Compaq trims distributors
Compaq will reduce the number of distributors to four, underscoring the role companies like Ingram Micro and Inacom will play.
Compaq announced a North American Distributor Alliance Program to "forge broader relationships with fewer distributors to provide a more efficient method of distributing Compaq [PCs]," the company said.
With the rise of Dell Computer and its highly efficient direct sales model, Compaq, as well as IBM and Hewlett-Packard, continue to tweak their distribution strategies to bring costs down to compete with Dell.
The program will cover Windows-Intel "commercial" products, said Mike Pocock, vice president for North American channel sales. This includes Deskpro desktop PCs, Armada notebook PCs, Proliant NT-based servers, Prosignia small and medium business products, Compaq workstations, and related products such as displays.
The program reduces the number of "distribution partners" from 39 to 4: Ingram Micro, Merisel, Tech Data, and Inacom. These companies will also locate some operations at Compaq, said Pocock.
The remaining 35 distributors will place orders with the big four, he said.
The essence of the program is to make these four distributors the hubs for built-to-order Compaq PCs. About 98 percent of the resellers already buy from these four distributors, Pocock said. "Built-to-order [will be executed] only through the four key partners," he said.
"We are outsourcing the direct [sales] opportunity to channel partners." Later in a conference call Pocock added: "We will cut inventory in half."
The number of "stocking locations" will also be reduced from 100 to 30, he said.
Both Compaq and distributors such as Tech Data said that in the past availability of products has been a persistent concern for customers. Tech Data said the challenge is to emulate what direct PC companies are doing: "Reduce inventory but make product more available," said an executive with Tech Data. "Inventory has been in the wrong place at the wrong time," Pocock said.
From August 1, these distribution partners will become "exclusive two-tier" distributors for Compaq commercial business products. "They will market and sell Compaq products to channel partners and resellers in North America," Compaq said.
One of the main goals is to "more accurately forecast and manage inventory levels, reduce transportation costs, [and] focus channel resources," Compaq said.
This program will not affect Compaq configured-to-order products, high-performance corporate "enterprise" servers (such as Alpha-based computers and Unix systems), Presario consumer PCs, and government and education products.
Compaq said that other efficiencies are already in place, including a co-location program. Here, distributors share warehousing and manufacturing space with Compaq in Houston. They perform final assembly using third-party components and custom configuration on Compaq products as they come off the assembly line.
Co-location eliminates the need for partners to stock Compaq inventory and obviates unnecessary shipping steps in the supply chain. Compaq will continue its co-location alliance with CompuCom.
But in the face of all these changes at Compaq, Dell continues to adjust its business model to mitigate the impact of any advantage a middleman might provide. Michael Dell said recently that his company will boost services it sells with Dell PCs. Moreover, Dell already uses companies such as Wang Global to provide services to Dell customers, reducing any advantage which a large distributor or value-added-reseller may provide to customers of PC makers such as Compaq and IBM.