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Technology Stocks : Dell Technologies Inc.

DELL 117.44

-1.6%

3:59 PM EST

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To: The Phoenix who wrote (66824)	9/23/1998 1:06:00 PM
From: Chuzzlewit	Read Replies (1) of 176387

Gary, I thought I did respond. The key point is that intermediate distribution channels make sense only if they are economic. If you lose sight of that key fact you will never be able to figure out channels. So typically a channel is an economically advantaged method of moving physical inventory from the manufacturer to the end purchaser. The simultaneous advantage and disadvantage of a classical distribution channel is the existence of inventory. If you are talking about car parts or nails and screws the existence of an intermediate channel is a plus because it serves as local storage and depots for LCL distribution. Obsolescence is not too much of a problem because the inventory does evolve rapidly. And the advantages are great to the customer because he can get exactly what he wants at retail for a reasonable price. But invenories are the kiss of death in technologically oriented goods. Add to that the fact that companies like Compaq use channels not only for distribution of goods, but also as salesmen for their product. And that combination is why channels are an albatross around Compaq's neck. They attempted to solve the problem by having the channel member do the BTO, but that just pushed more inventory into the channel and increased their risk. Now they are attempting to share space with the channel in their factories. This is a clever idea, but it has one major drawback: it perpetuates another layer of profit and it does not offer the traditional advantage of a channel to the ultimate consumer. In other words, it is the worst of both worlds. And the problem is difficult to solve because the manufacturer is tied at the hip to the reseller because of the sales effort. Some time ago, before the recent CPQ merger and inventory problems of the past year, it was pointed out that Compaq's profit per employee was higher than Dell's. The reason was not difficult to discern: Compaq was relying on channels for sales, while Dell had people manning the telephones. Dell's internet presence was a response to that observation and profit opportunity. But Compaq is still stuck with an external sales force that it dare not jettison. TTFN, CTC

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