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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: Razorbak who wrote (11547)	5/29/1999 5:08:00 PM
From: William Epstein	Read Replies (3) \| Respond to of 27311

Razorbak; The concepts have to be applied. Application of those concepts varies widely in the real world. If a manufacturer can produce just in time then there is no inventory. Using our methods of accounting (U.S.) inventory is their enemy of profitability. The general idea is to produce just as fast as the market can absorb product or your sales people can't sell it. I agree that mindless production that doesn't take this into account is outdated and foolish. One merely has to look at the Disk Drive OEMs to see a great example of what not to do. However, even they have wised up a little. Now, at least, some of them have worked off their inventories and are manufacturing with the changing conditions of the market in mind. One of the directors of VLNC, Al Shugart was canned at Seagate for making the mistakes you've outlined. Nevertheless, small quantities don't work well in the North American market which is the largest market in the world. If nothing else, if delivery of product cannot meet demand it works against you. Your customers are frustrated, your marketing and sales people become demoralized, your advertising costs skyrocket in proportion to production, your materials costs are often but not always higher. A good example was Apple Computer in its first five years. My point was that when planning a widely distributed product for our marketplace even small quantities cannot be planned small. The market is too big. The expenses of planning for wide distribution are too high. If you cannot produce enough to cover them then it isn't worth manufacturing. 10% of our market might be a half million laptops. That isn't small. Planning for that is huge even if it small in scale compared to the market. The point is that manufacturers must take into account all of their costs, both related and unrelated, when deciding to manufacture a particular, product especially, something as complicated as a laptop. Manufacturing is much more complicated than just in time delivery. Even if you can get it just right, in terms of, keeping the plant production just right that might not be enough to keep you in business. I have often seen financial statements that show a 5% increase in sales but it translates to a 20-30% increase at the bottom line. This is often referred to as the ramp. Ramping up production to peak profitability. Flexibility is the dream of every manufacturer. To be able to produce in small but profitable quantities and yet, have the capacity for large scale production. Sometimes, it is achieved in the real world but more often, not. We haven't gotten that good yet. Bill P.S. I know a man who invented, patented and made working prototypes of a polycarbonate engine that produced 300 HP and weighs only 50lbs. He couldn't sell it. One company gave him their reasons. They told him that planning and tooling for it would cost 3 billion and they didn't feel the market for it would be big enough to make it profitable. He finally went into production himself. He makes them now for racing cars and the Navy.