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Technology Stocks : PC Sector Round Table -- Ignore unavailable to you. Want to Upgrade?

To: Mark Oliver who wrote (335)	5/8/1998 11:42:00 PM
From: Pierre-X	Respond to of 2025

Re: Double edged sword You said: In technology, the fact that Dell only has to carry weeks inventory is amazing. With component prices falling in single digits weekly, that's big money. Yes. Dell has struck it rich by virtue of their streamlined production process in the recent environment of freefalling component costs. Anybody holding significant component inventories got hammered ... and that was nearly everybody, apparently. So if inventories are evil, why would a manufacturer -ever- want to hold stocks of components? Why not order parts on a strictly as-needed basis? The simple answer: uncertainty. The complex answer: contraint theory and production buffers. Parts inventories are necessary to buffer against variances in supply. Higher sigmas necessitate fatter buffers, particularly for "critical chain" processes that are contraints to production. The nasty thing about the PC business is, nearly every piece is part of the "critical chain". A firm with buffers too thin is at the mercy of supply variance. Up until now, an abundance of supply has benefited those that gambled on small buffers. But in a shortage environment, the converse will be true. And we all know that cyclical industries go through periodic episodes of both. I'll be -really- impressed with Dell management if, in the midst of mass migration to suddenly-fashionable BTO production models, they go the OTHER way and start building up parts stocks for the (possible) coming draught. Will Michael Dell dream of 7 fat sheep being swallowed by 7 skinny sheep? <g> God bless, PX