The world changed for Dell in April 1997. Sure, Dell had been a very successful computer system maker before that. Its direct sales model was successful enough up to that point to have helped it inch ahead of rival IBM into third place in US PC sales behind Packard Bell NEC and juggernaut leader Compaq. Dell had also just counted profits of $518 million for its most recent fiscal year and its forecasts were absolutely rosy.
And yet, third place just didn't have a very satisfying ring to it.
So, after pouring over projected forecasts and holding many high-level strategic planning discussions, Dell decided to change the way it made PCs.
"Our projections showed a dramatic increase in demand," says Terry Kelley, vice president of Worldwide Operations I/T at Dell. "We could have tried to build more factories to keep up, but it would have been very expensive and difficult to do. We decided instead to make some fundamental changes in how we built the machines."
If Dell had been in the restaurant business, this would have been the point where it discovered that its kitchen functioned well enough for its current size, but new recipes and smashing reviews were starting to bring in crowds. Dell decided that what it needed would have been the equivalent of either building a huge new kitchen-maybe even a whole new restaurant-and adding lots of staff or expanding more efficiently by creating a new kind of kitchen that featured a new way to think about constructing delectable dishes and getting them to the ever-increasing number of patrons in a timely manner.
Prior to April 1997, Dell had in place a fairly standard assembly-line process for making servers and PCs. Computer chases would roll down with one person after another adding on a bolt here, a processor there. In this progressive-build system, it took up to 25 people to build one machine. That had to change.
"Our goals were to reduce the number of worker touches per machine to reduce time and costs," says Larry Brown, one of Dell's visionaries as vice president of Worldwide Process Technology and Quality.
What Brown, Kelley and the IS team came up with was a plan for Metric 12: a new plant designed by combining just-in-time manufacturing-the concept of avoiding the need to warehouse inventory by having only what you need when you need it-with the already-famous customised Dell approach. The plan called for giving assembly line workers more responsibilities and components so that each one could build more of a machine by themselves. Because fewer people were going to touch each machine, building errors could be cut exponentially. That gave the line workers a greater sense of involvement and ownership of their work. Instead of simply adding a bolt here and a chip there, workers in very small teams would now build the complete machines following precise order guidelines and using the components in the carefully indicated racks in front of them.
The planning teams went to work figuring out how to organise the space inside the new plant. In the process of designing and redesigning plans, they had to define their new manufacturing processes and then learn what was required to support them. Once the concept and design plans were final in December 1996, the earth movers started rolling. Metric 12 was completed the following April in four breathtaking months due to a combination of hard work and simplicity of the final designs.
Was it imperative that they build the plant quickly? The answer from Dell executives is a resounding yes, partly because they had to meet the public's demand for more and more new systems and partly because they realised just what an advantage their new processes would give them over their competitors.
"When you're trying to complete a project like this in a very short time you can do it one of two ways," says Gregor Bailar, one of the Enterprise Value Award judges and vice president and CIO of the National Association of Securities Dealers (NASD, the parent organisation of Nasdaq). "You can build a quick-and-dirty kluge of existing systems, or you can build a real process of technology management," he says. Dell chose the second, "and that's what impressed the judges," says Bailar.
Dell's teams designed a method for quickly moving component parts into the plant. And they had to move the completed machines out as fast as they were finished. To do that, they had to find a way for the manufacturing teams to know they had all they needed to finish an order-whether it was for a single PC or for 200 of them-before they started building the first one.
"First, we had to learn what it meant to know that you could finish an order before you start it," says Brown. "Then we had to create an inventory control system and a workflow system," he says.
Everett Lamb, now a senior manager of plant technology business analysis, was on the team that designed the Metric 12 technology systems. "We realised that, if we could break large stocks of inventory into stockroom racks, it would increase our accuracy and our speed."
To see what that meant, let's go back to the restaurant notion.
Imagine that a party of six comes in to the old restaurant, and they all order the grilled ginger salmon special with sugar snap peas. Before you start the order, you want to make sure you have enough salmon and snap peas to finish all of them at the same time so that you're not serving each person in the party at a different time. If your kitchen is busy, you don't have the time to go out shopping for more salmon at the last minute. And if you leave your hungry customers waiting too long, they'll go elsewhere to eat.
Now imagine that you have a system in place that ensures you have all the ingredients you need in front of you before you start-one that almost hands you the ingredients you need. Your order accuracy goes way up and things move significantly faster.
What Dell did was very close to that, except the menu was huge and the number of ingredients even larger still. For example, each machine could have any of a dozen or so microprocessors and any of two dozen network adapters. When you figure in memory, disk drives, video cards, storage devices, sound cards and even monitors, the number of combinations quickly skyrockets-and that's not even figuring the types of software that Dell can install on each system.
To handle those possible combinations, Dell put in place a system of baskets, racks and traffic signals it called the Pick-To-Light system. Made by Kingway Material Handling, the Pick-To-Light system is based on an up-to-the-minute database that runs on an SCO Unix operating system platform and is tied to a stockroom system. By tying it to work-in-progress stockrooms, the order-level material checking system keeps track of which materials need replenishing and makes sure the racks are filled with the proper components.
In planning the system, Kelley and his team realised they needed to rework two key pieces of the manufacturing process they had planned: how component materials came in and where in the system decisions were made. "We get too many things from too many suppliers," says Kelley, "so we consolidated our supply chain, reducing the number of suppliers we used. And because speed was so important, we decoupled the decision-making process from the events in the factory. You can't be waiting on IT systems in a manufacturing operation."
By consolidating its number of suppliers, Dell was able to keep component supplies moving into the plant smoothly without any bottlenecks backing up at the incoming supply loading dock. The PC maker also encouraged suppliers to locate their facilities nearby so that Dell's component orders could be filled quickly.
"What Dell has done is not trivial to execute by any stretch of the imagination," says John Glaser, one of the Enterprise Value Award judges and vice president and CIO of Partners HealthCare System in Boston. "It takes a lot of ability to execute such a massive change in a continuous flow operation."
Starting that May, Dell's world was different. After undergoing this change and implementing these systems in the Metric 12 plant in Austin, Dell started carrying this approach to all of its manufacturing centers. Plants that have opened in the last 12 months in Brazil and Nashville, Tenn., are modeled closely on the Metric 12 facility.
"After the Metric 12 installation, we got the [implementation and planning] teams together, compared notes and came up with a full documentation plan that we have used as a blueprint in other installations," explains Victor Koncaba, a senior manager of plant technologies applications development at Dell. That replicability impressed the Enterprise Value Award judges.
"Dell has shown that it can reproduce this model in other new manufacturing plants," says NASD's Bailar. "They had technology management under control and therefore gained a breakaway strategic advantage from doing so," he says.
Patricia M. Wallington, another of the judges and former CIO of Xerox, says that not only did Dell make this manufacturing makeover work, "but it has flourished because of it and will build on it in the future." It was "truly a visionary, clean-sheet process that others will strive to imitate," she says.
Dell also achieved what it really set out to do. It has increased its manufacturing speed and throughput by 150 per cent and raised the uptime of its manufacturing lines by more than 95 per cent. Dell officials also say that reducing the repetitiveness of assembly line jobs reduced employee turnover. That occurred because line workers now have more skills and less boring repetition in their daily work; within their small workgroups, they can build and complete machines themselves. That gives the line workers a much greater sense of personal accomplishment, which keeps them happier with their jobs and results in decreased worker turnover. All with an IT investment of just over $1.6 million.
"When we began I said I had one simple request," says Brown. "I wanted my folks to not be fearful of starting an order."
That simple request lead to Dell now cranking out 1 million machines from Metric 12 every three months and brought along some encouraging financial results too: Dell cleared $1.5 billion in profits last year.
And remember back in 1997 how unsatisfying third place was? Well, that has changed too. In the third quarter of 1999, Dell climbed past Compaq to be the top seller of PCs in the United States.
Terry Kelley can state very clearly what impact the design and building of Metric 12 had on the company. "The most important part about this project is that it made us number one."
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