There was a short and terse announcement last week indicating that Dell Inc. will close its Winston Salem North Carolina production plant, putting over 900 employees out of work.

Beyond the fact that so many of Dell employees will be impacted, the announcement also represents yet another change in Dell’s supply chain strategies as it move towards consolidation and possibly outsourcing of the bulk of its volume manufacturing.

Readers may recall that the Winston Salem plant was opened a mere four years ago, and was located in North Carolina after a strong competition among U.S. States to lure this facility with all sorts of attractive tax incentives.  This plant was located in a region that could target the servicing of 70% of Dell’s existing customers, including the entire east coast of the U.S

At the time, the plant represented a shift in Dell’s distribution and production strategy. Whereas before, Dell had required its suppliers to hold supplier-owned inventory in clustered locations adjacent to a Dell assembly factory, Winston Salem was to be the first plant that would tighten the inbound supply chain. Larger components such as chassis, monitors and peripherals were designed to be stocked at an APL Logistics facility located a mere few miles away.  Since so many of these larger items were sourced in the Far East, APL had arranged to transit most of the material via ocean into the Winston Salem area.  Other supplier-owned inventory was to be staged directly in the factory, under a single roof, also under the control of APL.  Dell maintained its strategy of not taking ownership of any inventory until a customer order was received and fulfilled.

This latest plant closing announcement is yet another step in Dell’s quest to cut $4 billion in costs over the next two years, the bulk of which is more likely targeted at Dell’s supply and value chain. In January, Dell announced the migration of its Ireland based manufacturing operation to its existing plant in Poland, as well as the sale of its remanufacturing facility in Tennessee.  Dell has also been slowly shifting more production toward third-party manufacturers.  The next steps, in my view, will be more movement of select final assembly manufacturing toward contract manufacturers, with final configuration and distribution residing in the major geographies of Americas, Europe, and Asia-Pacific.

What a dramatic change from the best-in-class Dell model we wrote so often about in years past.  Instead of product differentiation through supply chain capability and service, Dell is moving more toward the lower-cost supplier model.  And, with the announcement to acquire systems integration services company Perot Systems, a movement more towards catering to larger scale corporate computing needs.

Time will tell the story of how successful this supply chain strategy plays out in the market, but the global recession seems to have put the kabosh on the Dell model we once lauded and praised.

What’s your view?  Is Dell moving toward the lowest cost producer supply chain model at the cost of flexibility, service or agility?

Bob Ferrari