Build-to-order and contract manufacturing are the future of the PC industry, but channel assembly is a dead end.
PCs priced at more than $1,000 will be built to order by vendors, while entry-level PCs will typically be moved to contract manufacturing, according to a report by industry analyst Dataquest. In 2002, 32.8 per cent of PCs in the US market will be built to order, an increase from 22.8 per cent in 1998. Contract manufacturing will account for 32.2 per cent, up from 20.6 per cent last year.
Channel assembly by distributors will see only modest growth, up to 7.3 per cent of shipments from five per cent last year. The traditional build-to-stock model, meanwhile, will fade fast to 11.9 per cent of sales in 2002.
According to Dataquest, build-to-stock is dying out because it is inefficient in the fast-moving PC market - products lose value every week and month they are stored in the channel. But Charles Smulders, senior analyst at Dataquest, said channel assembly shares this disadvantage, despite the fact that distributors are storing parts rather than complete PCs.
Smulders claimed key vendors, such as Compaq and Hewlett Packard, have been struggling to emulate the efficiencies of Dell's build-to-order model, citing Compaq's co-location experiments.
'If Compaq had the capability, it would like to do factory build-to-order in-house for its higher priced models,' said Smulders, adding that the vendor will have little choice but to move to a build-to-order model eventually.
While vendors such as Compaq have experimented with channel assembly, IBM has pursued it as its main supply chain model, said Smulders. 'IBM is a special case because its PC division is part of a larger organisation, so it's difficult to move as quickly as the industry requires.'
Smulders predicted IBM would stick with channel assembly longer term, despite its shortcomings.
See feature, page 24.
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