Frank, re: "There is some value to the argument that since competitors are replicating the Dell model that revenues and growth in Dell will be challenged...".
You have hit upon the key point as to why I invested in Dell a while back. I do not know much about financial analysis, or much else actually <G>, but the one thing that I do have some knowledge about is manufacturing systems.... So sit back, relax and enjoy the rest of the post - it is likely to be a bit long...<BG>
My view of any concern that manufactures goods and sells them FOCUSES on their Manufacturing and Distribution chain. From my point of view everything else is an extension of these two key elements of any manufacturer of goods. The most important consideration here is the efficiency of the manufacturing system and the superiority of the distribution channels. Dell has the best and the most efficient manufacturing infrastructure that I have ever analyzed - others just mouth the philosophies of JIT and all the other buzzwords of the 80s and the Japanese models - but Dell actually embodies what these philosophies are meant to achieve. Any manufacturing system is an integrated whole consisting of suppliers and clients with the manufacturing center that a firm represents. Arguments of the detractors of Dell notwithstanding (Dell is just a boxmaker, etc.), what Dell actually is, is a highly efficient and focused conglomerator of equipment. That efficiency is what provides it with an edge over other companies. Focusing on innovations in its production efficiency is what Dell does best of all. All these people talking about intellectual capital etc. as a way of attacking Dell are seriously missing the point that what Dell does innovate is primarily in its manufacturing process. Quite frankly I couldn't give 2 figs as to whether they develop new technologies or not - that is NOT their focus anyway, their focus is in the utilization of these technologies in their products and production systems.
So, what does an efficient manufacturing system entail anyway? The absolute basis of any manufacturing system is the information flow embedded in it. What this means is that at any point in the manufacturing process, the information as to what is required MUST be present. The QUALITY of that information is what distinguishes a Just In Time and Build To Order system of manufacturing from an assembly line operation. Once a company has perfected its manufacturing system by inculcating a high quality information system, it essentially has a permanent advantage over the low quality information systems that its competitors possess, as long as it CONTINUES to streamline and enhance those systems.
The NEXT step is its distribution system. A number of people on this and other boards are under the impression that somehow, a distribution system in and of itself provides the key to reaching the levels of efficiency that Dell possesses. That is an incorrect assumption. Specialization and individual product differentiation (i.e. a BTO system) is NOT based on the distribution system. CPQ's recent endeavors fail and will continue to fail precisely because they fail to realize this key distinction. Their direct model is a direct threat not to Dell but to Gateway which has concentrated on a mass market production system coupled with a direct to customer Distribution strategy. Albeit GTW is now trying to emulate the production system efficiencies that Dell has already developed and continues to enhance. Gtw, however, is in the early stages of this development with respect to Dell, and the lead that Dell has is growing - witness Dell's early integration of the net in not only its distribution channel, but also its manufacturing system with regard to its suppliers etc.
What this advantage of having an excellent production and distribution system does is that one can feed essentially any product that is of comparable complexity (servers, storage, server appliances etc.) into this system without any problems, and reap the rewards of the efficiencies built into the systems (lower costs, higher margins etc.), WITHOUT having to change the underlying integrity of the system itself (i.e. one can leverage the system and move from low margin to high margin products without having to re-invent the systems).
I could go on but perhaps the point is clear enough .... <BG>.
At any rate, what all this boils down to is that CPQ etc. can talk the talk but Dell can walk the walk.....<VBG>
Hope this clarifies a few things.....<G>
Take care....
Have a GREAT weekend.... |
