PC Makers Adopt Build-to-Order to Stay Competitive

Posted on November 1, 1997 
Filed Under Julian, Nikkei Electronics Asia

By Julian Matthews

Manufacturers are touting the build-to-order model and localization as a means to stay competitive in the cut-throat PC assembly business in Asia.

Dell Computer Corp, Gateway 2000 Inc and Packard Bell-NEC Inc, are leading the way in Malaysia by using flexible configuration and local sourcing of parts to slash inventory and reduce exposure to price dips.

The three companies have benefited since opening manufacturing plants in Penang and Malacca in the last two years.

“In our business the most important thing is logistics materials coming in and going out which needs to be faster and more efficient,” said Lim Huat Seng, vice president and managing director of Packard Bell-NEC Asia Pacific Ltd.

Lim said the company’s products are priced 10% lower than other leading PC brands because most of the company’s suppliers are in Penang and materials can be shipped on a just-in-time basis.

“Shipping and freight charges are lower and sourcing of materials is easier and faster, hence increasing productivity. But the real savings are in human resources and training,” he said.

Lim said PC manufacturing was no longer a labor-intensive industry but one that required “a lot of engineering for flexible configuration in localizing and producing on a build-to-order basis.”

Lim said the Packard Bell-NEC’s production and shipment of desktop PCs in the Asia Pacific region was expected to reach 8,000 to 10,000 units per month by the year end using 80% locally sourced parts. This was up from 4,000 units in April with about 50% local content.

Lim said the company was targeting a 5% share of the Asia-Pacific PC market within five years from its current regional marketshare of about 1-2%.

“If we cannot reach this goal by then, it will be difficult for us to be competitive or successful,” he said.

Packard Bell-NEC Inc, the merged entity of Packard Bell Electronics Inc and NEC Corp’s personal computer division, chose Penang to set up its Asia- Pacific PC manufacturing and regional support center in 1996.

The plant, which produces both the NEC and Packard Bell brand of desktop PCs, began operations in February and currently employs 70 people.The work force will to be increased to 200 by the year end.

Lim said the plant will add notebook PCs to its production by mid-1998, but will hold off manufacturing servers as they were still high cost, low volume products.

Dell Starts Trend

The major change in the way computers are built and distributed in Asia is largely driven by Dell Computer Corp’s success in the region.

Dell’s direct method of phone-in, build-to-order manufacturing system has forced other manufacturers to re-think their inefficient “build-to-stock” operating model, which means assembling finished systems based on internal forecasts.

Dell Asia Pacific Sdn vice president and managing director Wong Siew Hai said the Dell build-to-order concept was a key feature to its success.

“Interested buyers can just call or go online and place their orders via the Internet,” said Wong, adding that Dell currently sells about US$2 million of products worldwide per day over the Internet.

Wong said the Dell plant in Bayan Lepas industrial zone, which began operations in November 1995, would start manufacturing high-performance servers by the end of the year, and notebooks in the future.

Dell is expected to expand production from the present four lines to nine lines in two years.

AST Research Inc, part of Korea’s Samsung Group, also recently adopted the build-to-order method as a means to raise manufacturing efficiency.

“Every country in the Far East will have its final configuration, testing and packaging (FCTP) site very soon, otherwise we cannot stay competitive,” said Hoon Choo, president of AST Research (Far East) Ltd.

AST is keen on Malaysia as a site for an assembly plant to do final product configuration and “bring down the order cycle.” The company has already implemented the build-to-order model in Australia, the Middle East and China, said Hoon.

AST’s restructuring moves are a part of a strategy to return the company to profitability by 1999 when its revenues are expected to top US$3 billion.

Hoon said he expects the Far East region, encompassing the Asia-Pacific and the Middle East, to contribute 30-35% of AST’s worldwide revenue by the turn of the century, up from the present 20%.

Published in Nikkei Electronics Asia, Nov 01, 1997

by Julian Matthews, Malaysian correspondent


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