Dell’s Efficiency

The New York Times writes:

at a time when economists and politicians fret over the future of American manufacturing as China emerges as the workshop of the world, Dell isn’t just defying a global trend; it’s helping to set the standard. “When everybody is outsourcing – when everybody is outsourcing – Dell continues to manufacture in the United States because over two decades of fine-tuning, they’ve figured out how to do it cheaper and smarter,” said Charles R. Wolf, an analyst at Needham & Company who has been following Dell since 1991.

Dell’s decision to expand its American manufacturing presence, however, has nothing to do with patriotism. Executives here say their decisions are based on the bottom line as well as on geography; it is simply more efficient to stamp out computer equipment closer to the customer. “The reason we continue to manufacture in the United States is that it’s the optimal place to do so, and we can do it most cost effectively,” said John Hamlin, who oversees Dell’s entire consumer line.

Technically, Dell does not take possession of a part until it is wheeled off a truck and into its factory, and yet that same part will be a component of a complete machine within a couple of hours. A minimum of inventory translates into huge savings on Dell’s books, and it also means that when the company switches, say, to standard 40-gigabyte hard drives, it doesn’t have to blow through weeks of outmoded 20-gig drives.

All of that places a huge burden on Dell’s suppliers, each of which Dell rates weekly for performance. “To many suppliers, Dell is like having Wal-Mart for a client,” said Mr. Eunice of Illuminata. “You love the volume, but not the constant grinding pressure on price, terms, conditions and timing.”

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Rajesh Jain

An Entrepreneur based in Mumbai, India.