Guardian Unlimited | The Guardian | Global is goodComment: Excellent read! I am posting the entire article in here so that I can read it later, long after Guardian have archived the page and fired the reporter! Sorry 'moral copyright cops'!! Global is goodIn his provocative new book, distinguished American commentator Thomas Friedman argues that digital technology and increasing globalisation have created a 'flat earth'. In this exclusive extract he unravels the dizzyingly complex supply chain behind his laptop - and argues that it will make the world a safer place
Thursday April 21, 2005
The Guardian
The World is Flat by Thomas Friedman
Buy The World is Flat at the Guardian bookshop
Let me tell you a little bit about the computer I am writing this on. It's a Dell Inspiron 600m notebook, service tag number 9ZRJP41. As part of the research for my book, I visited the management team at Dell, near Austin, Texas. I shared with them the ideas in this book and in return I asked for one favour: I asked them to trace the entire global supply chain that produced my Dell notebook. Here is their report.
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My computer was conceived when I phoned Dell's 800 number on April 2 2004, and was connected to sales representative Mujteba Naqvi. He typed in both the type of notebook I ordered as well as the special features I wanted, along with my personal information, shipping address, billing address and credit card information. My credit card was verified by Dell through its work-flow connection with Visa, and my order was then released to Dell's production system. Dell has six factories around the world - in Limerick, Ireland; Xiamen, China; Eldorado do Sul, Brazil; Nashville, Tennessee; Austin, Texas; and Penang, Malaysia.
My order went out by email to the Dell notebook factory in Malaysia, where the parts for the computer were immediately ordered from the supplier logistics centres (SLCs) next to the Penang factory. Surrounding every Dell factory in the world are these supplier logistics centres, owned by the different suppliers of Dell parts. These SLCs are like staging areas.
If you are a Dell supplier anywhere in the world, your job is to keep your SLC full of your specific parts so they can constantly be trucked over to the Dell factory for just-in-time manufacturing. "In an average day, we sell 140,000 to 150,000 computers," explained Dick Hunter, one of Dell's three global production managers. "The orders come in over www.Dell.com or over the telephone. As soon as these orders come in, our suppliers know about it. They get a signal based on every component in the machine you ordered, so the supplier knows just what he has to deliver. If you are supplying power cords for desktops, you can see minute by minute how many power cords you are going to have to deliver."
Every two hours, the Dell factory in Penang sends an email to the various SLCs nearby, telling each one what parts and what quantities of those parts it wants delivered within the next 90 minutes - and not one minute later. Within 90 minutes, trucks from the various SLCs around Penang pull up to the Dell manufacturing plant and unload the parts needed for all those notebooks ordered in the last two hours. This goes on all day, every two hours. As soon as those parts arrive at the factory, it takes 30 minutes for Dell employees to unload the parts, register their barcodes, and put them into the bins for assembly. "We know where every part in every SLC is in the Dell system at all times," said Hunter.
So where did the parts for my notebook come from?
To begin with, he said, the notebook was co-designed in Austin, Texas, and in Taiwan by a team of Dell engineers and a team of Taiwanese notebook designers. It happened that when my notebook order hit the Dell factory in Penang, one part - the wireless card - was not available due to a quality-control issue, so the assembly of the notebook was delayed for a few days.
Then the truck full of good wireless cards arrived. On April 13, at 10.15am, a Dell Malaysia worker pulled the order slip that automatically popped up once all my parts had arrived from the SLCs at the Penang factory. Another Dell Malaysia employee then took out a "traveller" - a special carrying tote designed to hold and protect parts - and started plucking all the parts that went into my notebook.
Where did those parts come from? Dell uses multiple suppliers for most of the 30 key components that go into its notebooks. That way, if one supplier breaks down or cannot meet a surge in demand, Dell is not left in the lurch. So here are the key suppliers for my Inspiron 600m notebook: the Intel microprocessor came from an Intel factory either in the Philippines, Costa Rica, Malaysia or China. The memory came from a Korean-owned factory in Korea (Samsung), a Taiwanese-owned factory in Taiwan (Nanya), a German-owned factory in Germany (Infineon), or a Japanese-owned factory in Japan (Elpida). My graphics card was shipped from either a Taiwanese-owned factory in China (MSI) or a Chinese-run factory in China (Foxconn). The cooling fan came from a Taiwanese-owned factory in Taiwan (CCI or Auras). The motherboard came from either a Korean-owned factory in Shanghai (Samsung), a Taiwanese-owned factory in Shanghai (Quanta), or a Taiwanese-owned factory in Taiwan (Compal or Wistron). The keyboard came from either a Japanese-owned company in Tianjin, China (Alps), a Taiwanese-owned factory in Shenzen, China (Sunrex), or a Taiwanese-owned factory in Suzhou, China (Darfon). The LCD display was made in either South Korea (Samsung or LG Philips LCD), Japan (Toshiba or Sharp), or Taiwan (Chi Mei Optoelectronics, Hannstar Display, or AU Optronics). The wireless card came from either an American-owned factory in China (Agere) or Malaysia (Arrow), or a Taiwanese-owned factory in Taiwan (Askey or Gemtek) or China (USI). The modem was made by either a Taiwanese-owned company in China (Asustek or Liteon) or a Chinese-run company in China (Foxconn). The battery came from an American-owned factory in Malaysia (Motorola), a Japanese-owned factory in Mexico or Malaysia or China (Sanyo), or a South Korean or Taiwanese factory in either of those two countries (SDI or Simplo). The hard-disk drive was made by an American-owned factory in Singapore (Seagate), a Japanese-owned company in Thailand (Hitachi or Fujitsu), or a Japanese-owned factory in the Philippines (Toshiba). The CD/DVD drive came from a South Korean-owned company with factories in Indonesia and the Philippines (Samsung); a Japanese-owned factory in China or Malaysia (NEC); a Japanese-owned factory in Indonesia, China, or Malaysia (Teac); or a Japanese-owned factory in China (Sony).
The notebook carrying bag was made by either an Irish-owned company in China (Tenba) or an American-owned company in China (Targus, Samsonite or Pacific Design). The power adaptor was made by either a Thai-owned factory in Thailand (Delta) or a Taiwanese, Korean or American-owned factory in China (Liteon, Samsung or Mobility). The power cord was made by a British-owned company with factories in China, Malaysia and India (Volex). The removable memory stick was made by either an Israeli-owned company in Israel (M-System) or an American-owned company with a factory in Malaysia (Smart Modular).
This supply chain symphony - from my order over the phone to production to delivery to my house - is one of the wonders of what I have called the flat world.
"We have to do a lot of collaborating," said Hunter. "Michael [Dell] personally knows the CEOs of these companies, and we are constantly working with them on process improvements and real-time demand/supply balancing."
Demand shaping goes on constantly, said Hunter. What is "demand shaping"? It works like this: at 10am Austin time, Dell discovers that so many customers have ordered notebooks with 40-gigabyte hard drives since the morning, its supply chain will run short in two hours. That signal is automatically relayed to Dell's marketing department and to Dell.com and to all the Dell phone operators taking orders.
If you happen to call to place your Dell order at 10.30am, the Dell representative will say to you, "Tom, it's your lucky day! For the next hour we are offering 60-gigabyte hard drives with the notebook you want - for only $10 more than the 40-gig drive. And if you act now, Dell will throw in a carrying case along with your purchase, because we so value you as a customer." In an hour or two, using such promotions, Dell can reshape the demand for any part of any notebook or desktop to correspond with the projected supply in its global supply chain.
Picking up the story of my notebook, on April 13, at 11.29am, all the parts had been plucked from the just-in-time inventory bins in Penang, and the computer was assembled there by A Sathini, a team member "who manually screwed together all of the parts from kitting as well as the labels needed for Tom's system," said Dell in their production report to me. "The system was then sent down the conveyor to go to burn, where Tom's specified software was downloaded." Dell has huge server banks stocked with the latest in Microsoft, Norton Utilities, and other popular software applications, which are downloaded into each new computer according to the specific tastes of the customer.
"By 2.45pm, Tom's software had been successfully downloaded, and [was] manually moved to the boxing line. By 4.05pm, Tom's system [was] placed in protective foam and a shuttle box, with a label, which contains his order number, tracking code, system type, and shipping code. By 6.04pm, Tom's system had been loaded on a pallet with a specified manifest, which gives the Merge facility visibility to when the system will arrive, what pallet it will be on (out of 75+ pallets with 152 systems per pallet), and to what address Tom's system will ship. By 6.26pm, Tom's system left [the Dell factory] to head to the Penang, Malaysia airport."
Six days a week Dell charters a China Airlines 747 out of Taiwan and flies it from Penang to Nashville via Taipei. Each 747 leaves with 25,000 Dell notebooks that weigh altogether 110,000kg. It is the only 747 that ever lands in Nashville, except for Air Force One, when the president visits. "By April 15 2004, at 7.41am, Tom's system arrived at [Nashville] with other Dell systems from Penang and Limerick. By 11.58am, Tom's system [was] inserted into a larger box, which went down the boxing line to the specific external parts that Tom had ordered."
That was 13 days after I'd ordered it. Had there not been a parts delay in Malaysia when my order first arrived, the time between when I phoned in my purchase, when the notebook was assembled in Penang, and its arrival in Nashville would have been only four days. Hunter said the total supply chain for my computer, including suppliers of suppliers, involved about 400 companies in North America, Europe, and primarily Asia, but with 30 key players. Somehow, though, it all came together. My computer was delivered to Bethesda, outside Washington DC, on April 19 2004.
I am telling you the story of my notebook to tell a larger story of geopolitics in the flat world. To all the forces that are still holding back the flattening of the world, or could actually reverse the process, one has to add a more traditional threat, and that is an outbreak of a good, old-fashioned, world-shaking, economy-destroying war. It could be China deciding once and for all to eliminate Taiwan as an independent state; or North Korea, out of fear or insanity, using one of its nuclear weapons against South Korea or Japan; or Israel and a soon-to-be-nuclear Iran going at each other; or India and Pakistan finally nuking it out. These and other classic geopolitical conflicts could erupt at any time and either slow the flattening of the world or seriously unflatten it.
In an earlier book I argued that the extent to which countries tied their economies and futures to global integration and trade would act as a restraint on going to war with their neighbours. I first started thinking about this in the late 1990s, when, during my travels, I noticed that no two countries that both had McDonald's had ever fought a war against each other since each got its McDonald's. (Border skirmishes and civil wars don't count, because McDonald's usually served both sides.) After confirming this with McDonald's, I offered what I called the Golden Arches Theory of Conflict Prevention. The Golden Arches Theory stipulated that when a country reached the level of economic development where it had a middle class big enough to support a network of McDonald's, it became a McDonald's country. And people in McDonald's countries didn't like to fight wars any more. They preferred to wait in line for burgers. While this was offered slightly tongue in cheek, the serious point I was trying to make was that as countries got woven into the fabric of global trade and rising living standards, which having a network of McDonald's franchises had come to symbolise, the cost of war for victor and vanquished became prohibitively high.
This McDonald's theory has held up pretty well, but now that almost every country has acquired a McDonald's, except the worst rogues such as North Korea, Iran and Iraq under Saddam Hussein, it seemed to me that this theory needed updating for the flat world. In that spirit, and again with tongue slightly in cheek, I offer the Dell Theory of Conflict Prevention, the essence of which is that the advent and spread of just-in-time global supply chains in the flat world are an even greater restraint on geopolitical adventurism than the more general rising standard of living that McDonald's symbolised.
The Dell Theory stipulates: no two countries that are both part of a major global supply chain, such as Dell's, will ever fight a war against each other as long as they are both part of the same global supply chain, because people embedded in major global supply chains don't want to fight old-time wars any more.
· If Wal-Mart was a country, it would now be China's eighth-biggest trading partner, ahead of Russia, Australia and Canada
· UPS ships 13.5 million packages a day - which means that at any given moment, 2% of the world's GDP is in the back of a UPS delivery truck
· When multinationals 'outsource' work to developing countries, they typically not only save 75% on wages, but also gain a 100% increase in productivity
· Advances in fibre optics will soon allow cables to carry 48 terabits of data per second - enough capacity to enable all the printed material in the world to be transmitted via a single cable in minutes
· One hundred and fifty years ago 90% of Americans worked in agriculture; today, the figure is about 3% (top right)
· Google now processes approximately 1 billion searches a day
· Last year, of the 2.8 million science degrees awarded around the world, 1.2 million were gained by Asian students in Asian universities
· UPS's fleet of 270 aircraft makes it the 11th largest airline in the world
· In China last year BScs in engineering represented 46% of all university degrees; in America, it was 5%
· eBay now has 105 million registered users from 190 countries, trading more than £35bn of goods annually
