The Buzz At Comdex: Build-To-Order
Date: 11/17/97
Author: Reinhardt Krause
All the action at Comdex won't be on the crowded trade-show floor. Computer makers, distributors and component
suppliers will be huddled in back rooms, taking stock of the build-to-order trend sweeping the industry.
This will be the first Comdex - a show closely tied to computer distribution - since build-to-order became an
industry buzzword. Many personal computers strutted out in Las Vegas may be sold in this manner by mid-'98,
analysts say.
Build-to-order might help some PC companies be more efficient. The model results in leaner inventories.
But just how the build-to-order model will impact component suppliers such as chipmakers and disk-drive companies
remains to be seen, analysts say.
''In the lean-inventory model you're tending to shift the burden to suppliers,'' said Mark Kirstein, analyst with In-Stat
Inc., a market research firm in Scottsdale, Ariz. ''It can be very difficult for them.''
PC makers such as International Business Machines Corp. and Compaq Computer Corp. are trying to emulate the
success of Dell Computer Corp. Round Rock, Texas-based Dell has thrived on its build-to-order model. Compaq Chief
Executive Eckhard Pfeiffer will deliver one of the keynote speeches at Comdex.
IBM, Compaq and some other PC makers plan to turn over final product assembly to distributors, resellers and retailers.
These sales-channel partners will build and distribute computers as they're ordered, rather than based on market
projections.
This method puts more pressure on component suppliers to respond quickly, says Tony Amico, an analyst at market
researcher International Data Corp. in Framingham, Mass.
''The manufacturer is offloading some of his responsibility to the supplier, saying, 'Hey, I'm going to be calling on your
inventory every day, every four hours, not once a month,' '' said Amico.
He adds that manufacturers will expect suppliers to hold ''buffer stocks'' - a reservoir of parts that can be quickly
found and used.
But that could be a tricky issue for suppliers. The build-to-order model aims to keep inventories lean so that PCs and
parts don't sit around for weeks, growing obsolete.
Component suppliers don't want to be stuck with old parts that need to be liquidated. Under that scenario, suppliers
lower prices to rid themselves of excess inventory.
For chipmakers, ramping up production on products suddenly in high demand also could pose challenges. They may
have trouble adjusting to just-in-time inventory control tied to build-to-order.
One reason: Many chip companies today contract out their manufacturing to outside factories. Often, chipmakers need
to arrange production months in advance with factory partners.
''All of the semiconductor guys have a certain amount of problems having the right chips for the market when people
want them, simply because manufacturing times are long,'' said Jim Feldhan, president of Semico Research Inc. in
Phoenix.
Analysts say that component suppliers face other hurdles. They may incur higher shipping costs, because they will
process smaller orders more frequently. They may need to invest more money in computer systems to track customer
orders and their own manufacturing process.
Build-to-order won't affect all component suppliers the same, analysts say. Computer-monitor makers or keyboard
makers, for example, may have less to worry about. That's because a line of computer models may use the same
keyboards or monitors.
Makers of computer disk drives, though, are accustomed to juggling their inventories. PC companies build disk drives
with various storage capacities into systems in order to position models in different prices ranges.
''Typically, (computer makers) have a different disk-drive capacity on each model,'' said Jim Porter, president of market
researcher Disk/Trend Inc. in Mountain View, Calif. ''The drive makers have been used to managing that mix quite
well.''
There are other implications of an industry shift to build- to-order, analysts say. The model could add to the
consolidation in the PC industry. If top PC companies gain market share as the result of moving to build-to-order,
they'll be in a stronger position.
''The top-tier PC vendors who gain market share, who have that much more leverage, are the ones whose relationships
with suppliers get closer and closer,'' said Laura Conigliaro, an analyst with Goldman, Sachs & Co. in New York.
Other computer makers may be forced to adopt build-to-order. Makers of Unix workstations, for example, compete
against high-end PCs.
Workstation makers such as Sun Microsystems Inc. and Silicon Graphics Inc., both based in Mountain View, are eyeing
build-to-order, says Wilfred Corrigan, CEO of chipmaker LSI Logic Corp. in Milpitas, Calif.
''Almost the whole computer industry has moved to just-in-time scheduling. Everybody is entranced with the Dell
model,'' Corrigan said. ''You have a massive squeezing of the pipe going on.'' |
