From its humble beginnings in a University of Texas at Austin dorm room, Dell Inc. has grown into one of the most well-known technology brands in the world. The company was one of the first to sell directly to consumers, custom assembling each unit according to the buyer’s specifications.
|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
But building a brand based on custom configuration and low prices carried a unique set of challenges. By 2010, rising US manufacturing IT costs and growing competition from abroad were testing Dell’s high-volume, high-variability, configure-to-order (CTO) manufacturing model.
As a part of this model, the company had established its eight manufacturing facilities completely differently. Each factory relied on different processes to produce the same products, and they were often pitted against one another as a means to drive productivity and innovation. In a new world of higher competition and lower prices, this disparity added considerable challenges to the business, particularly in IT. Each factory, for instance, had a unique IT footprint, with as many as 600 physical servers per facility. And across facilities, operations relied on more than 70 highly customized applications to guide each unit on its path through the factory and out the door to the customer.
The complexity of the IT environment contributed to high IT cost of goods sold. Because nearly every application had been custom developed, facilities experienced high downtime (in some cases exceeding two percent), and incompatibilities made it extremely difficult to interchange data with their outsourced supply chain.
But more significantly, the global PC market was experiencing a shift toward standard product configurations, as the retail channel and ships-fast sales displaced the traditional CTO model. To maintain a competitive edge in an increasingly challenging market, Dell would need to profoundly transform its manufacturing operations, simplifying its infrastructure and reengineering its manufacturing processes from end to end.
Says Matt Griffiths, Executive Director of Manufacturing IT for Dell, “While the CTO model still worked for our enterprise and large customers, consumers were really looking for a simpler product portfolio. We had to ask ourselves how we would react to that shift and drive the efficiencies of a simpler product portfolio into our factories and supply chains so we could realize the cost savings and benefits of doing that change.”
A New Vision for Manufacturing
The first step in Dell’s business transformation was manufacturing simplification. Dell reengineered its manufacturing processes based on lean principles, including just-in-time delivery of components from hundreds of suppliers. The new manufacturing model also required Dell to rationalize its technology infrastructure and ultimately to rearchitect nearly all systems based on the new, simplified processes.
|At the first factory where we deployed Microsoft Dynamics AX in India, they refer to it as the ‘Magic Energy System,’ which is a play on MES. It was really fulfilling to have the system accepted so rapidly by the factory floor operators.|
| Matt Griffiths|
Executive Director of IT Manufacturing
To support this transformation, Dell implemented Microsoft Dynamics AX. Company leadership understood that a Microsoft Dynamics solution would enable them to standardize business processes around industry best practices and a single, global business model. The solution would also enable Dell to maintain maximum flexibility within each facility, allowing the company to respond quickly to changing market conditions. To further ensure flexibility, the company adopted a hub-and-spoke model, setting up each factory as an individual manufacturing business, with financials rolling up to the financial systems in place at Dell’s headquarters.
While flexibility at the plant level was important to Dell, the company opted to use much of the Microsoft Dynamics AX functionality out of the box to allow for a rapid deployment. Says Griffiths, “We were able to roll out Microsoft Dynamics AX to seven of our eight facilities over the last three years and we are just now completing the final rollout in Poland.”
Griffiths notes that while the initial deployment took six months to complete, subsequent implementations were faster; the following deployment took only four months, and the three most recent deployments were performed simultaneously.
Microsoft Dynamics AX is now in place at seven of Dell’s eight manufacturing facilities. The Microsoft Dynamics solution acts as the company’s core Manufacturing Execution System (MES), while allowing the company to streamline operations using lean principles and industry best practices.
The MES uses the Lean, Production, Inventory, Quality, and Trade modules built into Microsoft Dynamics AX to manage more than one million transactions each day and all of Dell’s factory operations. Says Griffiths, “We use Microsoft Dynamics AX end-to-end. It handles everything from the raw materials coming in the front door of the facility, to kitting and material handling, all the way to our burn process through to shipping out the back door to our customers.”
Allowing for a seamless connection and alignment with the company’s outsourced manufacturing network, Microsoft Dynamics AX also connects to Dell’s other enterprise applications using open, flexible communication methods through Microsoft BizTalk Server.
Implementing Microsoft Dynamics AX helped Dell dramatically simplify its IT infrastructure and realign its manufacturing processes based on lean principles—all while maintaining the flexibility the company needs to quickly retool its facilities to meet consumer demand for new or different products. With the new MES in place, Dell has realized considerable IT cost savings, while increasing efficiency and boosting agility.
Reduce IT Costs of Goods Sold by Approximately 40 Percent
Through the implementation of Microsoft Dynamics AX and adoption of Lean manufacturing principles, Dell decreased manufacturing IT costs of goods sold by approximately 40%. Says Griffiths, “Since deploying Microsoft Dynamics AX, we have reduced manufacturing IT costs by $50M.
Griffiths goes on to say that this equates to an estimated 6-month payback on its Microsoft Dynamics AX investment—a timeframe in which the company was also able to fully recover its factory throughput efficiency.
Simplify the Technology Environment, Improve Uptime
In conjunction with its Microsoft Dynamics AX implementation, Dell retired almost 2,000 physical servers and 75 custom-developed applications for an overall reduction of its IT footprint by an estimated 75 percent.
At the same time, this highly simplified environment has seen vast improvements in uptime. Says Griffiths, “Back in 2008, we were seeing downtime of about two percent of man capacity. We are now at the point where our downtime in our most mature factory is 0.5 percent. That’s a 75 percent reduction in downtime.”
Streamline Manufacturing, Maintain Competitive Edge
With an MES in place, Dell was able standardize its manufacturing processes across its global manufacturing facilities. While enabling the company to implement lean principles, this change has also helped the company to remain a leader customized products, manufactured just in time.
With all of these processes now happening on a single system, Dell can fulfill customer orders in a much more timely fashion, while maintaining complete visibility and control over its manufacturing operations.
But even more importantly, this new manufacturing environment has enabled Dell to adapt to a new way of doing business. Says Griffiths, “As the manufacturing industry evolved and shifted away from every unit being completely different, we were able to change our business processes to take advantage of that. Microsoft Dynamics AX, with its Lean module, was fundamental in helping us to do that.”
With customization a core pillar of its brand, Dell understood that it must be able to maintain flexibility to meet the needs of its customers. To that end, Microsoft Dynamics AX helped the company’s global network of facilities to run as one lean and flexible machine.
Elaborating on the company’s ability to react to change, Griffiths says, “Now as new products or processes are being introduced into our facilities, we only have to develop them once and roll them out across all locations. Before Microsoft Dynamics, we had to literally develop our processes seven different times. Today, our development teams are significantly streamlined. We can reuse our testing across factories, and any defects we find we can fix once and apply across the whole business in one big swoop.”
With Microsoft Dynamics AX in place, company leadership gains real-time visibility across departments, enabling the optimization of financial, human, and material resources as a whole—ensuring Dell’s position as a leader in providing customized technological solutions around the world.
Software That Inspires
The user base for Dell’s deployment of Microsoft Dynamics AX is impressive, spanning from 4,000 to 5,000 employees. The company even aims to add another 1,500 users in the near future as it expands its ERP deployment to Western China. And while the change to any new system can be a challenge, Griffiths notes that adoption of Microsoft Dynamics AX has gone relatively smoothly. While Microsoft Dynamics AX is known as the company’s Manufacturing Execution System (MES) companywide, Griffith points out that a new name has arisen. He says, “At the first factory where we deployed Microsoft Dynamics AX in India, they refer to it as the ‘Magic Energy System,’ which is a play on MES. It was really fulfilling to have the system accepted so rapidly by the factory floor operators.“
Dell’s Technology Environment
Dell Compellent Storage Center SANs
Dell Force10 Networking
Dell Wyse Cloud Clients
Dell PowerEdge 12G servers
Microsoft BizTalk Server
Microsoft Dynamics AX
Microsoft SQL Server
VMware for Linux
Windows Server 2008
Windows 7 thin clients
This case study is for informational purposes only. MICROSOFT MAKES NO WARRANTIES, EXPRESS OR IMPLIED, IN THIS SUMMARY.
Document published March 2013.