they served as retailer, maybe influencing design a bit.

So the factories might be sold. The workers might still have jobs, but with another company. The factories might NOT stay open, as the news articles say potential buyers might not want to buy the “high labor cost” area plants. So will we see all Dells being made in Mexico or China? Maybe…. but I guess Michael Dell can say it was not his fault if the new buyers make that choice.

One question I have for those who know more about contract manufacturing — is this approach really “cheaper” from a total cost perspective? Much of the cost savings seems to come from efficiencies of scale at the contract factories — higher volume for a site that’s “shared” by multiple companies. But Lean teaches that size isn’t everything, in manufacturing. Is this the only way to get low costs, having a huge factory in China that employees a few hundred thousand employees?

I wonder how this would played out differently if Dell truly had been a “Lean company.” This isn’t even a case of “L.A.M.E.” — this is a case of not even really trying with Lean. Sad.

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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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9 Comments on "Dell Gives Up on Manufacturing?"

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  1. Mark Graban says:

    From the local Austin paper:

    LINK

  2. Jon Miller says:

    Points well made Mark. I echo yours. Farewell, Dell.

  3. Former Dell Employee, Now a Professor says:

    I’m not one to pin blame on people, but Dell’s problems, I believe, come from poor leadership (I know you know this already).

    Here’s the root cause: hiring a career consultant like Rollins to be co-ceo of Dell is a problem — people from Bain who know almost nothing about running a business suddenly find themselves running a business and POOF! The business fails.

    Never hire a Bain consultant to a leadership position in a company. White Board consulting is not a good background for effective, visionary, and inspirational market leadership.

  4. Jayadeep(JDP) says:

    While I was impressed with Michael Dell’s Direct from Dell book on their use of Lean methods, as you rightly say, Dell is NOT a lean company. How else can a lean company move their customer support functions blindly to a low cost region to cut costs and get into trouble with customers ? Not just respect for people, they didn’t care about customers as well.

  5. WhyBuyMadeInUSA.com says:

    Now that Dell is closing factories in the United States, are there any other major computer manufacturers that assemble computers in the states?

  6. Mark Graban says:

    There are always local PC builders. Plus there’s a company called Union Built PC’s that are built in the US:

    http://www.unionbuiltpc.com/home.php

    I’ve never used them, so can’t endorse them, but that’s one option at least.

  7. Andy Wagner says:

    Mark,
    I think you’re right on in suspecting Dell will be a flash in the pan company. Their unique competitive advantage was their customization and quick delivery of what was otherwise a commodity product. They do not design a unique product, ala Apple and will not be successful pretending to be like Apple. PCs are commodities. Without the advantages of good customer service and rapid custom delivery, why by from Dell?

  8. Anonymous says:

    IBM still builds most of their higher-end servers and mainframes in the US. PC’s are long gone with the sale to Lenovo.

    Oh and by the way, they never had all those layoff’s predicted last year. That would be a good point to reflect on…as I recall a highly critical blog post about them here on the Leanblog ;-). In the end, from my point of view, Lean at IBM has probably saved jobs, not slashed them.

  9. Karthik Chandramouli says:

    Here's a quote from another related article that I find ridiculous:

    "Contract manufacturers can generally produce PCs for less money because their entire operations are focused on finding production efficiencies, as opposed to large firms like Dell, which must balance marketing and other considerations."

    The absurd fallacy of outsourcing is that your "partner" has more motivation, focus, and capability to reduce cost and improve quality than you do.

    The conventional Wall Street perspective is that the only good companies are ones that have a singular focus — and that companies can't be great at more than one thing.

    It's pathetic when suppliers must be responsible for uncovering production efficiencies, and Dell senior management can't devote the energy and resources to see this through.

    Dell will continue on a downward trajectory because supply chain execution is viewed as a zero-sum game with design innovation, customer intimacy, etc..

    Contrast this view:
    http://www.reuters.com/article/marketsNews/idINBNG8439520080905?rpc=44&pageNumber=3&virtualBrandChannel=0&sp=true

    with another view from McKinsey ("Time to Rethink Offshoring"):

    http://www.mckinseyquarterly.com/Time_to_rethink_offshoring_2190_abstract

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