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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Nicholas who wrote (21977)	3/16/1998 12:59:00 AM
From: Jack T. Pearson	Respond to of 97611

Configure to order: Retailer or distributor gets partially built PC and an inventory of CPUs or hard drives from which to select the ones the customer wants. This is a way of building virtual PC inventory (each PC can satisfy either a 200Mhz or a 166Mhz customer). This allows Compaq to operate with less real inventory to maintain order-to -delivery cycle time, or to reduce order-to-delivery cycle time at the expense of some to the reduction in inventory. Of course, for each PC that gets shipped, Compaq now ships more than one CPU and hard drive (maybe 1.01, but more than one). This drives inventory in the wrong direction--I don't really know how badly, but suspect it doesn't wipe out all of the savings. Also note that there is now one more mouth to feed in the retail channel--the person who installs the selected components. Also note that that installer will more likely not be as efficient as the factory was in installing components (maybe he is paid enough less than a factory worker that it doesn't really cost more). Also note that the extra handling of components can impact quality (in any process I've looked at, extra handling means extra cost and reduced quality). Compaq says they have been successful in reducing cycle times and passing along the savings, but they don't say if this has been a 10% benefit or a 1% benefit to their customers in terms of these metrics. They could claim success even if it was 0.1%.

To: Nicholas who wrote (21977)	3/16/1998 8:18:00 AM
From: Jason W. France	Read Replies (1) \| Respond to of 97611

Nicholas, I will give it a try. first lets define how CPQ builds today (BTF). BUILD TO FORECAST - LOT SIZE = 10000 or 25000 CPQ sets up its lines and just builds 1000's of a single config that it beleives will match up with the orders from its distrubtors and resellers, but builds before an order from anyone is received BUILD TO ORDER - LOT SIZE = ORDER SIZE FROM DISTRIBUTOR Still stabdard configurations but CPQ will vary the lots size to match order size and only start building when an order is recived from the reseller or distributor CONFIGURE TO ORDER - LOT SIZE = ORDER SIZE FROM END USER Here CPQ cuts the the reseller out all togehter and and ships customized configurations directly to end-users (i.e. theior corp customers). This is how Dell does it, and involves CPQ "going direct". Since CPQs 7 largest customers (providing I think 70& of CPQs revenue) in the US are resellers and since they will now be cut out of the deal, I assume that this will not sit very well with them. I wonder if this has anything to do with CPQs lack of progress with ODM.... IBM seems to be making good progress with its channel assemble plans.... things that make you say hmmmmmmmmmmmm Hope this helps Jason