Dell's supply chain integration evolved over time as the company grew. It began with direct sales and contract manufacturing (L6) to control costs. Rising L5 manufacturing costs due to quality issues, forecast errors, and chipset supply problems led Dell to analyze alternatives. A task force identified options like safety stock, cellular integration, and offshore integration. The best approach was found to be managing motherboard safety stock to ensure smooth inventory flow.

1. SUPPLY CHAIN INTEGRATION OF DELL PRESENTED BY: DEEPAK KHANDELWAL

3. Based on a simple business model.

4. Dell became number 1 in 2001.

5. Dell started three major manufacturing facilities.

6. Selling directly to the customers has become Dell’s key strategy & strength.

9. COMPONENTS OF A DESKTOP PC & MAJOR COMPONENT MANUFACTURERS Chipset AMD Intel Motherboard ASUS Foxconn Intel MiTAC Printed Circuit Board BTI Electronics Compeq GCE Plato Electronic Desktop PC Acer Apple Dell Fujitsu Siemens Gateway HP Lenovo/IBM Desktop Chassis ASUS Flextronics Foxconn MiTAC Lite-On LAN Chip Broadcom Intel 4

10. LEVELS 1-5 OF DESKTOP PC ASSEMBLY

11. LEVELS 6-10 OF DESKTOP PC ASSEMBLY

12. L6 MB 1 Week MB Dell Manufacturing 5 Weeks Supplier Logistics Center Chassis China Integration Dell Manufacturing Customer Supplier Logistics Center Customer 5 Weeks Chassis 3rd Party Integrator (managed by equipment Manufacturers) L5 L6 vs. L5 : L5 additional cost

14. Chassis shipped on water

15. Motherboards shipped by air

16. Increased supply chain flexibility

17. Increased motherboard air-freighting costs

18. 3rd-party integration cost in US

20. Integrated motherboard-inside chassis shipped on water

21. Labor savings

22. MB air-freighting costs are eliminated

23. Reduced motherboard packaging costs

24. Reduced supply chain flexibility

26. 10 L5% Dell Worldwide L5 vs. L6 Shipments Received from a Typical Contract Manufacturer L6% 100% 4% 4% 5% 6% 6% 7% 9% 10% 11% 14% 15% 90% 27% 80% 70% 60% 50% 96% 96% 95% 94% 94% 93% 91% 90% 89% 86% 85% 40% 73% 30% 20% 10% 0% Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 L6 vs. L5 Shipments: %Comparison L5 shipped % has been increasing since March 2005.

28. Dell rising manufacturing cause by an increase in the utilization L5 manufacturing.

32. 15 Root Causes Analysis Majority of expedites are caused by chipset supply shortage. AMF Expedite $ by Root Cause (January to June ’05)

34. 17 COMPLEXITY ANALYSIS Legend: The “Cost per Box” data has been modified to respect Dell’s data confidentiality. Option 1: CM-managed 3PI Option 2: Integration at DAO work cells Option 3A: Integration at SLC/hub Option 3B: Integration at Dell-leased bldg Option 4: Dell-managed 3PI Option 5: Integrated chassis from Mexico

36. Very effective approach of addressing the problem.

37. Managing the safety stock for motherboard was the best means of smooth running of inventory.

38. 11/17/2010 19 A N K H T Y U O