Living in Dell Time

By: Bill BreenWed Dec 19, 2007 at 7:50 AM

For most businesses, warehouses full of stuff are a kind of security blanket. But Dell has replaced inventory with information, and that has helped turn it into one of the fastest, most hyperefficient organizations on the planet. Here's how Dell uses speed as the ultimate competitive weapon, and why rivals may never be able to catch up.

But there is a dark side to Dell time: The company is fast in part because it has shifted some of the inventory burden to its suppliers. "The yin and yang of being a major supplier to Dell is that you get a whole bunch of business," says Mentzer, "but the price of being a supplier is that you carry the inventory. If there is a supply-chain disruption, the supplier is stuck with the inventory, not Dell."

To get a slice of its lavish procurement pie, Dell's legions of suppliers must do things its way. They must be flexible enough, cost-competitive enough -- and above all, fast enough -- to compete on Dell's terms. "Those suppliers who are the most consistent over time get the lion's share of our business," says Marty Garvin, Dell's procurement chief. "The ones that aren't get less and less. And those who can't scale over the long run, well, their business goes away."

"Pleased, but Never Satisfied"

Dell is every bit as hard on itself as it is on the folks who make its disk drives and batteries. For proof, just look inside Dell's newest U.S. factory, the Morton L. Topfer Manufacturing Center (dubbed TMC) in north Austin. Along with its sister factory in Nashville, it's the only major computer-assembly plant still located in the United States. IBM, HP, Gateway, and Apple have all offshored their operations to manufacturers overseas. Taiwanese PC makers might be cheaper, but Dell is determined to control its manufacturing.

Inside the TMC, amid the whir of positive-force ventilators blowing dust and grit back out onto the Texas hills and the rush of forklifts plying the factory floor, multiple assembly lines snake and swerve through the plant like Coney Island roller coasters, cranking out more than 700 corporate and consumer desktop PCs an hour. Dell has brought a maniacal focus to shaving minutes off the time it takes to assemble and ship a computer. By studying videotapes of "the build," as they call it, factory managers have slashed in half the number of times a computer is touched by workers. They've counted the screws in a PC and redesigned it so that the major components -- hard drive, graphics card, CD player -- simply snap in place.

In a blur of synchronized movements, a veteran builder can piece together a Dell OptiPlex or Dimension PC in three minutes. The software burn and testing, which is powered by Dell servers with enough bandwidth to download the entire Encyclopedia Britannica in eight seconds, takes several hours, depending on the amount of customization that's required. The entire process, from the time the order is taken to when the finished PC exits the factory, is wrapped up in four to eight hours.

While the TMC takes up less than half the space of its predecessor, it boasts three times the output. And even that's not good enough. Dell is always on a mission to outdo itself, and the factory is expected to increase its production by some 30% by year's end. Michael Dell himself drove that point home when he recently toured the plant. A group from one of the packing lines showed him how they'd upped their processing rate from 300 to 350 boxes an hour. "Michael congratulated them, and there were high fives all around," recalls Hunter. "But then he issued a challenge: 'How can we improve to 400?' He's pleased, but never satisfied."

Dell's suppliers are tightly integrated into the rhythm of the factory. When new orders flow into the plant -- they come in from the Internet or over the phone every 20 seconds -- TMC sends a signal to its core suppliers, which stage their components in warehouses scattered around Austin. Suppliers have 90 minutes to truck their parts to the assembly line. They can't be late, but neither can they be early. Whatever inventory Dell carries is basically being processed into finished product.

For Dell, utopia is when inventory is in the ground, in the form of silica, carbon, oil, and the other substances that comprise a consumer-electronics product. In this ideal world, the supply chain amounts to a riverine network in which inventory flows serenely downstream, from the raw-materials processors to the component makers to the manufacturer and on to the consumer. No one suffers from warehouses full of stuff, gobbling up gross margins. Dell is struggling mightily to achieve this dream. It has dispatched an army of supply-quality engineers who work out of the parts makers' factories, helping them improve their velocity, quality, and predictability. Dell "pushed all of us to streamline our processes and drive for maximum efficiency," says Mike Cordano, an executive vice president at Maxtor, a leading disk-drive maker. "Dell influenced the entire industry."