Living in Dell Time

It could have been the unforeseen catastrophe that rocked Dell's world. Instead, it proved to be the moment when Dell's foremost competitive weapon -- an unrelenting sense of urgency and speed -- ultimately proved itself.

Two years ago, a 10-day labor lockout idled 10,000 union dockworkers, shut down 29 West Coast ports extending from Los Angeles to Seattle, and blocked hundreds of cargo ships from unloading the raw materials and finished goods that fuel U.S. commerce. The port closings paralyzed global supply chains, bloodied retailers and manufacturers, and ultimately cost U.S. consumers and businesses billions.

Analysts expected that Dell, with its just-in-time manufacturing model, would be especially hard hit when parts failed to reach its two U.S.-based factories. Without warehouses filled with motherboards and hard drives, they figured, the world's largest PC maker would simply find itself with nothing to sell within a matter of days. And Dell knew all too well that its ultralean, high-speed business model left it vulnerable to just such an intolerable prospect. "When a labor problem or an earthquake or a SARS epidemic breaks out, we've got to react quicker than anyone else," says Dick Hunter, the company's supply-chain czar for the Americas. "There's no other choice. We know these things are going to happen; we must move fast to fix them. We just can't tolerate any kind of delay."

Fortunately, the same ethos of speed and flexibility that seems to put Dell at the mercy of disruptions also helps it deal with them. Dell was in constant, round-the-clock communication with its parts makers in Taiwan, China, and Malaysia, and its U.S.-based shipping partners, who alerted it to the possibility of a lockout some six months before it occurred. Hunter dispatched a "tiger team" of 10 logistics specialists to Long Beach, California, and other ports; they worked hand in hand with Dell's carrying and freight-forwarding networks to assemble a contingency plan.

When the tiger team confirmed that the closings were all but certain, Dell moved into high gear. It chartered 18 747s from UPS, Northwest Airlines, China Airlines, and other carriers. A 747 holds the equivalent of 10 tractor-trailers -- enough parts to manufacture 10,000 PCs. The bidding for the planes grew fierce, running as high as $1.1 million for a one-way flight from Asia to the West Coast. But because Dell got in early, it kept its costs to about $500,000 per plane. Moreover, Dell worked with its Asia-based suppliers to ensure that its parts were always at the Shanghai and Taipei airports in time for its returning charters to land, reload, refuel, and take off. The company was consistently able to get its planes to the United States and back within 33 hours, which kept its costs down and its supply chain moving.

Meanwhile, Dell had people on the ground in every major harbor. In Asia, these freight specialists saw to it that Dell's parts were the last to be loaded onto each cargo ship so they'd be unloaded first when the ship hit the West Coast. The biggest test came when the ports reopened and companies scrambled to sort through the mess of thousands of backed-up containers. Hunter's tiger team had anticipated this logistical nightmare. Even though Dell had PC components in hundreds of containers on 50 ships, it knew the exact moment when each would be cycled through the harbor, and it was among the first to unload its parts and speed them to its factories in Austin and Nashville. In the end, Dell did the impossible: It survived a 10-day supply-chain blackout with roughly 72 hours of inventory, and it never delayed a customer order.

The aftershocks of the port closings reverberated for weeks. Many companies began to question the wisdom of running so lean in an uncertain world, and demand for warehouse space soared as they piled up buffer inventory to insure against labor unrest, natural disasters, and terrorist attacks. But for Dell, the episode only reinforced the value of living on the knife's edge.

"It's Like Draining a Swamp"

For most of business history, inventory has been a form of security. A warehouse bulging with components, or a distribution center packed with finished products, meant that even when a customer forecast went wildly awry, there'd still be enough supply on hand to meet demand. But ever since the 1980s, when General Motors began adopting Toyota's pioneering methods in lean manufacturing, fast companies have delayered, reengineered, and scrubbed the waste from their assembly lines and supply chains by slashing lead time and stripping inventory and spare capacity from their operations.