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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Jim Patterson who wrote (51285)	7/14/1998 4:29:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

Jim, I think you don't understand the strength of a JIT business model. Consider two companies with identical annual sales of say $7.0 billion, and a cost of goods sold of $5.2 billion (these are hypothetical numbers -- don't try to read anything into them!) Now suppose company A maintains 1 week of inventory, while company B maintains 10 weeks of inventory. That means that company A has used up $100 million to hold inventory, but company B has expended $1 billion to hold inventory. The difference, $900 can be used to fund a variety of projects, like growth. That's why company A can grow faster than company B. But the additional problem faced by company B is that if forecasted sales don't materialize it will be facing a much greater risk of obsolescence. It has $900 million more of inventory at risk. This is exactly what happened to Compaq. There are two downsides to JIT. The first is rising component costs. The likelihood of that happening in the computer arena is nil in my estimation. The second potential downside in a JIT plant is a shortage of components or a disruption in supply. In Dell's case this would likely be the result of problems with INTC. Successful implementation of JIT systems depends on excellent communication between the two companies. I don't know the details of how that works with Dell and Intel, but I would be very surprised if there weren't a very efficient, fully automated electronic ordering system in place. TTFN, CTC