Dell Level 5/Level 4 Manufacturing

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Dell Inc.: Case questions

In the Level 5 manufacturing, the motherboard is not installed into the chassis before the shipment to the US. This means that at L5 has a longer list of cost: (1) motherboard packaging cost to protect the motherboard from damage (2) air-freight cost, these are separate transportation cost (3) US transportation cost are cost required to transport the motherboard from the U.S. to the SLC and to the 3rd-party integrator (4) inventory holding cost at SLC

(5) Local integration cost to integrate two separate components. After this it is needed that after the motherboard within the chassis after integration returns to the 3rd-party. Since the 3rd-party does not have effective equipment to perform tests, the defect rate is high, which will return in higher rework cost at Dell. Next to that it is a fact that the management cost are higher because L5 is more complex to manage than L6. The separate transportation cost leads to a higher cost per unit, these separate transportation requires a good integration because chassis and motherboards both needs to be in time else it will incur further cost by holding inventory not necessary. The only cost occurring in Level 6 and not in Level 5 are assembler’s coast in China to install the motherboard into the chassis. This is the difference between Level 5 and Level 6. L5 ships chassis without the motherboards, these components are shipped separately and will be integrated later.

The advantages of the level 5 is that it provides a flexible supply chain since motherboards and chassis are shipped separately. While chassis are travelling, Dell can determine how many motherboard needs to be produced in China. This looks a lot like a JIT (just-in-time) management which also will result in lower inventory cost. Some disadvantages are the higher cost mentioned above and the need for good coordination. When there are a lot of empty chassis without motherboards, it will incur inventory cost. Next to...
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