Razorbak;
I guess, I'm misunderstood. Of course, I know that any manufacturer must carry some inventory. In fact, it is not desirable to carry none at all and probably not possible. The comment was made to show that all manufacturers try or should try to carry at or near minimums as a goal toward profitability. I cite the DD industry as an example of what not to do because they accumulated huge inventories based on what they thought the market should absorb and based on current market share as though, those were fixed numbers. When new competitors entered the market and started taking market share away they got stuck. They were forced to sell at below cost to work it off. They took gigantic losses as a result. Carrying large inventories based on projections of what you think the market should be in the future is both dangerous and stupid. Production must be based on what it is now and perhaps, going out a short way.
I agree with you that a manager must look at the total picture and make that point in my post to you. Please reread it. However, I also make the point that undersupplying the market has its own pitfalls.
To answer your theoretical proposition I will answer from my own experience. Most manufacturers would take the order from Motorola. They might break into their regular run, postpone it or try to run intermittently. If I had Motorola as a large customer I don't don't think I'd want to turn them down flat, would you? I have seen what you describe happen, many times.
With reference to your comment that many world class manufacturers achieve the combination or flexibility and capacity is true but that depends on what you are making and how you are set up, right? For instance, a double web printer cannot print under 100,000 units profitably. The machinery just isn't designed for short runs. Really, it ramps up to peak profitability at about 1 million units.
You mention Valence along with world class manufacturers. Is that a misunderstanding or a mistake? I've never compared Valence with anyone else, in any post. What I have done is to discuss why American computer manufacturers might not be receptive to Valence's product right now. I think I've made a pretty good case for my assumption. They are not in the same kind of business as Valence and whether you think they should manufacture in small quantities or not, doesn't matter. They don't. They have world markets, of which North America is only one, to consider.
With respect to tooling and planning. I never knew any manufacturer that didn't count those costs into his production run whether the accountants separated them or not. Any cost that is relevant to production is counted in the decision making whether it is amortized or not. So, the example mentioned, is relevant for what it is. What is irrelevant here is the whole discussion about the fine points of manufacturing because laptop manufacturers simply don't plan to manufacture in small batches. They may deliver special runs of modified laptops to large companies or groups such as, schools but they are modified from a basic design which has an ongoing production line. What is relevant is that we have gone off the subject dickering about one point in my original post this morning about the possible resistance of the laptop OEMs to Valence's new battery and we have digressed too far. Let's get back to the substance of it, which is, Valence and their possible marketing strategy based on what we know now. I suggest that you reread the speculation and make your comments. That might be useful.
Bill |
