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    selling, general, and administrative overhead costs in the industry at 5.8% of sales, as compared to 8.4% for Dell, 16% for Hewlett-Packard, and 28% for Gateway. Inouye is quick to point out that you can’t just outsource and wash your hands of the activity. Although other firms handled the manufacturing, eMachines maintained extensive control and monitoring over the production of its components.

    Follow the right metrics. Inouye, the former head of the computer-retailing division of Best Buy Co., saw an opportunity to tie production into the detailed forecasts prepared by retailers, allow retailers to market the product, and optimize this system over time. eMachines began to order PCs from its outsourced manufacturing facilities on the basis of what large retailers, such as Best Buy and Wal-Mart, said they could sell. Under the arrangement, inventory was soon turning over a stunning 70 times per year, and the company does not finish a quarter with a machine unsold. For go-it-alone entrepreneurs, one lesson here is that eMachines developed an innovative process that generated far more effective decision-making returns. With superior metrics, eMachines could reinvent its entire business.

    Moreover, Inouye dramatically lowered the risk in designing new products by collecting detailed data from each retailer on what features were most popular and how much customers would pay for them. This data, which was updated weekly, was used to decide when to introduce new computer models and what features to include. In essence, the company made an unprecedented commitment to a hands-on understanding of customer desires to ensure that it created products customers wanted.

  • Provide a quality experience. When Inouye joined the company 18% of eMachines’s PCs were returned because of defects or customer dissatisfaction. Each return cost the

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GO IT ALONE! Copyright 2004 by Bruce Judson. Reprinted by permission of HarperCollins Publishers. All rights reserved.