Make vs. Buy — Dell Changes Its Ways

In the nineties, Dell became the B2B poster child for integrating efficient supplier management, manufacturing and cash-flow management practices. But the model of owning its own production facilities no longer makes sense for the hardware giant. According to recent Forbes and Wall Street Journal articles, "Dell has approached contract computer manufacturers with offers to sell the plants …One person briefed on the plan told the Journal that he expects Dell to sell most or possibly all of its factories 'within the next 18 months'. The most likely buyers of Dell's factories will be big contract manufacturers." The major challenge for Dell is that their factories "were originally designed to manufacture PCs for corporate customers ordering large volumes of desktop PCs. But growth has shifted to laptops sold to consumers at retail stores over the past three years." As a result, Dell has been at a cost disadvantage in the market relative to competitors that have used contract manufacturers who "are generally able to produce computers for less money" because "their entire operations are narrowly focused on finding efficiencies in manufacturing."

I look at this story in a different way than most observers probably would. Most important, I see it as vindication of the role of procurement in redefining the basis of competition in certain industries. HP, Lenovo, Apple and others were able to successfully redefine both their cost basis and production flexibility thanks to "buying" vs. "making" forcing the hand of the provider once regarded as the industry leader. Just as Honda and Toyota forged a supplier management approach that fostered innovation and supplier collaboration -- in marked contrast to the practices of Ford, GM and Chrysler throughout the eighties and nineties -- Dell's competitors turned to their suppliers to redefine the basis of competition. And this simple decision would ultimately trump a business model that many regarded as one of the best on the planet.

- Jason Busch

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