Geoff,
If I'm taking rudedogs position it's pure coincidence. I'm arguing from a common sense position.
1. Whether Dell is in the picture or not, Intel must carry a finished-goods inventory to meet the needs of other boxmakers. Now, what does Dell's presence do? The question is whether Intel would want to carry less inventory if Dell moved away from JIT. Alternatively, would Intel want to carry additional inventory if CPQ somehow converted to JIT? I submit the answer to both of these questions is no.
Now you're smokin somthin. If Intel has 5 customers for which it inventories and each customer typically take 100,000 Pentiums a month then they will inventory for that expectation. If however Intel has 6 customers each of which take 100,000 a month then they will inventory for that expecation.. You're argument is that they will not change their inventory or build practices depending on the inventory, purchasing habits, and volumes of their customers is seriously flawed.
2. Occasionally you will hear someone claim that the main idea behind JIT is to force the upstream suppliers of a firm to bear its inventory burden - and absorb the costs. I think this is totally wrong. It looks at inventory control as a zero sum game. It assumes that if firm A carries less inventory, then firm B - a supplier - must carry more. The truth may in fact be just the opposite: if A moves closer to JIT, it may also allow B to move closer too.
Is that what Intel does? I don't think the fab practice allows for that as well as the assembly practice. Do you have information that indicates that Intel is running JIT? If it is and DELL needs goods that aren't produced (because Intel can not predict DELL's run rate) does DELL delay shipping to customers?
3. What would JIT mean for Intel? JIT in finished goods would mean that a chip coming off the production line would arrive in inventory precisely at the moment an order for it is received - not one moment sooner!
THanks for the definition. I think we all understand the premise behind JIT.
4. Dell has devoted a great deal of attention to increasing its component-inventory flow or "velocity." In reality it is not a JIT system, which implies infinite velociy, but a 7-8 days system. This means that components in inventory on a value weighted basis need to be replaced on average every 7-8 days. Dell's stated goal is to accelerate the flow to a 5-day system.
If Dell accelerates how would this affect Intel? Let's perform a conceptual experiment. Suppose Dell were somehow able to raise velocity to a one day system. Let's say Dell on the morning before each daily production run acquires only enough chips for that day. How would this affect Intel? The Rudedog- Gary hypothesis is that Intel would need to carry more inventory, but how can this possibly be? Dell's inventory needs on one day system are more predictable, not less. Intel's task of smoothing its own inventory would be made easier, not more difficult, because fluctuations generated by Dell's order flow would be less disruptive. This suggests to me that Intel would, if anything, carry less inventory not more.
First, they are not on a one day system. Second you're assumption that each day is more predicatable than each week is flawed. If each day is so predictable then each week should be equally as predicatable. Third, the fabrication process is too costly to reduce flows for daily runs. Fourth, shipment charges would become a greater influence on the total cost of business. And fifth, management and support of a daily process such as this will also add costs. I think these last two points are fundamental to keeping JIT to 5-8 days turns.
Geoff, You have also ignored the fact that daily turns give Intel no window onto their future business. If DELL is purchasing 2000 chips a day today what will they be purchasing 6 months from now? 3000? 1500? How does Intel plan for that given that they can not fab chips in a day? They must purchase inventory with an expecation of what DELL will be purchasing...so although they may not be holding finished goods they will be holding inventory simply to meet DELL's unknown delivery cycle. If they don't they risk losing a customer.
OG
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