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

To: Lee who wrote (64792)	9/10/1998 4:56:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

Lee, the reason that low margin stuff works is that you get high turnover rates on low inventory levels. That gives you the possibility of very high ROICs if you have efficient asset management. That is exactly what Dell has done. And if the product is a consumable or in a rapidly evolving area, so much the better. Imagine that you have a product with only a 23% gross margin, but you could turn your inventory every seven days (sound familiar?). Assuming no growth, and neglecting fixed costs, that gives you a return on average inventory of 1,196% per annum! [BTW, reducing the holding period to 5 days (Meredith's goal) increases the return on inventory to 1,674%]. I think you can see that the key here is high turnover numbers. Now here's the really fascinating part. Dell's model creates tremendous operating efficiencies which lowers inventory handling costs and thus increase margins. TTFN, CTC