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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."
...as opposed to large firms like Dell, which must also balance marketing and other considerations [like environmental health, worker safety, taxes, social security, living wages]. Just send it to China! --edfardos
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.
The company owns factories in Texas, Tennessee, North Carolina, Florida, Ireland, India, China, Brazil, Malaysia and Lodz, Poland
I was surprised that they still did manufacturing in the states. I didn't really expect that any PC makers still did.
Damn_registrars has no butt-hole. Damn_registrars has no use for a butt-hole.
That's brilliant! Just the way to sell fewer desktops!
Dell has had huuuuuge problems fulfilling laptop orders because of supply chain problems. So making their desktops the same (bad) way they make their laptops only makes cents. I mean... sense...
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.
No, they can buy more U.S. debt. Our fearless leaders will make sure that there are plenty of opportunities for foreigners to continue buying our asses into financial servitude. How the hell else do you expect to get socialized medicine, tax cuts for 95% of U.S. citizens, socialized pre-kindergarten, a G.I. bill for "community organizers," heavily subsidized alternative energy programs, continued funding for the Ponzi scheme that is Social Security, etc.? Most of us seem to have forgotten the lesson that our parents taught us: money doesn't grow on trees. If you put a dollar in one pocket, it first has to come out of another pocket. It's all just one big shell game, folks.
Efficiencies like employing 12 year olds to work 16 hour days in the factory, and other practices that are difficult for a US brand-name company to get away with without distancing themselves through outsourcing.
CEO Michael Dell, October 2007, on being asked what he'd do if he were CEO of Apple:
Since then DELL stock has gone up by 72%... while AAPL has gone up 3080%.
Dell's basic problem has been known for a while. They don't do anything unique. They were one of the first to "get" just-in-time custom manufacturing and they rode that horse for a long time, but everything they do, others can do better -- and apparently do.
Innovation, if it can be sustained, always wins over efficiency, because innovative hardware and software design can empower users by orders of magnitude, while efficiency gains approach an ideal asymptotically.
All of Apple's parts are Foxconn, except the intel processors, and $somebody's hard drives.
Congratulations, you have parts made from the bottom-of-the-barrel of the shittiest components maker, Foxconn. Nobody would touch that with a 10-foot poll when they have Gigabyte.
Apple cuts its costs to make a profit, too. Or you thought an iMac really costs 1000$ to make?
1. Take everything that made you successful.
2. Throw it away.
Well, I mean, Dell became number 1 in PCs due thanks to a model where you could configure your PC in the web, get it built in good time with a guaranteed level of quality and receive it at your home/office.
First they started adding physical stores to the mix. That's perhaps not too bad, but certainly adds problems of inventory that previously were unknown.
Now they are trying to make themselves virtually indistinguishable from other providers by selling the one piece of their company that made them different, their make-to-order factories.
I suppose that's just one more example of clueless executives applying the reduce-costs recipe because that's the thing they learned in their MBA's. Because that's the easy thing to do, because the costs are written and can be studied. I suppose you need some kind of inventive mind to think ways about adding to the income column, instead of subtracting from the costs one. But what do I know? After all, they make fatter salaries than I do.
Is that contract manufacturers supposedly offer efficiencies because they don't have to listen to Dell's marketing considerations. It would seem to me, then, that Dell's marketing considerations would need to change and all this really is is a low wage subsidy of a fundamentally flawed business.
I'm really sick of MBA's getting American companies out of manufacturing because they lack the engineering knowledge and are too lazy to make it work. If there a company really well led by an MBA? I mean, President Bush has an MBA... look how well he's done.
This is my sig.
This is simply incompetence, or idiocy, I'm not sure which...
I work for a very large food company that has about 40-50 manufacturing facilities worldwide. These facilities make almost all of our products. We make millions upon millions of items every day... in the facility I work in, we make something like 1.5 million items a day, just by ourselves. In an average grocery store, we manufacture around 500 distinct products, to say nothing of the variety of goods we provide to food service establishments such as hospitals, restaurants, hotels, military bases, etc.
In the current bad economic climate, our stock price is rising rapidly. Why? Analysts attribute it to our ability to find efficiencies in manufacturing and operations. We don't look at finding efficiencies as an impossible burden to be outsourced to others; we instead look at it as an opportunity to increase profits without having to raise costs on consumers (which is especially important in this economic climate). And we've gotten quite good at it over the years, despite the fact that, perhaps even more than Dell, we do spend a lot of time and energy on marketing, sales, finance, coupons, and everything else. I can guarantee you that you see a lot more of our commercials each year than Dell's.
So I think Dell is really being incompetent here. Instead of looking for savings and learning to make its operations efficient, it is going for the quick fix of contracting out. But my guess is that it will contract out to a number of different facilities throughout the nation or world, and while each of those facilities will be good at focusing on itself, they will not have the advantage of seeing learnings from ALL the facilities across the organization, and they will miss things. I know our plants keep tabs on each other and call each other all the time to see how some project or other went. Typically one plant will take the plunge on some experimental idea, and the rest will be watching to see if it works out, which is a lot better than siloed contract plants potentially trying the same failed idea at each facility due to lack of communication. Had Dell kept manufacturing, it would have had the advantage of seeing the whole organization, and they could potentially have saved more in the long run by manufacturing everything themselves, but instead they are taking the incompetent way out. Frankly, I'm glad I work for a company with better leadership than them.
Beware of bugs in the above code; I have only proved it correct, not tried it.
Absolutely right. No one who has built computers for any length of time feels comfortable putting a Foxconn board in over the alternatives. Not saying a Gigabyte board or an Asus board will never go bad (I've had them go out on me before), but just hop over to newegg, search for motherboards, filter to those manufactured by foxconn, and just take a look at the number of stars (or eggs) they get. Then go in and look at the comments, and take a look at how many have died within a few months, or were just DOA.
I bet Apple daily ships boards back to Foxconn by the truckload as they show up dead on arrival and fail QA, but you've got to know that a lot of those 1-3 months of life boards are getting through. Have fun with Apple products!
And as a side note, if Apple products are so awesome, explain the whole iPod battery fiasco a few years back where iPod batteries were all dying shortly after the warranty, and Apple was just telling everyone to go buy a new iPod. Or go look at all the forums full of people complaining about how their iPod shuffle just randomly bricked itself one day (orange and green flashing light issue), sometimes due to the new version of iTunes, and sometimes just because. And how Apple's solution again was to tell everyone to go buy a new Shuffle. I had one of those, and I basically said, "Screw the crappy, short lived Apple products with no support, I'm buying a Zune." As All State might say, "I was NOT in good hands", and I was not about to be taken by Apple again.
Beware of bugs in the above code; I have only proved it correct, not tried it.
Doesn't this eventually lead to the contract manufacturer refusing to build Dell's designs [and does Dell even design their own laptops?] because the designs don't fit into the manufacturer's efficiency models?
Somehow this seems like it will eventually turn Dell into a company just reselling whatever laptop designs/models the manufacturer can make the most efficiently.
As for Dell's intellectual property? I'm sure it can be protected by their manufacturer, provided they sign a long-term deal and help the local party boss with whatever his needs are.
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!
Last I checked, Two Scoops was still in production after ten years, and the margins terrible. In contrast, computer equipment moves rapidly. This is most apparent in chip fabrication, but also in final computer assembly. The fact is, you can't spend the time wringing out production efficiencies in a product with a 3 year life span. Especially when assembly is such a small part of the cost anyways, it just doesn't make sense to focus on that rather than reducing part costs.
Coase's theorem is the relevant economic concept, about when firms choose to hire employees (do it themselves) versus go to the market. And there are ton of contract manufacturers driving prices down. By letting these guys focus on the cost of operating their plants (which plenty run several of), Dell can focus on financing and marketing and pricing features you and I want, rather than pursue slim improvements in margins that are the staple of commodity manufacturing.
The truth is, Dell pursued production too much, at the expense of margins. By selling off the factories, they can move the balance between share of sales and prices much faster. Just order less and let the contract manufacturer deal with what to do with the downtime.
I Browse at +4 Flamebait
Open Source Sysadmin
This of course applies to 3-12 year olds also!
Why, I see you are quoting from the Divine Book of Anarcho-Capitalist Boundless Universe-Devouring Avarice. And it says within: "You shallt not stop until 16 hour work day at a mining facility is granted for every of ye 3 year olds, as is their right, for it is ordained by our Lord Mammon that the only conceivable in a pious land alternative be ... brothels and street panhandling! So sayeth we! Verily!"
Why, if it weren't for the enterprising Priests of Limitless Greed, we would all be ruined by our childhoods of prostitution, having never tasted the glorious privilege of back-destroying labor at a ripe age of 6. What would we ever do without our Magnanimous Capitalist Benefactors of Trickle Down Economy?!
Not all Asian manufacturers use child labour. They can also make big savings by not having to pay the same wage as would be required in the USA, but an acceptable one for local labour nonetheless. They also can make efficiencies elsewhere, perhaps in fuel costs or in the price of raw materials, or simply by economies of scale. Have you also noticed how many immigrants arrive in western countries almost penniless and yet, within a year or two, are running a thriving business? Yes they work long hours but that is by choice, because they want to benefit from the fruits of their labour. Nobody is forcing them to work longer hours than perhaps you or I might be prepared to do, but that doesn't mean that they are wrong to do so. Yes, western countries will lose jobs but it is not always child labour or sweatshops that are to blame. Sometimes we just want too much money for too little work and, when the market can no longer bear that demand, then the jobs will move somewhere where the workforce is more accommodating.
Have a look at soylentnews.org for a different view
It doesn't work that way; the debt is not callable at will. The only thing the foreign debt holders can do is stop buying new debt. That would force the rates on treasury securities to go up, until the point those securities became attractive to buyers again.
It doesn't work that way; the debt is not callable at will. The only thing the foreign debt holders can do is stop buying new debt.
Thanks for the myopic gross oversimplification, but no thanks. Like most debt t-bills can be held or re-securitized in a whole plethora of ways. International banks can use it to boost their balance sheets and borrow against their own notional value. One man's debt is another man's asset and, as certain types of assets become more attractive than others, banks and other financial institutions will shift away from ones of lesser value and toward ones of greater value. That's why you see banks these days taking huge write-downs and trying to rid themselves of securities built on the unstable quicksand of NINJA-loan mortgages.
So, let's do a little thought experiment, shall we? As insane as it might sound, let's say international exchange rates pound the dog-shite out of the dollar due to currency inflation and a set of other problems that the four-horsemen would be proud of. Then the return on those t-bills purchased by sovereign wealth funds and national banks starts looking like a bad investment. Do you think those banks simply sit on them and say "Oh my! I sure wish I wouldn't have bought those. I guess I'll just have to sit and watch my money evaporate!" Pray tell, do you allow for the possibility that they might just consider _selling_ them in either raw or securitized fashion to anyone who will give them _something_ of value for them before they are completely worthless? In doing so, might the consider taking a little less, and more than a little less should things turn ugly against the dollar?
That kind of situation has played out _many_ times in history and it's not a pretty sight. True, it's not as simple as a bookie "calling" in a debt but the result can be just as bad or worse. When folks realize that your money is worthless, they'll take pennies on the "dollar" for your currency or any _debt_ that's denominated in that currency. That's certainly the case for t-bills. They pay out in dollars, not Swiss Francs. .... Also, besides fire-selling your nation's treasury bonds they also can do a hell of a lot more than "not buying". They can use the emerging markets in their own country and elsewhere to reduce their dependence on your demand. Thus, they basically can sit back and watch you drown in economic storm you created for yourself. The only reason they haven't fully pulled the plug on us yet is because we haven't finished cashing out all the equity in this country's real estate, natural resources, and other loot. If that sounds crazy to you just do a little research into the percentage of foreign ownership of real estate we have in the good ol' USA.
Put down the fiddle and smell the flames, dude. It's common sense that debt has serious consequences. If you think otherwise, try to stop making payments on your student loan for that economics degree and see what happens.
The only thing the foreign debt holders can do is stop buying new debt. That would force the rates on treasury securities to go up, until the point those securities became attractive to buyers again.
Once a few big countries decide they don't want to continue propping up the dollar, high rates won't do anything but highlight what a house of cards American wealth really is. High rates are meaningless if you can't get a return on your money invested. It's like the value of a Picasso paining that is proven to be a fake, when everyone thought it was legit it was worth millions, and as soon as they lose that faith it is worth a few hundred at best. The only thing that has changed is peoples perception. The move of the world to the Euro is an international vote of "no confidence" in the USA; perceptions are changing. When US debt become worthless paper backed by nothing, the purchasing power of the dollar (also backed by nothing) will follow. Most of our wealth is based on the global perception of value in America, the last several years have destroyed our image of strength, our image of morality, and our image of educated competence. Without that high value on the American brand, we are rapidly becoming a middle of the pack industrialized nation, and the size of our expenditures will soon have to reflect that.
We are all just people.