Dell announced in 2012 that it would alter its operating model as a part of a three year $2 Billion cost cutting initiative. Even though Dell led the way in terms of the lean manufacturing initiative in the personal computing realm, it is time to update and optimize the models in place. Dell pioneered in lean manufacturing because of the made to order PCs model. This was possible due to JIT and the strong supplier networks. Hence lower inventory costs led to a competitive edge. However today, because of the rapidly changing business models of high tech companies, the market is more agile and consolidated than ever.
The new vision of Dell is to simplify the manufacturing processes. Especially the lean manufacturing processes that involve just-in time delivery of components from hundreds of suppliers. To achieve this, Dell had to rethink and re-engineer all their systems along with rationalizing it technology infrastructure based on the new model. The new model implementation was based on Microsoft Dynamics AX. Dell drove towards a single, global business with enhanced flexibility that would enable the company to adapt to the changing market conditions.
The company also adopted the hub-spoke model, setting up each factory as an individual manufacturing business. This model is now in place in 7 of Dell's manufacturing facilities allowing the company to streamline the lean principles and industry leading practices.
"Since deploying Microsoft Dynamics AX, we have reduced manufacturing IT costs by $96 million. The Microsoft Dynamics solution contributes approximately $50 million of those savings." - Matt Griffiths (Executive Director of IT Manufacturing -Dell)
Results of this change:
1. Reduced IT cost of goods by approximately 40%
2. Simplified the technology environment.
3. Improved uptime.
4. Streamlined manufacturing, Maintain competitive edge.
5. Drive agility.
Migration to any new model/technology involves a lot planning, time and money. Even though the initial savings are evident, will it be robust in a long run since it depends on a third party technology rather than an in-house optimization?