Dell: Build-to-Order Manufacturing

How did Dell build support for its 100 percent build-to-order capability, significantly improve its demand-planning and factory execution accuracy, reduce order-to-delivery time and enhance customer service? They partnered with Accenture to quickly create a new, high-performance supply chain planning solution. Now in place in Dell's plants around the world, the program paid for itself five times over during the first 12 months of operation. Dell is able to adapt more quickly to rapidly changing technologies, and maintain its position as a high-performance business.

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Headquartered in Austin, Texas, Dell is the world's number-one computer systems company and a premier provider of products and services required for customers to build their information-technology and Internet infrastructures. The company was founded in 1984 by Michael Dell and now has about 34,400 employees in 34 countries, global market share in excess of 15 percent, and annual revenues of nearly $32 billion.

Since its inception, Dell has excelled by challenging conventional business wisdom. For example, it pioneered direct-to-customer and global build-to-order processes in the high-tech industry. Dell never assembles a computer system until it has received an actual order, so every system the company makes already has a waiting customer. That, in turn, means ultra-low inventory levels (one-tenth that of many competitors) as well as a favorable cash-conversion cycle (minus 20 days in the most recent quarter).

Until now, Dell’s supplier-management processes have typically relied on manual mechanisms which limited the company’s ability to scale its global business, maintain an optimal balance between supply and demand, and to react quickly to marketplace changes. To remedy this, Dell set out to enhance and automate its factory-scheduling and demand-planning capabilities. Driving that initiative was a business and technology dream-team represented by Dell (servers, storage systems and supply chain expertise); Accenture (program planning and management, business process and systems design, technical architecture, and integration services); and i2 (supply chain planning and management applications).

Typically, a customer's order history and a business forecast are used as the basis for planned purchasing and manufacturing activity. At Dell, the refinement of processes sought to move order fulfillment closer to real time by simultaneously evaluating supply constraints, factory capacity, shipping constraints and the specific requirements of each customer order. These capabilities were realized through Accenture’s customization, implementation and integration of i2 Factory Planner (manufacturing scheduling), i2 Supply Chain Planner (MRP and inventory planning) and i2 Collaboration Planner (communication with suppliers and logistics operations). This marked the first time that all three modules were implemented concurrently in a build-to-order environment.

The entire solution was implemented in a “Wintel” environment—entirely on Dell PowerEdge servers and PowerVault storage products—a move that could drop Dell ’s ongoing ownership costs by up to two-thirds compared to a Unix-based environment.

Altogether, the Americas phase of the project was completed in 110 days—roughly half the time required by previous implementations of i2 software of this magnitude. Global deployment throughout Asia and Europe concluded six months later (also a record for an i2 engagement).

Dell has completely automated its ability to take thousands of orders, translate them into millions of component requirements and work directly with its suppliers to build and deliver products to meet customer requirements. In fact, more than 90 percent of Dell's component purchases now are handled online: Suppliers use an Internet portal to view Dell’s requirements and changes to forecasts based on marketplace activity, and to confirm their ability to meet Dell’s delivery requirements. Then, as Dell factories receive orders and schedule assemblies, a "pull" signal to the supplier triggers the shipment of only the materials required to build current orders, and suppliers deliver the materials directly to the appropriate Dell assembly lines.

Explains Dick Hunter, vice president, supply-chain management: “We now schedule every line in every factory around the world every two hours, and we only bring into the factory two hours' worth of materials. We typically run a factory with about five or six hours' worth of inventory on hand, including work in progress. This has decreased the cycle time at our factories and reduced warehouse space—space that has been replaced by more manufacturing lines.”

Not surprisingly, the project has produced more than just enhanced supply chain efficiencies and accelerated, highly reliable order fulfillment. At any given time, there is less than four days of inventory in the entire Dell operation, while many competitors routinely carry 30 days or more. In addition, automation has helped Dell react more quickly to correct potentially out-of-balance situations, made it much easier to prevent components from becoming obsolete and improved response times across the supply chain by providing a global view of supply and demand at any specific Dell location at any time.

Lastly, the initiative has helped Dell's suppliers communicate more effectively, reduce obsolescence (and resulting supplier returns), improve exception management, increase forward visibility and cut transaction costs. Working with Dell, suppliers now are full participants in a state-of-the-art, online community where $25 billion worth of business is conducted annually.