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To: rudedog who wrote (49840)	7/6/1998 10:24:00 AM
From: jbn3	Read Replies (1) \| Respond to of 176387

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To: rudedog who wrote (49840)	7/6/1998 10:28:00 AM
From: jbn3	Respond to of 176387

Know a Techie looking for a job? Win a $40,000 sportscar. austin360.com The "Refer Your Friend" campaign will pay $5,000 to those -- inside or outside the company -- who refer a technical worker who is subsequently hired. The company will pay $1,000 for the successful referral of a non-technical worker. PcOrder will pay relocation costs for out-of-town recruits. 3.

To: rudedog who wrote (49840)	7/7/1998 10:10:00 AM
From: Geoff Nunn	Read Replies (3) \| Respond to of 176387

Rudedog, CPQ's pc business looks increasingly to be in serious trouble. Last spring management promised it would reform and streamline internal controls (lack of controls) that had allowed channel inventories of commercial PC's to balloon to as much as 15 weeks. Yet, all we've seen from management is some tweaking of an inefficient system that basically remains intact. CPQ has yet to solve the problem that IMO threatens its long term viability as a pc manufacturer. This is the coordination problem. In a nutshell the problem is how do you coordinate sales and production so that: (1) assembly plants operate fully utilized and efficiently, and (2) inventory levels of product and components are held at minimal and sufficient levels. As you know, CPQ's control mechanisms don't coordinate well, and it was in the fall 1997 that the system began to leave its tracks. In the spring it did a crash and burn. An inventory backlog of 15 weeks implies a level of inefficiency that is truly mind boggling. If that were continuing, a pc which CPQ assembled today wouldn't reach the end user until late October - early November! In contrast, Dell PC's reach the end-user in, what, 3-4 days. ( Are you sure CPQ isn't working off the old Soviet, centralized-planning model?) <gg> The most astonishing thing is that CPQ's macro environment during the period was anything but unhelpful to efficient production and distribution. For example, there was no sudden slump in consumer demand that caused CPQ products to accumulate inventory. The transportation system wasn't jolted by a labor strike. There were no earthquakes or freezing weather to slow the distribution of CPQ products. Events in Asia created some disruption but not enough to explain how production spun out of control. In short, the environment in which CPQ was working was stable and predictable. CPQ cannot blame the inventory fiasco on outside events over which it had no control. Why doesn't CPQ's coordinating mechanism work any better? This is a difficult question, but I believe CPQ's uniform-pricing model is partly to blame. As you know, the retail prices on many CPQ products are set by CPQ itself. This is true in both the commercial and home-user channels. Resellers enter into contracts with CPQ in which they agree not to sell the product below a designated price. Resellers are willing to enter these agreements because CPQ provides them with "price protection." In this way it is CPQ, not the reseller, who bears the risk the price will be too high and the product won't sell. CPQ until recently would also provide additional protection by agreeing to buy back PC's that didn't sell. It's not clear how widespread this practice was. To the extent it existed at all is an appalling reflection of management's ineptitude and lack of dedication to efficiency. Just imagine, if you will, the bureaucratic red tape, additional shipping costs, further obsolesence, additional capital costs, etc., of returning perfectly good PC's to CPQ, who would then ship them out to another reseller. CPQ's pricing model, in my judgment, is a major cause of inefficiency. There are two ways in which it raises CPQ's distribution costs. First, it contributes to CPQ's products moving more slowly through the channel. Second, it raises CPQ's costs of using the channel. It also provides some important benefits, which I'll address at another time if you like. The inefficiencies abound, however. CPQ is doubtlessly aware of many of these costs, but because of the benefits hasn't abandoned their pricing model. In my estimation it's probable the costs greatly exceed the benefits. The specific ways in which CPQ's pricing model generates inefficiencies is a major topic in itself. I will address the issue in a follow up post. For now, let me stop an invite you to point out areas where I may be confused, and/or to add any comments of your own. Geoff