Hey, Dude, You’re Getting Like Dell
When Gary Cowger, president of the North America division of General Motors Corp., was looking for ways to improve the auto giant’s performance in manufacturing and customer satisfaction, he boarded a plane bound for the Hill Country of Central Texas.
There, surrounded by a smattering of cedar trees and scrub brush in North Austin, sprawled Dell Computer Corp.’s celebrated PC plants. Touring the production lines, Cowger found his inspiration.
Dell climbed to the top of the PC industry by honing its factory-floor efficiency, and within weeks of Cowger’s return to Detroit, GM was starting to do some things the Dell way.
The world’s biggest automaker, with 94 years of manufacturing history, was taking lessons from a company whose chief executive hasn’t even hit 40. Sound crazy?
Maybe not: GM posted profit of $1.7 billion on $187 billion in revenue last year, while Dell, with revenue of just $35.4 billion, pulled in $2.1 billion.
Dell is a master of what’s known in manufacturing circles as order-to-delivery: taking a customer’s order and very quickly producing the requested product. It takes Dell just five days to assemble a computer to a customer’s specifications and ship it out the factory door.
Automakers have long sought to do the same with cars and trucks, betting that the manufacturer that can provide the exact vehicle a buyer wants, in a week or less, will win out in an intensely competitive market.
“Clearly they were going places where other companies hadn’t been before,” said Brad Ross, GM’s executive in charge of global order-to-delivery, who went on a separate pilgrimage to Dell.
GM isn’t the only automaker interested in learning from Dell. Executives from Ford Motor Co., DaimlerChrysler and Toyota Motor Corp. have made pilgrimages to Austin, as have representatives of scores of other companies in a wide variety of industries.
“It’s a source of pride,” said the boyish Michael Dell, who started the company in a dorm room at the University of Texas at Austin in 1984. “We were a bit taken aback when we first had some of the big automakers come to us and say, ‘Hey, can you teach us how you do this?’
“It was like, ‘What, you want to learn from us? Wow, that’s pretty cool.’ ”
Dell’s system is all about speed and customization. Three factories -- two in Austin and one in Nashville -- pump out computers in response to customer orders, which come in from the Internet or over the phone every 20 seconds. The assembly lines are so lean that they keep only enough parts on hand at any given time to supply the next two hours of production.
“It’s about eliminating waste,” said John Egan, Dell’s Austin-based director of fulfillment. “We don’t start anything until we know who it’s for. Whether it’s 10,000 for A or one for B, we treat them the same.”
Carmakers envision a day when a customer will walk into a showroom, go for a test drive and then place a specific order: for a silver sports coupe with saddle leather interior, heated seats and moon roof.
No longer would dealers be stuck with hard-to-move cars just because the marketing wizards in Detroit overestimated demand for blue sedans with cloth interiors and rear spoilers.
The Holy Grail for manufacturers has been the five-day car -- a dealer orders it Monday and it shows up Friday. In a 1991 book, “Customers for Life” by Carl Sewell, Cowger fantasized about a three-day car.
That’s a dream. Right now, it can take as long as two months to deliver a car built to order. The long lead times needed to coordinate parts and assemble a specific vehicle mean that as recently as three years ago, it took GM 75 days to turn an order into a car and ship it to a dealership. GM brought the turnaround time down to about 20 days through improved communications, streamlined assembly and the peeling away of multiple layers of bureaucracy.
‘Dealing in Real Time’
Cowger thinks he can shrink that even more. “If you want to continue to grow fast, and if you want to continue to drive down your lead time, then this whole idea of dealing in real time is intriguing to me,” he said.
Business schools and industry magazines have fawned over Dell’s production system, known as “Dell Fast Flexible Fulfillment” or “DF-cubed.” It has kept the company’s profit high and the stock afloat during the last two years while other technology stocks tanked.
“The key is the speed at which they link to their customer, sense the market demand, translate that into products,” GM’s Ross said. “The sense of urgency and sense of speed I think was new in manufacturing and in the industry, and was obviously paying a lot of dividends.”
That sounds a lot like Toyota. Many of Dell’s fundamentals were drawn from the Japanese automaker, which in the 1970s pioneered a super-efficient manufacturing system and just-in-time production, where parts arrive at a factory moments before they’re needed.
“If you look at our inventory system, it follows from some of the lessons of the Toyota production system,” Dell said in an interview, “although arguably maybe we’ve taken it a step further in terms of the absolute velocity. We’re certainly not ashamed to borrow good ideas from others.”
Now it’s gone full circle -- even Toyota has sent executives on the trek to Texas.
“Toyota does a good job at what we do, but we can always learn,” said Jim Bolte, vice president of information systems at Toyota Motor Manufacturing North America in Erlanger, Ky.
A Strategic Advantage
The PC industry is highly competitive, with constant price wars among Dell, Hewlett-Packard Co., Gateway Inc. and other computer makers. So the ability to respond rapidly offers a tactical advantage.
For instance, excess inventory from a supplier of memory might prompt Dell marketers to offer a free memory upgrade with every new PC, Bolte said.
“But then if memory gets restricted, they might offer a free CD or DVD upgrade,” he said. “ “Their flexibility is something that I personally desire.”
Former Ford Chief Executive Jacques Nasser used to speak frequently with Michael Dell about manufacturing issues and the Internet, and Ford has adopted some of Dell’s ideas about the Web, according to a former Ford executive. DaimlerChrysler said its chief information officer, Sue Unger, speaks occasionally with Michael Dell.
But John Shook, a consultant in manufacturing efficiency and a senior advisor to the Lean Enterprise Institute at the Massachusetts Institute of Technology, warned that the auto industry can’t take every page out of Dell’s manufacturing book.
For instance, he said, Dell is viewed as a master of inventory partly because most of the components that the computer maker needs are held by its suppliers, and many of them have warehouses near Dell’s factory. When automakers in the late 1980s and early 1990s tried to shift inventory to suppliers, the parts companies found themselves burdened with huge costs.
“The auto industry has very little to learn from Dell when it comes to supply-chain management,” said Shook, who has visited Dell’s production lines.
Adopting Practices
GM, which last year built 8.3 million vehicles compared with Dell’s 20.6 million computers and servers, has so far adopted a couple of Dell practices.
Cowger said that studying Dell helped him deal with the ambiguity inherent in business forecasts. At GM, the lengthy process of developing a new car or truck involves constantly fluctuating estimates of what demand will be. The feeling at Dell is that “it’s OK to deal with ambiguity because you can’t predict the future,” Cowger said. So at GM now, instead of fretting about the accuracy of their forecasts, GM executives are comfortable downplaying the importance of demand predictions and moving on to other decisions, he said.
Cowger’s visit to Austin also introduced him to the information age. He noticed that Michael Dell and manufacturing chief Dick Hunter used Blackberry wireless e-mail machines to stay in touch while away from their computers or phones.
Curious, Cowger asked Hunter about the hand-held devices. “We’re a real-time company,” Hunter told him, “and we need to know what’s happening real-time.” Cowger recalled that as Hunter was talking, “his Blackberry buzzed and it was Michael checking on the production order for the last hour.”
Hunter turned to the GM executive and said, “See what I mean?”
After he got back to Detroit, Cowger ordered Blackberries for GM’s 18-member North American Strategy Board and numerous other executives. Even GM Chief Executive G. Richard Wagoner has a Blackberry.
“Rick saw me with one, now he’s got one,” Cowger said. “He told me, ‘I just love this thing.’ ”
