Case: Dell Inc.: Improving the Flexibility of the Desktop PC Supply Chain
It was June 2005, seemingly a good time for Dell Inc. Since the dot-com bubble burst in 2001, the price of the company’s stock had roughly doubled. Both the company’s revenue and net income were reaching new heights. In spite of the confidence and optimism, however, Dell’s desktop PC manufacturing division found that its manufacturing costs had continued to surge. Tom Wilson, one of the division’s directors, revealed: “The recent increase in Level 5 manufacturing is alarming to us at Dell. From Dell’s perspective, this adds cost to our overall manufacturing process. We are not able to take as much advantage as we should of the lower cost structure of our contract manufacturers. Instead, we have to rely more heavily on the 3rd-party integrators (3PIs). Not only do we get lower-quality products because we currently don’t require 3PIs to perform integration unit testing, we also have difficulty forecasting for the 3PIs how much manufacturing capacity they should have available to support Dell’s demand.”
History of the PC Industry
In the 1960s, the first so-called personal computers (PCs)—non-mainframe computers—such as the LINC and the PDP-8 became available. They were expensive (around $50,000) and bulky (many were about the size of a refrigerator). However, they were called “personal computers” because they were small and cheap enough for individual laboratories and research projects. These computers also had their own operating systems so users could interact with them directly.
The first microcomputers hit the market in the mid-1970s. Usually, computer enthusiasts purchased them in order to learn how to program, and used them to run simple office or productivity applications or play games. The emergence of the single-chip microprocessor led to substantially lower computer prices, and, for