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I also liked davout's post. 
Well, they're businesses, not artists. The lowest cost model will win out in the end, as long as the customers are willing to go for it. Maybe nobody wants to buy on the spur of the moment, but has not heretofore been given a favorable price/time tradeoff.
Re monetary policy, I too wonder about the corrective actions taken on the money supply. Does money velocity vary all that much over time? And how does the money velocity of the US compare to other countries? Do those countries with higher money velocity tend to have more productive capital?
That's a good explanation re gross margins.
Good points, all. I wonder how we could quantify what portion of the gain is impacting capital productivity and what portion labor productivity. Have any ideas?
TCO: Of course, you're right. A $20 billion company should not have economies of scale that are much less than a company with $40 billion in scale. I'm thinking more along the lines of marginal parts that Dell has. As they grow, they should be able to take advantage of more scale on these parts. I'm thinking that this is how they have been able to increase their inventory turnover from amazing to insane--they have had to hold fewer marginal parts in order to gain favorable scale for the parts.
Reasoning about velocity cannot be made with accuracy, and we can wonder if any breakthrough were made whether corrective steps would not be made on the money supply side for fear of inflation. But in any case, it cannot be recommended to all the Dells of the world to shift to the Dell business model; at this point, Dell is a master piece. Would you recommend to all artists to paint like Michelangelo?
Re monetary policy, I too wonder about the corrective actions taken on the money supply. Does money velocity vary all that much over time? And how does the money velocity of the US compare to other countries? Do those countries with higher money velocity tend to have more productive capital?
Dell has the reputation to provide, at equivalent prices, products incorporating parts more up-to-date than their competitors, thanks to their way to handle inventory. This could explain that their gross margin is not better than their competitors: this advantage is given for free (at least partly) to the end user.
For instance, the improvement in the capital use resulting from the disappearance of the end products inventory has also a positive effect on the labour productivity (no warehouse employees, no paper work between the plant and the warehouse, no inventory taking, etc). But the same move made with a customer base accustomed to have products available on the shelf, it could badly damaged the productivity of the sales employees. Additionally, improvements in the labour productivity are often a consequence of capital expenditures. The art of management is to properly balance the two sides.
Re 2: I think the Economy of scale between 20 Bil and 40 Bil is not so significant. Like I said, they just add another call center or another factory (which is at scale). The difference between a large factory or small one or large or small call center is more likely what is significant. And that is something one can acheive at 20 Bil or 40 Bil or 5 bil. Economy of scale does not scale linearly with scale.
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