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To: Z Analyzer who wrote (4355)	12/21/1997 3:37:00 PM
From: Gus	Read Replies (1) \| Respond to of 7841

Nobody has really talked about JIT dramatically changing the way they do business (on the disk side). Actually, all the disk drive makers have pointed to the PC makers' transition to BTO/CTO as one reason why they were keeping their inventory levels high as a way for them to respond well during the transition. Also, when a Compaq goes from reducing its total PC inventory in the pipeline from 7 weeks to 2-3 weeks (currently at 4-5 weeks), it naturally reduces its orders for components like disk drives while it sells from its existing inventory and approaches its targets. As a point of reference, Intel has noted that it stands to lose or "permanently defer" $500-750 million of chip revenues this year due to the industry-wide adoption of BTO/CTO. Component suppliers like disk drive makers are going to see a similar phenomenon happen during the transition. The difficulty in visiblity lies in the fact that even though the top 5 PC makers, who have all embraced BTO/CTO in one form or the other, are growing faster than the market; they still account for less than 40% of the total global PC market. About 60% of total PC demand is still being supplied by PC makers who are moving more gradually to BTO/CTO. In other words, you have a drag on demand caused by PC makers who are reducing their order flows as they work down their inventory levels to the desired levels and you also have an added layer of inventory expenses heaped on the component suppliers like disk drive makers because they now have to establish the logistics to satisfy the different BTO/CTO models of the different PC makers. Here's a closer look at the DELL model that everybody is trying to emulate. Note, though, that Compaq, IBM, and HWP are working with the distributors to make their BTO/CTO models work. I believe Compaq has been working on getting 9 distributors up to speed on channel assembly for over a year now. The basic ideas behind the manufacturing strategy: Build only the exact systems customers order, synchronize manufacturing to avoid storing parts and finished systems, let teams consisting of three to seven people build systems from start to finish. (For a closer look at the process, see the diagram, "Inside Dell's new build-to-order factory," p.44.) To keep the fast-turnaround machine running smoothly, Dell requires suppliers to keep stock no more than an hour's drive from the factory. "Most are less than 20 minutes away," says Varol. Thanks to careful process timing, parts arrive at Metric 12's 35 cargo doors just as they are needed. eb-mag.com There are other things going on in the disk drive industry, of course, like the supply and demand imbalance. The move to BTO/CTO just makes it even more difficult. Just about the only bright side to all these is that the players who survive this down cycle are probably going to come out bigger and much stronger than they are now.