JIT Inventories & Lead Time

Most of us know that Dell transformed the PC industry by successful Direct Selling. With Direct selling it is easier to adopt ‘JIT Inventories’. So you no longer have to estimate the demand for products/components/inventories and stock them. No need for ‘storage space’ for inventories; no need to lock up capital in inventories. In electronics industry, the value of the components fall drastically over time, with low turn around time for inventories, value of inventories doesn’t fall too much and ‘cost of goods’ will be less. So far so good…

One of the key requirement for this business model is, source of inventories/goods should be closer to its destination in terms of time. This will ensure lower lead time.  In US probably that’s the case. I think Dell forgot about ‘lead time’ in a few other geographies.

Subsidiary companies have to share the same vision and mission with their parent company. But not all the business practices need to be shared. Different geographies have different operating environment. One need to adapt his business practice according to the region he is operating in. In Dell’s case, shared mission should have been low lead time, not maintaining JIT inventories.

In India if I place the order for a PC component with Dell, Dell takes a lead time of 2-4 weeks! As they don’t maintain inventories locally, they have to ship it from China/Malaysia! In case of other manufacturers, new PCs lie in their/distributor’s/retailer’s godown for weeks. Instead Dell takes lead time. So I don’t mind this lead time for new PCs. For PC components, this lead time is irritating. My Laptop battery is down; it suddenly went down without any sign of degradation. Now I am forced to use it as a desktop PC for close to a month!

This is inspite of charging me Rs.4900 for a 6 cell battery! Yes sir, I am locked with Dell as I can buy it only from Dell. [Lithium Ion batteries are actually a commodity. But Dell and other PC manufacturers use different mechanical design to wrap batteries for different laptops. So batteries cannot even be reused across different laptop models from Dell.] But so is others using consumer durables from Samsung, LG and Eureka Forbes. These guys charge 3-5x the actual price for spare parts. But Dell is charging me 10x the actual price and still takes such a long lead time.

Major portion of Dell’s revenue comes from corporate and government customers. Those customers also need to bear with this problem. When I want to upgrade my office PC with a 1 GB RAM, Dell charged Rs.4300 for it. (In open market it costs around Rs.1200.) And I have to wait for 3 weeks to get the RAM!

Its time for Dell to revisit its strategy before someone solve this problem.

Scientific Discoveries

In the past five centuries, there was a burst of scientific discoveries. There were at least couple of ground-breaking discoveries every century. They completely changed our understanding of this universe. For example, when Heliocentrism was discovered, we suddenly were able to understand the motion of Heavenly bodies. Ttheir motion is no longer heavenly; their motion is no longer to dictate peoples’ life. Ditto that to Gravitation and laws of motion. They further advanced us to understand the functioning of several things in our day to day life. Wave theory and electro-magetism gave us more clarity. Then came the theory of general and special relativity. That again completely changed our understanding. There is no gravity; mass is no different from wave and energy. [If you still believe in school text books, grow up; there is no gravity.] When is the last time such a discovery happened? When is the last time all our understandings were invalidated and new but different and obvious explanations were given?

Why did a sudden bust of discoveries happened and then why did it subsidise? One valid and probably a real reason is, during the start of Renaissance, European scholars came across Arab and Chinese manuscripts that explained things that were new to Europeans. Actually several of the early discoveries are commonly known in China, India and Arab world. These ancient civilizations, took those things for granted and the pace of new discovery was very slow. But Europeans were ignorant of those things, and this information fuelled their scientific spirit. That let to a cultural change or what we know as Renaissance. Once the wheel has been set into motion, it let to further thinking and research that let to more discoveries and inventions. Initially the thought process was not institutionalized. But when the pace of growth increased, you need a framework to manage the growth; better channelize the growth and dissipate its benefit to the masses. By the end of 20th century, the framework or rather the institution took over. Spirit of innovation was replaced by redtape. Joy of discovery is replaced by short term utility. The growth engine has now subsidised and the world looks again like the mature Indian/Chinese/Arab civilizations.

All we need now is a crisis. Crisis leads to need to redefine things. Any redefinition or change in the current thought process will again start the positive spiral of second Renaissance.