Pacific Systems Corporation Case
Pacific Systems Corporation, Inc. (PSC) is a medium-sized high technology company located
north of San Francisco.
In its early years PSC produced component parts and subsystems for
personal computers and engineering workstations.
In 2000, PSC added its own line of
engineering workstations to its product offering.
Recently, the company decided to expand its
product line to include fully assembled personal computers (PCs).
The company, recognized as
a well-established component and subsystem manufacturer, has grown from a single product
manufacturer with annual sales of $2.5 million, to a multi-product $3 billion firm in just ten years.
This growth was helped in part through acquisitions in server markets and related computer
Pacific Systems Corporation has a strong reputation for manufacturing high quality
products with on-time customer delivery.
The company also emphasizes state-of-the-art
technology in its product design, production, information, and delivery systems.
PSC’s decision to enter the personal computer market occurred during the peak of the Internet
boom in late 1999.
In particular, the marketing department decided to focus on the home PC
user, to exploit the booming growth in home computer use.
The projected growth rate of U.S.
PC shipments to the home sector in the 1990s exceeded the business sector, and was
predicted to surpass the business sector in total share of shipments.
Although Pacific Systems
Corporation was a small player in this market the company decided to pursue an aggressive
strategy of selling high quality computers at affordable prices.
The new line of computers,
called the 9000x series, would come with a Pentium 600 MHz microprocessor, 128 megabytes
of memory, 8-14 gigabytes of hard disk space, a read/write CD-ROM/DVD (digital video disc)
drive, and a 17-inch flat screen color monitor.
Although industry forecasts have certainly been downgraded, PCS is betting that in 2003 the
computer industry will grow at a slow but steady state as consumers upgrade their computers
with the predicted slow but steady growth in the economy.
This decision poses some risks,
given that there is a “mixed bag” of opinions regarding the growth of the electronics sector in
The decision was made to pursue the home computer user, through a strategy focused
on shipping low-cost, high-quality computers directly to customers as orders are received
This production model is similar to the Dell approach, and appears to be the
model that will dominate the PC industry.
Because the company does not plan to build
PCs (i.e., make-to-stock) in anticipation of future sales, market demand forecasts, supplier
quality, supplier capacity, lead time, and delivery reliability are critical factors.
The company is
willing to carry some units in component inventory as safety stock as a buffer against missing
customer order commitments.
Pacific Systems Corporation will assemble the computers in its own facilities, but intends to