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 the vendor while entry level PCs will typically be moved to contract manufacturing, according to a new report by industry analysts, 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 will see only modest growth, 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.
Build to stock is dying out because it is inefficient in the fast-moving PC market, Dataquest finds. Products lose value with every week and month they are stored in the channel. But channel assembly shares this disadvantage, explained Charles Smulders, senior Dataquest analyst, even though distributors are storing parts rather than complete PCs.
According to Smulders, major PC manufacturers such as Compaq and Hewlett-Packard have been struggling to emulate the efficiencies of Dell's build to order model. Compaq's experiments with co-location, for instance, are proof of that.
"If Compaq had the capability, they would like to do [factory build to order] in house for their higher priced models," said Smulders. He added that Compaq 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 "pretty much pursued channel assembly as their main supply chain model," Smulders pointed out. "I think IBM is a special case," said Smulders, "because [its PC division] is part of a larger organisation, so it's difficult for them to move as quickly as the PC industry requires."
According to Smulders, IBM may stick with channel assembly longer term, despite the system's inherent shortcomings.
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