Ken -
good post, I may put up for one of those beers...
Both Dell and CPQ have discussed EVA as a control variable in making financial decisions, at least internally. CPQ now has this as part of the management bonus formula, I don't know if Dell has gone that far. EVA is useful as a single measure which predicts how the financials will look to wall st. In that sense JP is correct.
The JIT-BTO model can hardly fail. But the benefit gained from taking a 60 day inventory lead to 4 days is huge, while the benefit in going from 4 days to 3 is much smaller, although probably just as hard to achieve. IMO Dell will have to look elsewhere to improve their model, it will be very hard to get under 3 days order-to-shipment. Incidentally I have no doubt they will find other areas of the business where radical thinking can create a business advantage, they are the best in the business at that kind of analysis.
CPQ guarantees certain volumes to its largest suppliers, and more importantly, schedules the deliveries well in advance. As the largest customer for most of these vendors, including Intel, and also the most stable in terms of predictable demand, they get the best prices. Is this benefit worth the pain later in the channel? looks like CPQ decided NOT since they will have to negotiate (or have negotiated) flexible arrangements to accommodate their ODM model, which will certainly cost them some supply cost. But in the past this has given CPQ nearly a 5 point advantage in parts cost over Dell, this is one of the reasons CPQ was able to maintain 27% margins even with a less efficient model. Dell is forcing the industry to play by its rules in terms of supply management. But CPQ has many long term contracts, some running many years into the future, which will give it a parts cost advantage. They don't have to be quite as efficient as Dell to make the same margins. |
