XPOSURE: Someone else's problem
- 01 August, 2001 12:48
Delegation is a wonderful thing. Theory says delegation is the transfer of responsibility to equally capable people down the corporate or industry chain. And given these post-IT gold rush days, just how different companies handle responsibility makes for interesting reading.
So let's talk about the channel's favourite whipping boy, Dell Computer. My travels recently led me to Dell's North American PC and server assembly plant in Austin, Texas. Here's how it works. Original and third-party components enter one side of the massive warehouse and travel through a myriad of conveyor belts to various assembly and testing stations. The completed products are boxed up and shipped out at the other side of the building. Inherently complex technologies are assembled and completed in a process that from an outsider's perspective looks straight-forward.
Now as you know, Dell's central premise is it doesn't hold stock. Having seen it in action, I'm sorry to say it's still a pretty convincing business model. But, and there's always a but, it works because someone else carries the inventory burden.
The reality I've heard through the grapevine here that many third-party suppliers must virtually sign their life away to assume Dell's problems. If you want the pleasure of being a Dell components supplier, you must commit to a three-hour, "just in time" delivery time to Dell's assembly plant. Not three days, three hours. That means you must run warehouses, complex shipping schedules, and be the master of your logistics domain. But as the US economy copes with an IT recession, some of these suppliers are becoming unhappy with their lot in life. Funny what low-margin business can do.
How's this for a dramatic twist? Recent rumourssuggest Dell is contemplating outsourcing parts of itsmanufacturing or assembly facilities. Of course Dell strongly denies the claim. A more likely scenario could be it became an OEM partner for the likes of IBM, which continues to restructure its PC division.
However, all this talk illustrates an important point. The manufacturing process is of no consequence to PC buyers.
So it seems Dell and its fellow competitors, including HP, Compaq and IBM, must do anything they can to control their supply chains, right down to the last microprocessor.
What they can't control, however, is the customer. No amount of clever re-engineering can reinvigorate sales that seem to allude even the slickest operation.
It, therefore, doesn't take a rocket scientist to work out businesses that can secure long-term, regularly renewable revenue from bigger, supposedly more stable customers stand a better chance.
I recently spoke with a company in such a situation, GE Global eXchange Solutions (GXS), a B2B e-commerce business worth nearly $A2 billion. Broadly speaking, it competes with the likes of IBM Global Services inproviding outsource professional services.
According to GXS CTO Frank Campagnoni, around 70 per cent of its annual revenue base is renewable, coming mostly from software licence renewals and service contracts. Consequently, it only has to fret over about 30 per cent of its revenues during a time when the majority of IT companies are either laying off employees or asking them to take unpaid leave.
Ironically, the US economy is such that it was still forced to lay off 320 people in July, or around 14 per cent of its 2500 workforce.
A fellow IDG journalist summarised the situation quite well. "The auto industry must be laughing at us right now," he mused. The IT industry's short but dramatic history does not understand the idea of economic boom-and-bust cycles.
Unfortunately for vendors and channel outfits alike, the lesson's not yet over because the upswing still remains elusive. Until then, expect more buck-passing, err sorry, delegation. I'm just glad it's not my problem.
Mark Jones is West Coast News Editor at InfoWorld. Email him at firstname.lastname@example.org