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Dell To Sell Its Computer Factories
Posted by
Soulskill
on Sat Sep 06, 2008 11:17 AM
from the dude-you're-getting-a-new-business-model dept.
from the dude-you're-getting-a-new-business-model dept.
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."
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Made in China (Score:5, Insightful)
Re:Made in China (Score:5, Insightful)
What happens when the exploding cost of oil makes it too expensive to ship computers back and fourth from china? Could we see a grand resurgence of electronic manufacturing jobs in North America? Perhaps Mexico will become the manufacturing powerhouse for us that china is now.
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Re:Made in China (Score:5, Informative)
It takes more fuel to truck something from LA to Chicago than it does to ship it from China to LA. No doubt trains improve on trucks quite a bit, but fuel costs aren't particularly onerous for objects that regularly retail for $100/pound (maybe worry about it when you see bananas go for $5 a pound instead of $0.70).
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Re:Made in China (Score:4, Informative)
What happens when the exploding cost of oil makes it too expensive to ship computers back and fourth from china? Could we see a grand resurgence of electronic manufacturing jobs in North America? Perhaps Mexico will become the manufacturing powerhouse for us that china is now.
Well, except most of the components already come from Asia somewhere, and most computers aren't put in 10lbs steel cases anymore. The future is likely to be laptops (already past 50% I think?), netbooks (Atom has been selling wildly past expectations) and nettops which are "fast enough" desktops for most people. All of these are compact and light, if we couldn't afford to ship those you wouldn't be able to ship most household gadgets. And even if all of that wasn't true you're looking at cheap cases and assembly building, not high-tech industry. And even if that wasn't true, I think the increased wages means you'd see more standardization and robot assembly, so job for some automation engineers but not many jobs. The days when you had half a dozen expansion cards to get RAID/sound/network/USB/firewire/SATA/eSATA are long over. The new Atom boards even have the processor soldered on. Most parts of the computer are so cheap, you just want it assembled with a minimum of overhead - a higher tier standard computer will often give you the upgrade you wanted *and* overall be a better computer for the same price as making a custom build.
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Quality control (Score:5, Interesting)
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.
Re:Quality control (Score:5, Insightful)
If that was supposed to be GOOD quality control that we experienced... I would hate to see what poor is.
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Loss of control (Score:5, Insightful)
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.
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Dell also outsourced it's support (Score:4, Interesting)
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.
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DELL's Indecision (Score:4, Interesting)
...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 one surprise in the article... (Score:4, Informative)
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.
Lessons not learned (Score:4, Informative)
That's brilliant! Just the way to sell fewer desktops!
Dell has had huuuuuge problems [direct2dell.com] 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...
Translation: offshoring their manufacturing (Score:4, Interesting)
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.
Looking back on Dell (Score:5, Informative)
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 [daringfireball.net] 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.
Re:Looking back on Dell (Score:5, Insightful)
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Recipe for success (Score:5, Insightful)
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.
The stupidity of the argument... (Score:4, Insightful)
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.
Re:On behalf of the People's Republic of China... (Score:4, Insightful)
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.
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Re:On behalf of the People's Republic of China... (Score:5, Informative)
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.
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Re:Price, the only consideration? (Score:4, Insightful)
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.
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Re:Price, the only consideration? (Score:5, Insightful)
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Re:Price, the only consideration? (Score:5, Funny)
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?!
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Re:Price, the only consideration? (Score:5, Insightful)
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.
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Re:Apple (Score:5, Informative)
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?
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Absolutely right (Score:5, Insightful)
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.
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pot kettle black (Score:4, Interesting)
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