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Dell manufactures success with just-in-time

In a bustling factory in this Austin suburb, Dell Computer Corp. is convincing the business world that there’s a better way to make a product.

Who needs distribution centers? Conveyor belts zip a stream of Dell boxes to trucks waiting, engines gunning, in docks right outside the building. Why use a screwdriver? Workers with nimble fingers snap computer components into place, saving valuable seconds.

Dell has skipped over the conventional wisdom, which says computer companies should focus on designing products and outsource manufacturing to other firms. Competitors and even other industries are taking note.

“It used to take us more than two buildings to do what we do now in one,” said John Egan, manager of Dell’s Topfer Manufacturing Center in Round Rock.

“We have to be fast. Our team had better be able to build five different systems in a row. If they’re not competitive with the outsourcers, we’re not going to do it this way,” he said.

The walls in the staircase at the Topfer building are lined with patents for computer manufacturing processes that have made Dell faster and more efficient than its competitors.

Other companies are catching up, but Dell has gotten a head start by responding better to trends in consumer demand. Its factories can react agilely to the latest orders from its Web site and phone banks.

To stay ahead, Dell is finding more ways to cut the time it takes to make and ship a PC by combining its manufacturing and shipping facilities into one and by cutting down on the number of times a human being has to touch each product.

Dell’s emphasis on innovative manufacturing came from its foundation as a direct-order business that doesn’t sell computers in stores.

“Back when Dell started, other manufacturers in the PC space used the indirect channel,” said Richard Shaffer, principal at research firm Technologic Partners.

“You couldn’t buy directly from Compaq if you insisted on it,” he said. “Dell demonstrated that what started out as a mail-order business was a new kind of direct sale. That enabled them also to use just-in-time manufacturing.”

The concept is simple enough. Dell, the second-largest PC seller behind Hewlett-Packard Co., only builds computers that have already been ordered.

Customers make their purchases through Dell’s Web site, phone banks and corporate sales force. Based on those orders, Dell gives itself three days maximum to build the computers.

Dell’s computers keep track of what components customers have ordered for their machines.

If the company receives orders for an unusually large number of a component, such as a certain kind of Pentium 4 chip, Dell goes on red alert, rushing to wring out emergency shipments from suppliers.

Dick Hunter, vice president of Americas manufacturing, keeps a constant watch on those components, wearing a pager in a belt holster that informs him immediately of any shortfalls.

If the components are selling too fast, executives can instruct Dell’s Web site administrators to offer customers a deal–a discount on a better component or, in dire emergencies, a free upgrade.

“We have to manage the demand to match the supply, and typically it’s to the benefit of the customer,” Hunter said. “Utopia, for me, is a perpetual balance of demand and supply.”

The strategy allows Dell to ship in just the right amount of components to its factories, so it doesn’t need warehouses.

On the other end of the factory, Dell has similarly automated and paced its shipments so it doesn’t have to hold piles of inventory in a warehouse. “Inventory is the fear that keeps us up at night,” Egan said.

In between, workers compete in teams to see which manufacturing line can churn computers out the fastest.

Like sprinters in a relay, they work to shave fractions of seconds off their best times.

On a larger level, the Topfer center is competing with Dell’s other factories. Become substantially slower than the other factories around the world, and you’re making a case to shut down the facility, Egan said.

Including Topfer, Dell has five factories in the United States and one each in Brazil, Ireland, Malaysia and China.

The competitiveness helps the factories learn from each other’s innovations, Egan said. “It forces a lot of best practices.”

Dell may have caught competitors unaware when it started its direct-order revolution, but rivals have been closing the gap.

HP now employs similar practices for its own direct-order services.

It acquired more tricks of the trade when it bought Compaq Computer Corp. of Houston in May.

“It turns out that outsourcing of manufacturing is not very competitive in the direct configuration model,” said Mike Winkler, executive vice president of operations at HP.

Path of products

Inside the bustling Topfer Manufacturing Center, Dell Computer Corp. workers churn out computers with a speed and efficiency that business rivals are scrambling to copy. Here’s how a computer comes together the Dell way:

Step 1: Every two hours, Dell assesses how many components it will need for the next manufacturing run. The exact number of components is delivered to the facility.

Step 2: Components, such as microprocessors, are stored in several baskets. When a PC box rolls in, little lights on the baskets turn on, showing workers which components they need for each system. As a computer case rolls down the assembly line, workers toss the necessary components in it.

Step 3: The computer case goes up an elevator, then down to a table, where two workers snap the components into place and close the box as quickly as possible. At the same time, workers install whatever software configuration the customer has ordered, including custom corporate software.

Step 4: The machine rolls down the conveyer belt to its next stop, where it is tested and cleaned. A computer monitor flashes alarms when a system is not assembled correctly.

Step 5: The computer goes into its cardboard box, along with its keyboard, mouse and any other peripheral devices. Workers use the same systems as in Step 2 to figure out which computer needs which peripherals.

Step 6: The sealed boxes ride a conveyor belt to the shipping area, where a computer identifies where they need to go and assigns them to a way station with other computers headed to the same geographical area. When the computers pile up enough to fill up the truck, off they go.

–The Dallas Morning News