Dell To Sell Its Computer Factories 249
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."
Made in China (Score:5, Insightful)
Apple (Score:2, Insightful)
While Dell and HP try to make cheap computers that aren't broken, Aplle will continue to make good computers that aren't cheap. Apple has been gaining marketshare from these guys steadily for a long time now.
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.
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.
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.
Re:Made in China (Score:3, Insightful)
Re:Apple (Score:3, Insightful)
While some of this is undoubtedly the "cool" factor that Apple has grown with the iPod/iPhone, I think another piece of the puzzle is that except for gaming, the pace of hardware cycles is pretty much irrelevant these days. In the late 90's/early 2000's, you could buy a new computer every two years and really feel the speed difference, even if you only used it for basic stuff like email/web browsing/word processing. Close to a decade later, email/web browsing/word processing/etc. are still what 99% of computer use is, and the demand that those activities put on the hardware hasn't increased anywhere near as much as the power of the hardware has.
A computer that you bought in 2004 to surf the web can likely still surf the web very adequately in 2008. The experience wouldn't be much different on a brand new machine. The impetus to be constantly upgrading is gone. With that out of the equation, the priorities when choosing a new machine change. It probably didn't make as much sense to spend an extra $500 on a computer that should keep working for five or six years when you were already expecting to upgrade to a new one within two years. But If you're shopping for a machine that you fully expect to use as your primary computer for five years, then paying extra for something nicer makes more sense.
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:Looking back on Dell (Score:5, Insightful)
Re:This is happening in other industries too... (Score:3, Insightful)
No, that's the good kind of outsourcing: in any business, it's often advantageous to pay someone else to do the things you just need done, so you can focus all your effort on the business you're actually in. You end up paying less, because even with the premium of hiring out, the outside company is probably more efficient than you would've been, what with it being their primary focus, and all.
But if your publishing firm outsourced it's publishing, then there remains the question, "what do you do again?" Your customers will eventually just eliminate the middle man and go straight to the source.
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.
Comment removed (Score:5, Insightful)
Re:The stupidity of the argument... (Score:1, Insightful)
I don't think the MBA is really even the issue. There are B&E PHD's out there who consider the same strategy to be worthwhile depending on the frame of reference. What you're really taking issue with is short run shareholder based focus and long term company focus that vicariously benefits the shareholders.
Sadly in a world where performance metrics are calculated based on short runs, this is what happens. It doesn't help that many shareholders demand growth and change NOW when waiting for further research might be the long run solution.
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.
Re:Free bonus: spare fingers (Score:3, Insightful)
The American consumer has no qualms about buying from companies that manufacture overseas as long as they get their electronics cheaper.
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.
Re:Looking back on Dell (Score:3, Insightful)
Apple bought NeXT in 1996 which was part of their larger strategy for the OS. The classic MacOS could not be upgraded; it had to be replaced with a new OS. Apple had spent years developing Copland but it was unworkable as a solution. NeXT was their answer for this. This is when Steve came back to Apple.
But when he came back, the people realized why they needed Steve. He had a larger strategic vision for Apple more than their current CEO. The comeback of Apple has been tied to Steve Jobs good or bad. Not that he is the only one responsible but under his leadership Apple has become a powerhouse. He didn't do all work, but he is credited with focusing Apple on what it needed to do. When Steve took over, Apple had too many computer lines and spent a long time developing Copland which it had to eventually shelve as unworkable.
The first year, it was about the painful task of stopping the losses. He cut projects and product lines. He trimmed the workforce. He made peace with Microsoft. But most of all he focused his engineering on the the handful of products that would be profitable. One of them was the iMac which helped Apple turn its first profit in years. After 1997, it was about moving forward to OS X.
Re:Price, the only consideration? (Score:4, Insightful)
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. [marketwatch.com] 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.
Re:Made in China (Score:4, Insightful)
What about Apple? (Score:3, Insightful)
Since Apple is pure, clean, and everything
Re:Price, the only consideration? (Score:5, Insightful)
Re:Apple (Score:2, Insightful)
Re:Made in China (Score:1, Insightful)
Nuclear powered merchant ships.
One existed in the 1970s. [wikipedia.org]
Re:Absolutely right (Score:3, Insightful)
Re:On behalf of the People's Republic of China... (Score:4, Insightful)
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.
Too Many Chiefs (Score:2, Insightful)
Re:On behalf of the People's Republic of China... (Score:3, Insightful)
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.