Outsourcing’s influence on Dell’s manufacturing overhaul

Excerpts from a recent report from the investment bank Deutsche Bank, with some interpretation from VentureOutsource.com, follow below on Dell's recently announced changes.

Deutsche Bank believes that while cutting operating expenses is an important part of Dell's turnaround, fixing Dell's product line and manufacturing model is more essential to securing Dell's longer-term health and reaching its cost reduction goals.

Of the expected $3 billion in cost savings, Deutsche Bank estimates headcount cuts account for roughly $750 million, or about 25% of the plan.

This translates to the remaining $2.2+ billion coming from a significant overhaul of Dell's product design, development and manufacturing model- resulting in harder but more enduring cost savings.

Dell must move quickly to cut its high-cost manufacturing capacity and shift to a lower configuration, high volume / low-cost manufacturing model to match the growth opportunities in the PC market (notebooks, consumer, and emerging markets).

Deutsche Bank continues by stating in two to three years time, Dell could migrate as much as 25 percent to 35 percent of its full system production to contract manufacturers while simultaneously cutting its own manufacturing capacity by 25 percent.

Closing the Austin desktop manufacturing plant was the first step in what Deutsche Bank expects to be a dramatic restructuring of Dell's manufacturing footprint. Successful execution of Dell's plan could significantly lower Dell's ongoing cost structure and sharply increase competition across the PC industry.

Existing manufacturing footprint
As highlighted in the table below, Dell currently has 5.7 million square feet of worldwide manufacturing, distribution and design capacity in addition to 1.5 million of leased facilities.

Dell manufacturing footprint, square footage