Page 55 - Lean six sigma demystified

34 Lean Six Sigma DemystifieD

Seems like everywhere you look you see Dell computers or laptops—on air-
planes, in retail stores, or in business offices. Most users don’t think about how
Dell became so successful, but the essence of Michael Dell’s strategy is Lean.
Rather than build big batches of standard PCs to be sold in retail stores as HP
or Compaq do, Dell aims at customers who order their customized computer
online or on the phone. Then, using one-piece flow, Dell builds a custom, made-
to-order PC for that customer. This gives Dell a “first-mover advantage” in the
marketplace. Since the First Edition of this book, competitors have stepped up
their capabilities, but it’s still useful to analyze Dell’s strategy.

Mass production . . . naturally generates an abundance of waste.
—Taiichi Ohno

Traditional batch production manufacturing pushes products to consumers
by purchasing parts and assembling products based on forecasted demand. This
results in large inventories of finished goods, in this case, computers. Dell, on
the other hand, assembles a customer’s computer after the order is placed. This
means that they can maintain little or no inventory. Dell turns over its inven-
tory 80 times a year compared to 10 to 20 times for its competitors.
Dell’s suppliers also build to order. Dell orders parts, suppliers deliver them,
and Dell immediately places them in production. Shippers pick up the finished
computers within hours of their completion and deliver them directly to the
customer. This strategy minimizes inventory, reduces lead time, and accelerates
the introduction of new technology. Since Dell doesn’t buy any more chips,
memory, or disk drives than they need for a few days of production, they can
immediately incorporate faster chips or better drives into their products.
Moore’s law says that computers double in power every 18 months and halve

in cost, so you don’t want to have too much unsold inventory when technology
advances. With Dell, you don’t have to wait 3 to 6 months for the latest tech-
nology from a batch manufacturer; Dell can deliver it almost immediately.
With less inventory and lower costs driven by this Lean approach to com-
puter manufacturing, Dell can deliver better profit margins than most players
in their industry and pass the savings along to customers.
Dell had 3 to 14 days of inventory from 1996 to 2008. Apple Computer,
which once had over 50 days of inventory, has reduced their inventory to
10 days.

Inventory is fundamentally evil. It declines in value by 1% to 2% a week in normal
times, faster in tough times.
— Tim Cook, chief operations guru for Apple Computers