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The Math On Dell’s Defects

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Something still doesn't seem right, after thinking about it more in a cab ride, about the Dell quality numbers and the cost to repair these motherboards (see first article below). The Dell spokesman claims, in the Business Week article, that it's a “relatively small number” of defective PC's that need the motherboard replaced (here is an article on the tech side of the problem and another dating back to August and another from 2002!).

$300 MILLION is the charge they are taking for this quality problem. Ouch. The cost of poor quality was high, indeed.

Assuming $100 for a motherboard (per the USA Today) and $200 for the repair labor and logistics (my guess), that's 1 MILLION computers.

Even a ridiculously expensive repair, at $1000 each, that's 300,000 defective PC's. Not “relatively few”. It's certainly not “relatively few” that matters if it's YOUR computer that won't boot up.

Did Dell pick the “cheap” supplier for the part that failed (supposedly a small capacitor)? Was that supplier really cheapest in the long-term? It seems not. Another reminder of the Deming Principle of not choosing a supplier exclusively on price. If this problem has been known about since 2002, why are these parts still appearing in the marketplace?

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It's also curious, why would Dell have to eat $300M in costs? Wouldn't they just push that back on the supplier, if the defect were truly their fault? Wouldn't they push the cost back even if it bankrupted the supplier?

I just don't understand how this could add up to a $300 million dollar mistake.

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Would do you think? What would you do if you were in Dell's shoes? What should they have done differently? How would Toyota handle this situation (or another automaker)?

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Mark Graban is an internationally-recognized consultant, author, and speaker who has worked in healthcare, manufacturing, and startups. 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 book is an anthology 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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