Rudedog,
Without intending any disrespect, I find the following statement preposterous:
I have good evidence that cost of production at CPQ is lower than Dell's.
Dell's superior efficiencies, as compared to its rivals, is a subject that has been well covered on the Dell thread as I think you know. Briefly, Dell is more efficient because of:
1. direct-channel distribution which eliminates the costs of using resellers.
2. lower inventory costs. Dell turns its inventory every eight days on average. You add to that the week (at most) required from the time a box is manufactured until it reaches the consumer. This implies a total inventory period of two weeks or less. In contrast, the total inventory time for a CPQ pc is something like 9-10 weeks. Given that components depreciate at the rate of ~1% per week, Dell derives an edge of 7-8% here alone ( more, if you consider capital cost savings).
3. More efficient cash management.
4. Dell does not engage in costly, Rube Goldberg price-protection schemes. CPQ does. These practices weaken the incentive of resellers to move merchandise promptly (read efficiently). These practices also lead to unproductive paper-work accounting and duplicative transporation costs, whenever perfectly good boxes are returned to CPQ to be distributed a second time. They also generate additional inventory costs.
As for CPQ's 6-7% superior GM, since when was GM a reliable guide to anything? Diamond retailers and furniture stores have high gross margins; grocery stores do not. GM tells you nothing about whether a business is profitable or not. GM is for the folks who like to read box scores. Maybe it's for folks who, when they see the EPS and ROIC figures, don't like what they see?
I will grant you CPQ derives some advantages from its batch manufacturing process for consumer PCs.
Geoff |
