V NA recent visit to the Boston Science Museum and Sturbridge Village brought back an important theme. Dell has reduced the number of parts and suppliers and inventory in its products by a factor of 10 in last five years, and keeps just two hours inventory on hand in Asian factories. The replacement of a screw with a clip-on saves one second a screw. The fewer parts you have, the more you can act as a platform for profit for your company rather than a carrier shell for others to stand on your shoulders. The amount of bread a farmer can make with 40 hours of labor these days is more than 60x what is was in 1820. The reason is increased capital, broadly defined. The main asset in the capital stock is human capital.

All these combine into a price to weight ratio or a price to parts ratio. Looking through the Dow I find high price of typical product to (weight + parts) ratios in Intel, IBM, Microsoft, Verizon, Walt Disney, J and J, Pfizer. I hypothesize that for a standardized group of, say, the 500 companies in the S&P at the end of this year, the companies with the highest ratios will outperform the rest.





Speak your mind

2 Comments so far

  1. Steve Leslie on September 21, 2009 7:13 pm

    I bought a Dell five years ago and have had two problems with it. I had a service agreement with the company and called the 800 number. They sent a motherboard out to the technician and she came over and installed it in 45 minutes, bada bing, done, no part here or part there. The turnaround was one day. Amazing service and the three year service contract was 120 dollars, best investment I have ever made. The only problem with Dell is that I had to speak with a person over in India and she was very hard to understand despite her politeness.

  2. david higgs on September 22, 2009 6:27 pm

    All of the companies that have performed well are those that have laid-0ff people. and on top of that, they want to move operations to areas where wages are lower, like near the Rio Grande…….great now I guess my taxes will go up……to _ell with d_ll………….


Resources & Links