Austin, Tex.
SHAYNE
MYHAND, the day-shift
manager of Dell's
flagship factory here,
does a lot of
chaperoning. As many as
four or five times a
day, he finds himself
playing host to
corporate chieftains and
midlevel scouts who come
to marvel at the
dazzlingly efficient
assembly plant that may
be the best hope for
keeping blue-collar jobs
in the
United States.
A
31-year-old with a
crisp, militarylike
bearing, Mr. Myhand
begins each tour the
same way, moving to a
display case and
grabbing an unimpressive
wooden plaque
commemorating Dell's
production of 49,269
personal computers in
the last three months of
1991. "On a good
day, during peak demand,
we'll exceed that number
by lunchtime," he
said, with a slight nod
and a faint smile
gracing his lips. He
told a visitor that even
now, during the
Christmas season rush,
an order that hits the
factory floor at 9 a.m.
is typically stacked in
the back of a truck
motoring down an
interstate highway by 1
p.m.
Inside
Dell, the world's
largest computer maker,
executives study the
assembly process with
the intensity of Alfred
Kinsey and his
researchers. They wheel
in video equipment to
examine a work team's
every movement, looking
for any extraneous bends
or wasted twists.
Designers give one
another high-fives for
eliminating even a
single screw from a
product, because that
represents a saving of
roughly four seconds per
machine built - the time
they've calculated it
takes an employee, on
average, to use the
pneumatic screwdriver
dangling above his or
her head.
Computer
software clocks the
assembly-line
performance of workers,
whether they're putting
together PC's or the
servers and storage
equipment that Dell
sells to large
companies. The most able
are declared
"master
builders" and then
videotaped so that
others may watch and
learn. The weak are told
that it takes a special
set of talents to cut it
on the Dell factory
floor - and shown the
door.
Steely-eyed
cold, to be sure, but at
a time when economists
and politicians fret
over the future of
American manufacturing
as
China emerges as the
workshop of the world,
Dell isn't just defying
a global trend; it's
helping to set the
standard. "When
everybody is outsourcing
- when everybody is
outsourcing - Dell
continues to manufacture
in the United States
because over two decades
of fine-tuning, they've
figured out how to do it
cheaper and
smarter," said
Charles R. Wolf, an
analyst at Needham &
Company who has been
following Dell since
1991. (He has also been
reaping the financial
rewards as a longtime
Dell shareholder, seeing
a 33-fold return on his
investment.)
"They're truly in
the 21st century when it
comes to
manufacturing."
No
other major computer
maker produces computers
in the United States.
Long ago, Dell's top
rival, Hewlett-Packard,
outsourced assembly of
its PC's to third
parties, primarily based
in Asia, as did I.B.M.,
the world's
third-largest PC maker.
And I.B.M., which
created the PC market in
1981, is leaving the
business, announcing
this month that it is
selling its PC unit to Lenovo,
the Chinese computer
giant. "It's been a
long time since one of
our competitors actually
made a computer,"
said Michael S. Dell,
the founder and chairman
of the company that
bears his name.
Dell,
by contrast, operates
three giant assembly
plants in the United
States - two in Austin
and the third outside
Nashville. Each is large
enough to house six
contiguous football
fields. Last month, the
company announced that
it would build a fourth
plant, twice as big as
the others, near
Winston-Salem, N.C. And,
inside the company,
executives talk about
opening a fifth one,
probably in
Nevada, where it would
build computers
according to each
customer's
specifications. At a
White House conference
on the economy on
Wednesday, Kevin D.
Rollins, Dell's chief
executive, boasted, not
quite accurately, that
all the computers the
company sells
domestically are made
right here in the United
States. "None is
outsourced; none is made
in other countries and
shipped in," he
said, though Dell
laptops are in fact
assembled overseas.
Dell's
decision to expand its
American manufacturing
presence, however, has
nothing to do with
patriotism. Executives
here say their decisions
are based on the bottom
line as well as on
geography; it is simply
more efficient to stamp
out computer equipment
closer to the customer.
"The reason we
continue to manufacture
in the United States is
that it's the optimal
place to do so, and we
can do it most cost
effectively," said
John Hamlin, who
oversees Dell's entire
consumer line.
Few
rivals know that better
than Lenovo itself. The
questions that many
analysts have been
asking in the wake of
the I.B.M. deal is how
well Lenovo, based in
Beijing, can compete
with Dell outside China,
given how cheaply Dell
can make its machines.
Dell
has run a factory in
Xiamen, China, since
1998 - but that's to
produce computer
equipment that the
company sells to its
Asian customers.
Similarly, Dell's
factory in Limerick,
Ireland, makes machines
for
Europe. This month, Mr.
Dell announced that his
company would probably
build a second European
plant sometime soon.
Dell
is also bucking global
trends on another front.
In an era when a call
center is more likely to
be in
India than Indiana, the
company has announced
that it is building a
new customer assistance
facility in Oklahoma
City. Earlier this year,
it opened a call center
in Edmonton,
Alberta. And while
Dell's laptops are
produced in Malaysia,
they are built by Dell
employees working inside
a Dell-owned factory.
"I
tell employees all the
time that we're in a
race on costs,"
said Dick Hunter, who,
as the Dell executive
who oversees
manufacturing in the
United States, is Mr.
Myhand's boss.
"When we lose the
race on costs to Asia or
wherever, that puts our
own security in
jeopardy."
EVER
since 1984, when Michael
Dell began selling
personal computers from
his University of Texas
dorm room, his company
has been able to sell
cheaper PC's by cutting
out the middleman,
selling directly via the
phone or, nowadays, the
Internet. But the reason
Dell continues to
dominate as a low-cost
leader - whether selling
a PC, a server or, more
recently, plasma
televisions and portable
music players - is its
fanatical determination
to save every penny it
can. Mr. Dell may not
quite be the Henry Ford
of our time, but his
company is certainly the
Wal-Mart
of the high-technology
industry, for better or
worse.
"I
set irrational goals,
Michael and I together,
to encourage our team so
they don't think of
conventional
solutions," Mr.
Rollins said in an
interview. "If we
asked for a 10 or 15
percent increase in
productivity, we'd get
conventional solutions.
But if we ask them to
double their
productivity, then they
have to rethink
everything."
This
year, their goal was a
30 percent increase in
the number of machines
that the company's
factories spit out - a
target that Mr. Myhand
says he is confident
they will hit. Among the
recent changes was a
rerouting of cable so
that it no longer had to
be laced over and under
other parts, and the
decision to replace
L-shaped tables with a
single workbench, to
avoid time-consuming
twists. A decision was
also made to apply one
fewer sticker per
machine. "We're
going to get there by
saving four seconds
here, and four seconds
there," Mr. Myhand
said. The labor costs of
a PC are "roughly
10 bucks," Mr.
Rollins said, meaning
that payroll costs
account for maybe 2
percent of the overall
cost of the typical Dell
PC. Five years ago, it
took two workers 14
minutes to build a PC;
it now takes a single
worker roughly five
minutes to do the same.
NOT
surprisingly, the Dell
factory is a place of
reverence for those who
take philosophical
pleasure in the
elimination of wasted
movements, or at least
the extraneous movements
of others. "Shock
and awe" is the way
Mr. Wolf of Needham
& Company described
the sensation he felt
after visiting the
flagship Austin plant;
Jonathan Eunice, an
analyst at Illuminata, a
research firm in Nashua,
N.H., called Dell
"remarkable."
Fast Company might have
trumped them all when
the magazine labeled
Dell "one of the
fastest, most
hyperefficient
organizations on the
planet."
In
2000, when the company's
flagship plant opened,
no structure in it was
more than maybe 10 feet
high. Four years later,
the plant is now laced
with triple-decker
conveyor belts that rise
as much as 40 feet above
the factory floor. Black
bins filled with parts
are dispatched via these
belts and then lowered
mechanically to any one
of the hundreds of
employees who assemble
the machines according
to each customer's
specifications. The
completed machines are
then transported by
conveyor belt to a
shipping area, where
they are boxed - largely
by robots, which were
installed only recently
- and routed to dozens
of idling big trucks.
Typically, the trucks
drive away with full
loads 30 minutes after
they arrive.
A
dozen years ago, Dell
stored roughly 30 days
of inventory - the outer
casings, motherboards, Intel
chips and other
components needed to
feed the beast - in
warehouses around the
Austin area. The
company, based just
north of Austin in Round
Rock, Tex., no longer
operates any warehouses;
instead, it requires
suppliers to stock 8 to
10 days' worth of goods
no further than 90
minutes from its
assembly plants. Its de
facto warehouse,
therefore, is the lineup
of semi-trailers parked
in the 48 truck bays
that line one wall of
its plant. "If a
truck is four minutes
late," Mr. Myhand
said, "I have an
entire line standing and
waiting."
Technically,
Dell does not take
possession of a part
until it is wheeled off
a truck and into its
factory, and yet that
same part will be a
component of a complete
machine within a couple
of hours. A minimum of
inventory translates
into huge savings on
Dell's books, and it
also means that when the
company switches, say,
to standard 40-gigabyte
hard drives, it doesn't
have to blow through
weeks of outmoded 20-gig
drives.
All of
that places a huge
burden on Dell's
suppliers, each of which
Dell rates weekly for
performance. "To
many suppliers, Dell is
like having Wal-Mart for
a client," said Mr.
Eunice of Illuminata.
"You love the
volume, but not the
constant grinding
pressure on price,
terms, conditions and
timing."
Dell
executives say they have
close working
relationships with all
their suppliers. The
company says it helps
them keep pace, if for
no other reason than the
more efficient a
supplier, the better the
price it can offer.
One
executive at a Dell
supplier, who spoke only
on the condition of
anonymity ("Dell is
too critical to our
business"), said:
"They're constantly
reminding you about
competitors. It's mostly
a strategic card, but it
also makes sense. It's
the same as what
Wal-Mart does. You say
you want to sell
pillows? So sell them to
us for 10 cents apiece
because otherwise I have
all these people who'll
sell them to me for 15
cents."
Not
everyone, of course, is
in awe of Dell. Scott
McNealy, the chief
executive of Sun
Microsystems, which
competes with Dell among
corporate customers,
dismisses the company as
a "grocery
store" rather than
a technology innovator -
an accusation repeated
by Hewlett-Packard's
chief executive,
Carleton S. Fiorina. Mr.
Eunice is inclined to
render a more mixed
verdict, slapping on
Dell a phrase -
"virtuoso
vanilla" - that is
at once a compliment and
a dig.
Dell,
Mr. Eunice said,
performs
"brilliantly"
when stamping out
commodity products like
laptops, desktop
computers and printers.
But he has been much
less impressed when Dell
"ventures into
territory that requires
new invention or
significant investment
in research and
development."
As an
example, he points to a
fast-growing category of
computers called
"blade
servers,"
lower-cost machines that
companies increasingly
use to run their data
centers and Web sites.
"When Dell's blade
servers weren't
overheating, they still
weren't very good,"
Mr. Eunice said.
"Competitors like
I.B.M. and H-P that are
more innovation-focused
have done significantly
better there - both in
terms of product design
and in terms of market
share."
FAR
more impressive has been
Dell's entry into the
printer business. It has
been selling Dell-brand
ink-jet and laser
printers for just 19
months, and has only
recently broadened its
stable to include the
range of offerings that
corporate customers
demand. But through the
first nine months of
this year, Dell has
already captured a 13
percent share of new
ink-jet printer sales, a
category dominated by
Hewlett-Packard,
according to IDC, a
research firm.
"Dell
is going to let H-P and
others break their
toenails first to see
exactly how the market
works," said Roger
Kay, an analyst at IDC,
"And then they move
in. And once they ramp
up the machine, it's
'watch out market,'
because profit margins
drop, and Dell ends up
taking half of it."
In
October, Dell
aggressively jumped into
the plasma television
market with a 42-inch
high-definition version
that it sells for
roughly $2,000 less than
the competition's.
"We like to go
after areas where we see
high profit pools, and
figure out how to save
customers money while
still remaining
profitable," said
Gerry Parrish Smith, the
Dell executive
responsible for the
company's line of
television products.
Research
and development is one
way Dell tamps down
costs. The company
devotes 2 percent of its
bottom line to this
area, much less than its
rivals. Innovation
inside Dell is instead
more about how one
produces, packages and
markets a product than
it is about improvements
in the product itself.
"We have some
competitors who are
spending 5 or 6 or 8
percent on
R&D," Mr.
Rollins said, "but
our financials suggest
our R&D model is the
right model."
Others,
however, wonder if those
cost savings come with a
long-term cost.
According to the Dell
supplier quoted
anonymously above, when
Dell squeezes the profit
out of a market it also
squeezes out everyone's
ability to innovate in
any meaningful way.
There
is also the long-term
impact of Dell's ability
to keep increasing
"units per labor
hour," a favorite
measurement inside the
company. People may
marvel over Dell's
manufacturing prowess,
but the company is
proving so efficient
that it expects to
employ only 1,500 people
at its new
North Carolina plant
when it is fully
operating.
And
Dell's commitment to
keep jobs in the United
States has its limits.
To produce most of the
new products the company
has started to sell in
recent years, from
televisions and music
players to electronics
organizers and printers,
Dell has turned to
third-party
manufacturers, primarily
overseas. "We seek
the most cost-effective
place to manufacture so
we can pass along the
savings to our
customers," said
Mr. Hamlin, the Dell
executive, sounding very
much like those at other
companies who explain
their outsourcing and
offshoring strategies.
EVEN
so, computer equipment
accounts for the bulk of
Dell's revenues, and it
is still produced by
Dell workers inside Dell
factories. That is why
companies continue to
beat a path to Dell's
door to study from the
wizards of efficiency.
"We
have hundreds of
companies come through
here each year to learn
from us," said Dick
Hunter, Dell's
manufacturing chief.
Last year, he said, the
company gave 2,000 tours
to 10,000 customers,
including a team from General
Motors that included
G.M.'s president for
North America, Gary L.
Cowger.
"He
brought his whole staff
down here around a year
ago, people from
manufacturing,
engineering, production,
and they pumped us with
questions over the
course of a very long
day, for 12 or 15 hours,
about how we do
things," Mr. Hunter
said.
Mark
R. Anderson, a longtime
friend of Mr. Dell's who
is also the publisher of
The Strategic News
Service, a weekly digest
for the computer and
communications
industries, said he
believes that nearly
every company could
benefit by studying
Dell. "No one does
it as well as Dell, but
even those companies
that try and fail still
succeed," he said.
"Car companies, TV
companies, whoever:
they're able to wring
out costs by studying
under Professor Dell.
And they're all that
much more efficient by
studying with the
master."