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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: edamo who wrote (142620)	9/23/1999 1:50:00 PM
From: rudedog	Read Replies (1) \| Respond to of 176387

ed - over the last two years, in a period of component oversupply and falling component prices, DELL's supply model worked to their advantage as inventory aged on the shelf. Several of us have pointed out that the market conditions which favored DELL's low inventory model could change and instead favor those companies which carry significant inventory and WIP. I saw it often enough in the auto business in the '80s. We now have at least a couple of areas where supply availability can become a factor for a JIT operation. The rapid rise in DRAM prices on the spot market is driven by an underlying supply problem. Allocation is often determined by long term contracts - for example, during the early Xeon shortages CPQ got better allocation than DELL despite DELL's close relationship with Intel, since CPQ had long term, fixed-delivery contracts with penalties where DELL did not. Darrell Smith points to multiple suppliers and contract arrangements over time as the reason why DELL will not be damaged by supply shortages. Anyone who has worked the dark side of the JIT equation can testify, underlying supply shortages affect the picture across the range of component suppliers. Those who have limited supply will do their best to maximize the value of what they have. Those with better supply will look to maximize profit and grab share. And the buyers with contracts which guarantee a fixed set of purchases, and lock that in with financial penalties for failure to deliver, have a natural advantage. It's a fundamental problem with JIT in a supply constrained market. The whole point of JIT is to push the carrying costs of inventory back on suppliers. That only works if there is no obligation to purchase the supplier's products. It is hard to get a supplier to have a reciprocal obligation to deliver, with financial penalties, when the buyer has no obligation to buy. There could well be some suppliers so desperate for business that they would enter into such one sided agreements. These are the ones least likely to be able to deliver in a supply crisis since they are likely to have similar arrangements across the board, and their supplies get depleted first. I don't know all of the details in our current situation but it will be an interesting study. I certainly got some up close and personal lessons 10 years ago.