Level 5 manufacturing entails the assembly of a desktop PC assembly, floppy disc, and fan. This mode has many disadvantages and disadvantages that are discussed here.
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First of all, the motherboard and chassis are built separately by contract manufacturers outside the United States. The chassis and motherboard are then separately shipped to the United States for integration by a third-party integrator. This poses a huge disadvantage because in case one of the two parts is faulty or needs an adjustment or replacement, then it has to be shipped back to the source contract manufacturer (Tesoro 1998, 109). This incurs many costs in terms of freight charges and causes inconveniences in terms of delays in the supply of the end product.
Seeing as the parts are supplied by different contract suppliers, a huge disruption in supply can be caused in case one of the suppliers’ defaults or is unable to avail the required components due to supply issues. This can lead to delays that amount to gross customer dissatisfaction.
Dell orders its chipsets according to market demand forecasts (Fields 2006, 132). However, in case the actual market demand exceeds the forecast, Dell has to source for extra chipsets if it is to meet the market demand. Because it takes 13 weeks on average to manufacture, test, and deliver the chipsets, it proves challenging for the chipset supplier to meet Dells’ demand under such circumstances.
If and when a new product is introduced into the market, its demand is subject to change very rapidly. This can lead to the need to obtain more supplies than when the demand is stable. This leads to the increased motherboard- chassis assembly in the United States. Ordinarily, this is not required if level 6 manufacturing is used. The cost of level 5 manufacturing is also a lot higher than level 6 manufacturing. This is due to the increased cost of shipping, the cost of compensating the independent integrator, logistics, and operation costs.
Based on the methodology of the complexity of management, a team consisting of members from the different departments of Dell affected by the chipset supply shortage was constituted. The team was to come up with solutions in terms of manufacturing options for managing assembly work in the United States as means of reducing continually rising manufacturing costs brought about by increasing Level 5 manufacturing. Option 1 brought to the table for discussion was to keep the motherboard-chassis integration as it was; performed by a third-party integrator and managed the contract manufacturers(CM-managed 3PI, original baseline). Its major disadvantage was in terms of cost; its cost of worldwide procurement is the highest out of all the options at 10$ per box. The regional procurement cost is also very high relative to the other options and stands at 8$ compared to the lowest which is 5$. Option 1 also poses a challenge in the coordination of services and operations from the two chipset suppliers, integrator, and the different departments within Dell, since the original shipping arrangement is retained. Chipsets are freighted to the United States, stored at the supplier logistics center, taken to the integrator, and then back to the supplier logistics center before being received at Dell. This is an obvious disadvantage as the equipment has to go through far too many handling points with cost implications.
Option 1 however has advantages in terms of operations, processing Engineering, supplier quality Engineering, and inventory control. All these areas have a very low running cost of 1$ which is the lowest of all the options. The Company also retains all its departments in the supply chain and does have to put up new ones to handle newly created operation points that would be created by the other options. The cost per box for logistics is relatively low for option 1, at 5$ per box. This is another advantage as the other options have a cost of up to 10$ per box.
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Another advantage of option 1 is that it maintains the procedure in importation and chipsets are still shipped separately. In the case, therefore, that chipset shipments are lost during shipment, for example through an accident, only half of the components will be lost and this serves to reduce losses.
List of References
Fields, Gary. (2006) Innovation, Time, and Territory: Space and the Business Organization of Dell Computer. Economic Geography, 82(2), 119-146.
Tesoro, Ferdinand. (1998) Implementing an ROI Measurement Process at Dell Computer. Performance Improvement Quarterly, 11(4), 103-114.