Lee, re: Why is JIT or "made to order" causing so much stir now?
Built to order is the culprit, not JIT.
It is because of the number of companies trying to replicate Dell's
success by adopting the Dell model. In the past CPQ and most box
makers bought lots of CPUs long before they made it in to the
consumers' hands. With CPQ and others at least partially adopting
the Dell model, they don't need to purchase CPUs (and other components)
so far in advance. So they slash orders temporarily while working
off inventory.
Although it is a temporary slowdown for INTC, it amounts to what we
call an "indefinite deferral." When you factor in present value,
an indefinite deferral is effectively a permanent change. Example:
your compamy pays $10,000/month for rent on a 100-year lease. The
landlord lets you skip a payment this month, but tacks it on to the
end of the lease. PV of $10,000 100 years from now is effectively
zero. So the indefinite deferral is as good as a permanent savings
to you, a permanent loss to the landlord. In this case CPQ et al
are getting the equivalent of a permanent savings while INTC suffers
the equivalent of a permanent loss of sales.
Where it gets harder to evaluate, however, is that if CPQ et al can
cut box prices due to this savings, and therefore move more units,
(without just stealing share from Dell) some percentage of the loss
to INTC could be made up in the future; the percentage could even
exceed 100%, depending on elasticity of demand--though I highly
doubt that would be the case here.
Hope this helps.
Paul T. |
