Comment Articles

Dell's garden shed secret

Matt Loney ZDNet.co.uk

Published: 21 Aug 2002 11:11 BST

Every few years or so I end up in a factory in Limerick. And every few years the factory seems to be about twice the size it was last time I visited. I've lost track of just how many football pitches the factory now covers, but one thing I know: with a new layer of fresh turf it would comfortably house the second round matches of the World Cup -- all played at the same time.

As it is, the factory turns out PCs. Lots of them. It is estimated that PCs and related sales from Dell's Irish operations contribute some 5.5 percent of that country's exports. The salary bill alone is pushing £70m -- almost as much as the combined England football squad's wage bill.

The most remarkable thing about Dell's factory is the room where the components come in -- it is little bigger than a garden shed. For a factory turning out thousands of PCs every day, you would expect the goods in area to be chock full of crate upon crate of cases, motherboards, hard disks and the other detritus that makes up a computer. Instead, a steady stream of trucks reverses up to one door, boxes are unloaded and almost immediately -- or so it seems to anyone standing there watching the process -- pass through the other door and out onto the assembly line.

This is just-in-time manufacturing at its best. But the benefits of just-in-time manufacturing go far beyond savings achieved by buying a 12 foot by 9 foot Yardmaster Shiplap shed with a 12-year anti-rust guarantee instead of building a huge goods-in warehouse.

The real benefit comes from the cost structure. Imagine this: suppose that, while browsing the QVC home shopping channel, you buy A Marie Osmond "Stephen Tiny" Tot Porcelain Doll for $39.75, as well you might. As far as I can gather these are only available in the US, so we'll work in dollars for a moment.

Now suppose that you manage to pull off several minor coups. First, you know QVC is so desperate to get rid of the disturbing-looking piece of tat that you negotiate 45-day payment terms. Second, as soon as you switch off the television you come to your senses, realise what you've done, and take it along to a car boot sale where, quite inexplicably, you manage to sell it for a cool £40 cash (we're back in the UK now where demand for Marie Osmond porcelain is very high).

Not only have you achieved something like a 30 percent markup, but that £40 can now sit in the bank collecting interest for 45 days before you have to pay QVC, so you're effectively earning interest on money that's not really yours.