has signed up distributors for its channel configuration program, a sort of distributed-PC-making scheme that cuts costs, lowers inventory, and allows for quick and easy customization.
Under the "Compaq Channel Configuration Program," Compaq will ship semibuilt Deskpro computers to distributors and large resellers such as Inacom (INAC). These partners will then install the memory, hard drives, and other components to make the computer complete, as well as install the system software upon customer order. Nearly all of the major distributors and national resellers will participate in the program.
This form of distributed computer manufacturing, which was pioneered by IBM (IBM), is designed to cut down manufacturing costs by reducing inventory. Machines don't get built until an order comes in, so vendors and resellers cut down the risk of getting saddled with an unpopular line. Also, the technique lets resellers customize computers.
Hewlett-Packard (HWP) will roll out a similar configuration program later this summer, said sources in the computer reseller community, that will be based on a channel configuration program HP already runs in Europe.
Although clearly popular, analysts and resellers see positives and negatives with channel configuration. While the manufacturer imposes strict requirements on its partners, channel configuration potentially raises the possibility of error because manufacturing is no longer controlled by one
central organization. Second, even though channel configuration cuts down
on inventories, it also creates the possibility of inventory time bombs.
With manufacturing spread out over nine or more partners, the logistics of
keeping track of customer buying trends, even with electronic communication
systems, becomes more difficult.
IBM implemented a configuration plan two years ago, but the
overall volumes remain under target, said channel sources and investors.
Generally, channel assembly--where the manufacturer assembles the computer
entirely in the same way a mail-order company might--is favored over
channel configuration. "Configuration makes sense in the short term, but
ultimately we will end up with a build-to-order industry and the channel
will be a part of that," said Scott Miller, senior industry analyst at Dataquest.
Compaq adopted a build-to-order program earlier this month. Lawrence
Ricciardi, senior vice president of IBM, said that his company would likely
implement a build-to-order plan in the future. HP's is expected.
Still, the configuration plan gives the manufacturer intangible advantages.
With it, the vendor can conceivably strengthen reseller loyalty, which can
translate into market share. "It locks up channel capacity. A Vanstar
(VST) (a large corporate reseller) can only build so many companies'
machines," said Miller. "Increasing exclusivity is going to be a big issue
for the middle tier manufacturers."
Channel configuration conceivably also puts the manufacturer in a cash-rich
position, said one reseller executive whose company is working on IBM's
channel configuration program. Under a configuration scheme, the reseller
or distributor assumes the inventory and manufacturing risk, stepping into
the role of the debtor to the component manufacturers. The manufacturer
essentially becomes a marketing and design center, with far less financial
risk than it had before.
Although only a few channel members will participate directly in the
program, computers from the configuration program will be available through
all Compaq dealers.
Later in the year, Compaq will also unveil a configure-to-order program,
under which Compaq and resellers will work together to let large
customers obtain highly customized orders.