Ramsey,
I think the BTO combine with JIT model allow Dell to control part inventory a lot better, collect customer's money up front, and lower inventory cost.
When the cost of component drop, the JIT portion of the BTO work very well since it allow Dell to move to a new component very fast (e.g. if this week 32x CD rom cost only $1 more than 24x CDRom, but the customer is willing to pay $10 more, then Dell can switch to the new
CDrom faster than the conventional PC maker with no JIT).
Collecting customer's money up front can be a big help in the profit margin. Imagine that COMPAQ ships a big load of PC to Compusa but they won't pay for the shipment until 2 or 3 months later. The financial cost of carrying this invoice can take away 2 to 3 % of the profit margin. It is not clear if Dell allow invoice payment for big customers. The lower inventory cost really is associated with the JIT manufacture process since the vendors are carrying the parts.
I would argued that BTO model work much better than standard assembly line when 1)a lot of individual order that require customization, 2) fast changing component, 3) fast dropping component price. However, when I look at the sub-$1000 PC, I really don't see anyone who want to change the system configuration. And the component price are stablizing (e.g. CD Rom, memory, Disk drive). Only monitor is dropping more than the norm. CPU are control by the Intel
and AMD and they are staying the course for their quarterly price cut.
anyway, this is one person's opinion. Hope that help.
mw |
