Jock, as always, you come to the heart of the matter. Let me deal with your first point: But the DELL model has only been tested during an era of falling component prices. In an era of increasing component prices, the DELL Model could fail dramatically.
According to very simple financial principles a zero inventory firm will prosper when inventory costs are rapidly falling. The converse is that these firms are hurt when prices rise because of the lack of buffer stocks. Quite right if Dell were dealing with components that didn't become rapidly obsoleted. I do not pretend to be a technological guru, but what would have happened had a computer company missed it sales forecasts and ended up with a large stock of P166 cpus when the Pentium IIs came out? I'd make the same kind of argument for RAM and hard drives and mother boards.
So I'd suggest an analogy that is a little more intuitive to me: a grocery store. If you have a store with excellent inventory management the chances of being stuck with rotting fruits and vegetables is nil. But a store that stocks up in anticipation of price increases runs precisely that risk.
Here's a true story that illustrates what I am talking about. My aunts lived through famine in their native Russia, and when they came here they became horders. So, when it seemed that sugar was going to be rationed during WWII they bought several hundred pounds in anticipation of rationing and stored it in their basement. The mice enjoyed the sugar immensely. Now that's inventory risk!
To my simple way of looking at things, technological obsolescence is the virtual mouse, nibbling away at that store of of very real, getting older by the minute technology.
I need to think about the issue of shortages, so let me put that answer off for awhile, along with emulating the BTO direct model. Rest assured I will get back to you on those issues.
TTFN,
CTC |
