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Dell To Sell Its Computer Factories
Anti-Globalism sends us to a Wall Street Journal for a report that Dell plans to sell its factories in an effort to revamp its production model. Quoting:
"Dell's plants are still regarded as efficient at churning out desktop PCs. But within the industry, company-owned factories aren't considered the least expensive way to produce laptops, which have been the main driver of growth lately and are complex and labor-intensive to assemble. Rivals such as Hewlett-Packard Co. years ago shifted to contract manufacturers -- companies that provide production services to others -- to build their portable computers. H-P builds "less than half" of its PCs in facilities it owns, wrote Tony Prophet, H-P's senior vice president for PC supply chain, in an e-mail. Contract manufacturers can generally produce computers more cheaply because their entire operations are narrowly focused on finding efficiencies in manufacturing, as opposed to large firms like Dell, which must also balance marketing and other considerations."
While it may be cheaper to outsource production of your primary product, quality control might not be as good.
Besides, it seems kinda wrong that a company that manufactures computers is outsourcing manufacturing of computers.
...Rivals such as Hewlett-Packard Co. years ago shifted to contract manufacturers -- companies that provide production services to others -- to build their portable computers. H-P builds "less than half" of its PCs in facilities it owns, wrote Tony Prophet, H-P's senior vice president for PC supply chain, in an e-mail...
To me, this is the crux of the matter. Dells indecision tells it all. I have had close interaction with folks at DELL and what strikes me, is their apparent indecision when it comes to matters that require immediate attention.
I cannot be convinced that with all the "spying" that goes on withing the PC and Notebook markets, DELL did not know that HP was outsourcing and saving a bunch. They knew but did nothing!
To make matters worse, HP produces better hardware as compared to DELL, in my opinion. So they must be doing something better than DELL.
Very soon this country will lose all its production capability, if the trend of outsourcing everything to MF Asia continues.
Such process, it's becoming a pain to watch.
Dells' factories were in the US, where they had to obey all sorts of US regulations that are expensive to obey; like OSHA rules, making it cost-ineffective to have US factories.
By having a contractor do it instead; Dell can avoid the negative political implications of having to say "they're sending their manufacturing overseas". Instead it will be a matter of a private contractor further outsourcing their work later, and Dell will be insulated from the necessary ramifications of their decision to minimize short-term immediate cost at the expense of control & being a good corporate citizen.
Which will give them some protection against legislation, human rights groups, etc, and various issues that normally occur when a company simply builds factories offshore and shuts down US factories.
Their contractors can have the laptops assembled cheaply offshore then shipped to the US.
Although the quality of the workmanship may diminish dramatically (and Dell laptops will be more prone to certain defects such as say perhaps HP laptops), the cost will be much less for them, when they can pay the labor-intensive laptop assemblers the equivalent of US $0.05 an hour instead of having to meet US federal minimum wage.
Cost savings are unlikely to be passed directly to consumers, so pure profit.
At least in the short term, rather clear why they would see it as a clear win.
I work for a print publishing firm, and we've been experiencing a recent surge in customers, because publishers are starting to focus on their core competency, which is content generation. The "other" business of printing, quality control, packaging, and distribution is now being out-sourced to other companies who specialize in squeezing the last dollar of efficiency out of this (manufacturing it cheaply, transporting it somewhere cheap to be processed, then ship it out everywhere else), and whose entire purpose in life is to efficiently produce, and distribute printed matter.
I'm sure Dell has complete control of the design of their hardware, where every nut and bolt goes. And the specifications will no doubt be very detailed, if my experience in the print industry's any indication.
It's just a matter of letting the organization that does something very well do it, rather than trying to do everything in-house.
They don't provide the services directly, they don't manufacture the hardware directly. They are now simply a middle man hoping to cream off some cash.
Can't think of a good reason to buy directly from them now.
Deleted
You honestly thought that by buying a Zune you would avoid cheap products and poor QA/QC? Just seven stories below this one on the main page is one about how the MS decided to ship a bunch of defective Xboxes just so they could get their console out before Sony's. Your post was informative and interesting, and then you go and spoil it all at the end by claiming that you've avoided this whole mess by buying a Zune.
Gentlemen! You can't fight in here, this is the war room!
I have seen the same in the semiconductor industry. I was automating Asia during the 80's and 90's. They were quietly spending billions.
I always wondered why the American companies in the US for the most part, couldn't get their act together on production efficiencies. They opted to send manufacturing overseas.
While I understand the overhead costs here were higher, I feel it was so they could "scale down" easier.
For me, it was ok while we were building the supporting manufacturing equipment here, but how long till Asia had the know how, combined with the cheaper overhead's before we would be out of the loop entirely?
Same for dell, while having contract manufacturing, and tech support overseas, whats left? Just a name and a sales system. How long till that can be done overseas? Well it can be done now. There are companies with the pockets than can setup a company here, manufacture there, support from there, and guess what, more of the profit from selling another computer will go there.
Really, its sad to say, but I believe in 5 years, dell will not exist. There will be a tipping point, where the profits will dictate that, and some overseas company will be able to sell for 5% lower than dell can operate at, then game over.
Different markets, different companies, different efficiencies.
As competent laptops near the two figure mark in dollars, manufacturing is increasingly turning out commodity items. That means margins get small. That's what killed the PDA industry: it wasn't convergence per se. Convergence makes sense for some users and not others, but it makes sense for all producers. Rather than adapting to selling $49 PDAs, they escaped into the highly controlled and artificial world of mobile phone sales.
The problem, I think, is that the field of computing is as or more volatile than ever, but on razor thin margins. It's not something you can master by the TQM process of repeatable processes and analyzable results. So being able to say sayonara to a couple of thousand workers without any fuss is desirable. Companies, I'm guessing, see their future security in being highly flexible marketing entities.
Frankly, I find this distressing, but I'm not sure it's the wrong approach.
Apple, if I understand this correctly, contracts nearly all its manufacturing out. It has just one facility in Ireland. Perhaps this is enough to keep their ideas grounded in the realities of manufacturing.
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.
since when did I think that was a good idea for apple?
since their switch to intel, apple's quality has slipped to the point where i'm wondering where my next machine will come from.
Is there any manufacturer who actually tailors their products to a semi-professional niche?
VLC FOR MAC IS DYING! IF YOU DEVELOP, PLEASE SAVE IT!!
It is already happening with some things (at least it was a couple months ago). WSJ ran an article about it.
They said that for things like flowers for florists, that now typically get flown in from Chile, are right on the edge of being unfeasible because of the high cost of oil. Also, the US steel industry has gotten a boost since steel is so heavy.
For something like computers, or ipods, on the other hand, which have such a high value/weight ratio, it will be a long time before shipping is not cost effective.
Qxe4
Right now, the U.S. government is one of the largest purchasers of Dell hardware. It used to be IBM they purchased from until IBM sold its PC division to Lenovo. Now the government won't buy Lenovo because their afraid that the machines might be compromised to spy on the user. If Dell moves their factories overseas there's a good chance that the government may stop buying.
If "disco" means "I learn" in Latin, does "discothèque" mean "I learn technology"?
I really wish I knew the entire story about Dell, but this simplified version has a certain amount of truth. It goes like this:
Dell was a pretty well run company over it's 20 or so year life span. They made a respectable profit.
Then the Wall Street analysts decided that per-share earnings should be about 50 percent higher. When Wall Street demands more money on the bottom line, smart managers either pay attention or dust off their resumes.
There are only a few ways to increase those earnings:
1) Cheapen the product
2) Screw over the employees - fire some, overwork others, steal the pension plan - all the traditional ways.
3) Reduce customer support to almost nothing.
This isn't done in one step. You can generally go though 3 or 4 rounds of each of these before it becomes obvious that you have screwed the pooch.
In one of these iterations, Dell exported customer support and order handling to India - and apparently not to the best firm they could have picked..
When too many of their newly cheapened machines showed up DOA, all of the people who knew how to fix the problems were gone. A customer service department that took 20 years to build was now toast. If you were one of the customers with a dead machine, the chance of getting the problem solved was close to zero.
This of course mean that marketing stopped working as the word got out.
Then they cut a marketing deal with Wal-Mart. It took them a while to figure out that when you make a marketing deal With Wal-Mart, Wal-Mart is the only one who makes any money.
Selling off their manufacturing will put a one-time addition to "earnings", and with any luck, all of the smart guys in management will have bailed out.
This one sort of relates to step 4: After you have totally trashed the company, lie on your financial statements while looking carefully for the Exit sign.
And in the mean time, the Wall St guys and the portfolio managers cashed their bonus checks and are now saying: "tsk, tsk - isn't it a shame".
When you are dancing with wolves, never limp
Every company needs to identify its core competence, and never, ever give that up or outsource it. On the flip side, every company should seriously consider outsourcing anything that isn't part of their core competence.
If you are a custom-software company, you had better be able to deliver custom software. You hire the programmers, you have good quality equipment for them to use, you have a good marketing team to generate demand for your programming team, etc.
But anything not directly related to custom software should be outsourced. You don't generate your own power, you outsource that to your local power utility. You don't outsource the manufacturing of your computers, you outsource that to an equipment vendor. You don't build operating systems, you outsource that to your vendor or organization of choice. (Redhat/Debian/Microsoft/Apple) An operating system isn't "custom software" - it's a commodity.
Just because, with your crack programming team, you *could* do many of these things in house, doesn't mean you should. Doing these kinds of things distract from your company's core competence, and provide negative value for your investment and increase your long-term cost of operation. (somebody has to *maintain* that operating system extension that you now depend on, etc)
But, when it's your core competence, you should never, ever, EVER give that up. Not for any amount of money, for any reason, whatsoever. Idiots that outsource core competence cause the crash and death of company after company because they can produce some Power Point presentation that has everybody oohing and ahhing about all the money they'll save.
Which is bullshit. The moment you outsource your core competence is the moment that your company ceases to have any reason to exist. From that point forward, it's only market inertia that keeps you alive until consumers realize that you offer no real value.
And while marketing may delay this process, the end is inevitable.
If you are ever in a management position, never, ever, ever give up your core competence. Strengthen it anywhere, everywhere, and anyway you can. Hire the very, very best possible people you can to strengthen it, and get rid of any possible distraction from that core competence.
Be the very best in the world at what you do, and the whole world will look to you for the best. And that's usually a very, very, very profitable position to be in.
I have no problem with your religion until you decide it's reason to deprive others of the truth.
OH SNAP. (can we still say that)
That is completely accurate - Look closely at our best OEM's - most of the top officers are engineers that came up through the ranks. Lockheed always promotes engineers to the top. Boeing has made a mistake, and in time, it will catch up with them. McNerney doesn't even have a B.S. to go with his MBA. At least 3M managed to get rid of him, and put an engineer at the top. No, I have no idea why General Dynamics has an attorney running their company for the last 11 years; inexplicable that they haven't imploded. But at least he thought it was stupid to keep liquidating their company.
Don't get me wrong, their MBA training and skills have their place. An MBA is fine for a CFO, but never the president, chairman or CEO of a OEM. MBA's can go run a retail chain, or some other company of idiots in the service sector.
When are boards going to get that, an MBA has no business as the head of an OEM? Well maybe if an engineer could tolerate the kind of people (MBA) insitutional investors always pack on boards, we'd have a little diversity in boards.
Best result of oil going up, causing transportation costs to skyrocket: these off-shore contract manufacturers won't be able to compete against a domestic, or near domestic (mexico) factory. The domestic OEM's shedding too much of their manufacturing capacity to Asia are going to be getting caught with their pants down.
And then when the people in China, et al, get sick of the environmental damage being done, and demand Western modeled environmental regulation and enforcement. Proper environmental & pollution control in Asia alone will cause the value equation to flip. It's not if, it's when. The growing middle and upper class in Asia won't tolerate it forever. They've had their jumpstart in development, it won't last. As soon as the Chinese economy can afford to shed the factory polluters, they will. And that central planned economy? Yeah, they are focused on making it happen as soon as possible.
Anyone seen my low uid? last seen 10 years ago while panning the #@$# out of Taco's 'web based discussion system'