Different levels of the product assembly during parts manufacturing can significantly affect the cost-efficiency of a product. To demonstrate that in the case of Dell Inc., the difference between two levels of assembly, namely 5 and 6, will be discussed. The spikes in manufacturing costs of Dell in 2005 were linked to the usage of the 5th level of assembly (Wu et al., 2006). Unlike in L6, the contracted manufacturer in the case of L5 does not ship PC chassis with pre-installed motherboards. Therefore, the usage of the 5th degree of assembly is associated with the increased logistics expenditures stemming from motherboard transportation, as well as the transfer of equipment to and from the 3rd party integrator. Moreover, since the assembly of motherboards occurs in China, the contract between Dell and an integrator company is expected to be cheaper.
Despite these shortfalls, L5 is a necessity when new products are introduced on the market. Harrison (2019) states that “much of manufacturing operates in a far from the optimal manner in the face of volatile customer preferences and often unforeseeable disturbances” (p. 21). Due to these potential shifts in the demand for a specific type of motherboard, pre-installed hardware in L6 can lead to increased manufacturing costs.
Manufacturing Solutions for Dell
The presented options, excluding the one that is currently in use, show a visible reduction in cost per box. Despite this fact, they also add various levels of complexity and risks associated with additional steps proposed by each solution. According to the judgment of the situation by one of Dell’s employees, the solution must provide a less complex and more streamlined option (Wu et al., 2006). There are significant issues with process smoothness, handling, and logistics introduced by several of the proposed methods.
Judging from these factors, the option to manage its third-party integrator is the most viable option for Dell to follow in this scenario. The chosen solution will allow the company to impose a higher level of control over the quality of the product. Profit maximization for Dell requires further dependency on build-to-order supply chain management, which, in turn, benefits significantly from higher levels of control over all levels of manufacturing (Parvez et al., 2018). Moreover, Dell will be able to monitor the manufacturing process closely and set its expectations following a well-established time frame.
Sustainability of The Proposed Solution
The shortage and the low quality of chipsets are the most critical issues for the company in this case. To address both problems, a greater level of monitoring is essential. Agile supply chains that are more flexible and reliable lower the risks and the impact of supply shortages or excesses (Jacobs et al., 2018). Moreover, it will allow the company to preserve the quality of the product at the highest possible level at this point. The greater flexibility of this setting is supposed to give Dell and its chipset suppliers a sufficient amount of time to work out all the existing issues or to find a new contractor.
The factors considered by the assembled team are essential for a timely resolution of the issue. However, the approach does not take into account the whole supply chain. While the BPI project provided a well-thought-out set of alternative solutions to the problem, there are several issues in the chosen methodology related to its scope. A well-integrated strategy takes into account all parts of the supply chain to examine all opportunities for optimization (Chopra, 2018). In the presented case, the expansion of the scope could lead to new cost-efficiency measures that Dell-controlled third-party integrator can provide.
Addressing The Root Causes
As has been discovered, the root causes of the growth of L5 manufacturing are the issue with chipset suppliers and the necessity to follow the trends in PC hardware. First and foremost, it is crucial to address the issue of supplier deficiency since it imposes the most considerable expense. To eliminate the impact of unexpected shifts in supply, Dell must establish an additional set of rules between it and its contractors. Reducing information asymmetry between Dell and its suppliers is a crucial step in addressing the root causes of the chipset problem. One of the methods of increasing information visibility is the sharing contract which aims to overcome data asymmetry (Shen et al., 2018). To protect the company from further mishaps in assumed production rates, a flexible contract will allow Dell to produce more stable forecasts and decrease risks associated with these predictions (Shen et al., 2018). Dell must establish a clear connection and apply necessary boundaries with suppliers to move forward as the industry leader.
The second set of issues provides less pressure on the company’s expenses. Customer-led production inevitably leads to increased costs due to the shifts in demands (Bányai & Bányai, 2017). Therefore, Dell Inc. needs to optimize its supply chain to stay both reliable and flexible. The decrease in inventory levels can provide a space for the company to quickly pick up a new trend in customer demands (Nimeh et al., 2018). This move would allow Dell to decrease costs of upkeep and provide additional flexibility when dealing with buyers and suppliers.
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Chopra, S. (2018). Supply chain management: Strategy, planning, and operation (7th ed.). Pearson Higher Ed.
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Jacobs, F. R., Shankar, R., & Chase, R. B. (2018). Operations and supply chain management (15th ed.). McGraw-Hill Education.
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Shen, B., Choi, T., & Minner, S. (2017). A review on supply chain contracting with information considerations: Information updating and information asymmetry. SSRN Electronic Journal. Web.
Wu, J., Fine, C., Simchi-Levi, D., & Rosenfield, D. (2006). Dell Inc.: Improving the flexibility of the desktop PC supply chain [Master’s thesis]. Web.