All
Intel Addresses Build-to-Order
Movement
(04/24/98; 6:39 p.m. ET)
By Ismini Scouras and Diane Trommer, Electronic Buyers' News
Intel, finally acknowledging a dramatic
shift in PC manufacturing and inventory
management, is changing the way it does
business with customers.
The company said earlier this week it is
testing a system that will enable it to
communicate with customers in real time,
through a new electronic procurement
system.
"Inventory is a life-or-death issue," said
Sean Maloney, Intel's vice president of
sales and marketing, speaking to financial
analysts. When original equipment
manufacturers (OEMs) carry too much
inventory, it prolongs older technology,
Maloney said. And when there is too
little, they cannot be competitive.
What used to be done by phone and fax,
or via Electronic Data Interchange (EDI)
for some large customers, will now be
done though Intel's new "supply line
management initiative," which is
currently in a pilot stage with a few
major OEMs. The system will enable
Intel (company profile) and its customers
to access a shared database. Intel will be
able to frequently upload its customers'
material requirements planning (MRP)
into its logistics system, Maloney said.
The company's objective is to do
"real-time business management with
customers to reduce inventory cycles," as
well as to reduce the discrepancy
between inventory and demand levels he
said.
That Intel is responding to customers'
needs, speaks volumes about the shift to
the build-to-order (BTO) manufacturing
model in the PC industry, which caused a
major inventory correction in the past
year, analysts said.
The company has been able to do
business in a manual process for this long
because they were a monopoly, said
Roger Kay, an analyst at IDC,
Framingham, Mass. "They could do
business any way they wanted. If they
told customers they had to line up at
dawn outside their loading dock, with
orders written in crayon on sheets of
toilet paper, I am sure their customers
would have done it."
And the semiconductor giant, which
owns 90 percent of the microprocessor
market, has traditionally been exempt
from the effects of market changes.
Not anymore. Inventory reductions by
customers adopting the BTO model
amounted to about $750 million in lost
revenue in 1997, Intel said. That is
because the BTO model, first adopted by
Dell and PC makers that sell products
directly to customers, has become
universal in the industry.
"Only in the last year have the indirect
PC vendors launched programs to
minimize their inventory," said Charles
Smulders, an analyst at Dataquest, San
Jose. "Now [Intel has] been forced to
respond to it."
The movement to BTO and channel
assembly even has Intel guessing about
how much supply customers will need
for the future.
Intel's supply line management initiative
will help the company get better forecast
information, Kay said. "That is the one
thing that Dell has enjoyed in its
relationships with its customers. This
data will help them with their own
demand forecasting so they don't end up
in a tight spot like they did last quarter."
Distributors have been briefed on Intel's
initiative, and plan to play an important
role, according to Bob Child, director of
materials at EFTC, a contract electronics
manufacturer based in Greeley, Colo.
"Any distributor that's holding product
that's time-volatile -- they are going to
need to invest in systems which allow
them to minimize their inventory holding
as well. Nobody can afford to hold
inventory," Smulders said. "I would
suggest that the distributors will have to
work more closely with the suppliers in
making sure that this is an integrated
supply pipeline."
Intel would not provide additional
details on the supply line initiative,
except to say that it will roll out the
program for most customers by the end of
the year.
For customers that are not part of Intel's
supply line management initiative, the
company is setting up a site for electronic
commerce over the Internet, recognizing
the importance of jumping into a potential
$220 billion business by 2000, according
to IDC. Customers will be able to place
an order, or get information on pricing
and availability almost immediately.
In fact, industry sources report Intel will
soon begin to update its pricing revisions
more frequently. Of late, Intel has cut
prices on its microprocessors on a
quarterly basis. Those price cuts were
made partly in response to OEMs'
demand forecasts, and partly to meet
general market conditions.
Now, Intel has told its customers it will
update prices weekly, according to
industry sources. In addition, the
company will update those prices based
on the demands of each individual
segment -- mobile, desktop, or
workstation products.
-- Mark Hachman contributed to this
story.
Regards
Neil |
