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Dell Gives Up on Manufacturing?
September 7, 2008

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.

Posted by Mark Graban on September 7, 2008 | Comments (0)