Dell Supply Chain

Stephen Cook, Director Americas Demand/Supply

10/22/05 1 of 14
 Dell Product Portfolio
Desktop Dimension
Optiplex
Portables Inspiron
Latitude
Workstation Precision
Servers/ Powervault Dell/EMC
Storage Poweredge
Networking Powerconnect
Displays Projector TVs
Flat Panel
Printers Inkjet Laser
Electronics PDA (Axim) MP3 (Dell DJ)
Musicmatch
Services Professional Deployment
Managed Support/Training

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 What a Supply Chain!!
FY04
Supply Base
– Spend $38B
– Suppliers >500 Production; >5000 GP
– Represented Countries >35

Factory
– Factory Consumption $100M per day
– Build to Order ~30M units per year (~85k per day)
– Inventory Turns - Hub >100 per year
– Inventory Turns - Factory 4 per day
– Days Sales Inventory 2.5 days
– Factory Cycle Time <6 hours
– Transformation Cost ~$50 per system
Quality & Customer Experience
– Factory Supplier Quality (VLRR) ~230 DPPM (5σ)
– Deliver on Time (DTT) 84%
Service
– Service Parts Dispatches 5.9M per year (~33M Customer Calls)
– Warranty Cost ~$40 per system
– Days Sales Inventory .5 days
Financials
– Revenue $41.4B
– Cash Conversion Cycle -36 days (Q4FY04)
– Gross Margin 18.2% (Q4FY04)
9.6% (Q4FY04) 3 of 14
– OpEx
 Dell Supply Chain
Mass Customization Æ Close to Customer
APAC DAO EMF
FY01 9% 70% 21%
3 Plants 7 Plants 3 Plants
1.4M Units 10.5M Units 3.1M Units

FY04 12% 68% 20%

2 Plants 4 Plants 1 Plants
3.2M Units 17.9M Units 5.4M Units

‰ Penang, Malaysia ‰ Austin, Texas ‰ Limerick, Ireland

‰ Xiamen, China ‰ Nashville, Tennessee
‰ Eldorado do Sul, Brazil

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 Dell Supply Chain
Supply Chain has been designed for optimal
flexibility & predictability…
Orders
Supplier Sales

Dell
Supplier SLC
Hubs

Supplier
Customer
Merge Center

1 –30 days 2-5 days 1-7 days

Suppliers Hubs Factory/Merge Customer

‰ E-Tools & Processes
‰ Supply/Demand Visibility
‰ Concentrated Spend
‰ Real-time Quality Feedback
‰ Flexibility ‰ Mass Customization ‰ Customization
‰ Off Balance Sheet ‰ Demand Shaping ‰ Best Value
‰ 2 Weeks Inventory ‰ 6 Hrs. Mfg. Cycle Time ‰ Reliability, Service & Support
‰ Real-time CE feedback loop
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 Velocity = Direct Demand Feedback

“push” “pull”
Buy-to-Plan Build-to-Order

Material requested to build customer orders

Customers
Suppliers

Dell
SLC
Manufacturing

All material is tied to a customer order –

nothing is built without an order.

1) Dell facilities act as Manufacturing Centers, not Warehouses –

only inventory needed for next 2 hours of orders is on site
2) Provides direct signal of Dell customer demand for suppliers
3) Dell’s performance to customer orders is directly linked to our
suppliers’ level of support
4) Absolute synchronization between manufacturing and sales
keeps the process balanced. 6 of 14
 Procurement Responsibilities….

Quality

Cost Delivery
Worldwide Procurement Regional Materials

Shared responsibility

Separating contracting from commerce

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 Continuity of Supply

Intense Focus through:

• Separate internal organizations
• Supported by unique processes and systems
• Looking at a different parts of the inbound supply chain
• Dealing with different people at the supplier
n
egy in
g tio
at n u
r an ec
St Pl Ex

Time Horizon: Beyond lead-time 3 days to order lead-time 0 to 3 days

Org (people): Worldwide Procurement (6X) Regional Materials (4X) Factory (X)
Supplier Interface: Executive Operations SLC

Low inventory does not equal Supply Issues

But it does equal operational efficiencies…
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 Production Spend (By Country)
Moving to low cost regions…
$10,000 Total = $29.2B 120.0%
FY04 Spend
$9,000
Cum Spend % 100.0%
$8,000
$7,000
80.0%

% of Spend
$6,000
$M

$5,000 60.0%

$4,000
40.0%
$3,000
$2,000
20.0%
$1,000
$- 0.0%
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UNIT
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 Supplier Management

Our Philosophy
‰ Work as Cross-functional / Matrix strategy teams

‰ Focus on fewer leveraged supply partners

– Develop & value direct, focused, and long-term relationships

‰ Reward technology, advantaged cost, quality &

consistent execution

‰ Embrace innovation in business tools & processes

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 Business Strategy Teams (BST)
Healthy tension creates optimal strategy…
‰ Strategy

‰ Sourcing Procurement Engineering

‰ Supply Chain Design

BST
‰ Contracts

‰ Continuity of Supply Marketing Service

‰ Cost
– Multi-sourcing
– Alliances
Product Ready End Of End Of
– Internet Negotiations Concept To Ship Life Warranty

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 Quarterly Business Review (QBR)
Measuring performance and awarding business accordingly
breeds better value for Dell…

‰ Data driven discussion/

decisions
Cost Technology/
Leadership Time To Volume
‰ Identify actions/
commitments

Quality
‰ Mutual agreement of
future performance
targets
Field Continuity
Service of Supply
‰ Measure and reward
performance

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 Quarterly Business Review (QBR)

*Example*
100
Best In 90
Class

80
RMSD
Supplier X
70

60

50
Q 1' 0 1 Q 2 ' 0 1 Q 3 ' 0 1 Q 4 ' 0 1 Q 1' 0 2 Q 2 ' 0 2 Q 3 ' 0 2 Q 4 ' 0 2 Q 1' 0 3 Q 2 ' 0 3 Q 3 ' 0 3

‰ Total of 100 possible points

‰ Benchmark each supplier against Best In Class supplier
‰ Identify improvement plans for future quarters
‰ Performance = TAM
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 SCM Fuels Direct Model
Industry's most
Pass cost efficient
savings on to procurement,
customer Efficient manufacturing &
Model with Lowest distribution
Cost Structure process

Drive
Supplier
Competitive Volume
Pricing

Competitive Drives
pricing ignites Market Share
demand Lower cost drives
increased demand
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