Why does L5 incur higher manufacturing and logistic costs than L6? In L5, the chassis (without motherboard installed) are shipped to the US first and followed by the motherboards being airfreight to the US as shown in Figure 6-4.
This indicates a higher logistic cost from airfreight if motherboard is not manufactured in time to be shipped (via ocean) from China to US where motherboard is in need to be assembled with the empty chassis to satisfy surge demand. At the same time, if only the empty chassis reached the shores at Dell’s SLC awaiting the motherboard to be arrived, this would incur unnecessary holding inventory cost.
Since the process of motherboard chassis integration is outsourced to 3PI (3rd party integrator) in the US (AMF), as shown in Figure 6-5, the 3PI cost of integration is higher than CM (Contract Manufacturer). Based on the assumption, the US labor cost is also higher than in the China. Hence, these 2 costs mainly contribute to L5 rising cost than L6.
What are some of the costs that are incurred in L5 but not in L6? 1. Material cost from motherboard packaging since they travel separately from the chassis. The packaging is used to protect motherboard from damaging during the transportation. 2. A higher airfreight cost incur for transportation of motherboard from China to US when it doesn’t come with the chassis. 3. In the current manufacturing option, the motherboards incur a transportation cost to transport arrived motherboard to be moved to SLC and transport to the 3PI for integration. 4. A storage space is required to store empty chassis at SLC (inventory holding cost) while waiting for the motherboard to ship in (idle time). 5. Chassis and motherboard US transportation cost as indicated in Figure 6-4. After 3PI integrate the motherboard into the chassis, it will be sent back to the SLC before pulled into Dell factories. 6. Replacement or repair of dysfunctional or problematic motherboards from...