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Technology Stocks : Dell Technologies Inc.
DELL 119.67+0.8%Jan 15 3:59 PM EST
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To: Jim Patterson who wrote (45966)6/2/1998 2:32:00 PM
From: Chuzzlewit  Read Replies (3) of 176387
 
Jim, I agreed with you right up until you said "I think it is a matter of time before what ever it was that got CPQ will get to DELL."

What got Compaq was trying to emulate Dell without jettisoning their channel model of distribution. You can't have it both ways.

Dell owes its success to two factors:

First, maintaining very lean inventory levels which eliminates the problems caused by dropping component prices and obsolescence of inventory. Compaq, by comparison, relies on large purchases to get best per unit pricing (better than Dell's), but leaves them vulnerable if their forecasting is wrong because prices have dropped so rapidly in the interim.

Second, Dell cuts out the middle men which enhances profits in two ways: it eliminates intermediate profit layers, but it also increases the efficiency of JIT inventory management.

So what these companies tried to do was to emulate part of the package -- and halfway measures simply will not work. JIT inventory management depends on keeping your fingers on the pulse of demand, and you can't do that if it is first filtered through a series of resellers. Especially when you give them incentives to increase their inventory levels. That's a blueprint for disaster.

TTFN,
CTC

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