The Great Inventory Correction

Elena Garcia

The Great Inventory Correction

Questions: 1

Before Altera built its PLD and stored them in hope of customer demand boom. They were creating new products using their estimates and this resulted to an extended lead time. However, after the radical changes in the technological environs, Altera updated its previous strategy to build-to-order. The company has done it to prevent the company loss against unanticipated technological modifications. Now the company builds its high demand products and stores them in die banks. Due to the inventory, the products can be instantly tested, packaged and sent consistent with the customer’s requirements immediately after an order is confirmed. Owing to that, the lead time of Altera has been decreased.  The rapid modification in technology brought various problems to the tech companies, like piled up inventory, goods devaluation etc. In the 4-th quarter of 2000, Altera had a 25% decrease in the market demand and this reduction proceed in the next year as well.  Eventually, Altera’s early strategy caused them a 25% decline in the company revenue and it cost the company $115 millions. In order to avoid such mistakes further Altera has updated its strategy to build-to-order and since then the company builds its products only when the company receives orders.

Questions: 2

 In my view, a new strategy of Altera will be effective, because it should reduce the risk of unexpected changes in the technological market. For instance, the company Dell has chosen direct model tactic along with make to order concept, which brought the company success. Possibly Dell did not have the most complex process, but the company has with time made changes and generated the most effective supply chain management and inventory. From this point of view, a new method of Altera of managing its production and inventory process will be a very successful decision. Moreover, a new strategy allows Altera to cut the volume of written down expenses. An additional advantage of this strategy is that the company will stop wasting sources on the low demand. Besides, this strategy is more profitable and more stable. I think one of the main disadvantages will be lead time that customers would have to wait.

Questions: 3

Altera’s customers will not be satisfied with long lead time from the beginning, however, eventually they will get used to that. The new strategy should allow both to cooperate at a great level, making effective process for both Altera and the customers. The clients will get personalized goods. They will receive precisely what customers want. Once the supply chain becomes completely transparent the consumers will have chance to track the status of the inventory of the company and if necessary, they can order products depending when clients need to receive the product. Another possible disadvantage for customers is that Altera will not produce products unless the customers confirm the order.  In addition, the lead time for the consumers will be higher compering with the earlier strategy.