Lee - Re: "Why is JIT or "made to order" causing so much stir now?"
This matter caused quite a stir and deserves some explanation.
Up until recently, DELL Computer has been selling B-T-O - Build To Order - systems. DELL's manufacturing approach has been to order components AFTER receipt of a PC order, receive the components and begin insertion into the manufacturing line. They require JIT delivery of processors from Intel (as well as all other components) to make this work effectively.
Compaq, on the other hand, built PCs in large batches and shipped them off to their dealers in large batches. Hence, they always had a large inventory of CPUs from which they built these batches.
This past summer, Compaq tried to do a DELL - because of the lower overhead - and started a BTO program. The result was that ALL THOSE Pentiums in INVENTORY just sat there until the orders came in from customers. SO, COMPAQ STOPPED their orders (or curtailed them big-time) while working off their existing inventory. This rippled back to Intel as CPU orders shrank by 500,000,000 to 750,000,000 dollars.
However, it is a one time (HOPEFULLY) deal. Once Compaq worked down their inventory levels and reached a steady state build rate, they began to order CPUs from Intel on a JIT basis, much as DELL has beeen doing.
A second factor related to inventory was also discussed. Intel claimed that the OVERALL PC market grew FASTER than Intel's CPU shipments for most of 1997. The implication here is that many customers were working off a bloated inventory, selling more PCs than the number of CPUs ordered from Intel.
Otellini believes that most of this inventory adjustment hiccups will have been completed by the end of this quarter - that's the HOPE.
On the plus side, the newer BTO scenario will help Intel in the long run. The inventory "pipes" will be shorter. Thus, when Intel tries to introduce a new processor or technology, the "pipes" will have a lot less older product inside them and Intel can begin to insert the newer product without the inherent delays associated with "flushing the pipes" of a large manount of older product.
Since Intel is agresssively introducing new technology, this may bring benefits a lot faster than people thought, making the inventory adjustment issue very minor, in retrospect.
Paul |
