As part of its effort to streamline manufacturing and distribution, Hewlett-Packard is effectively cutting prices by 5 percent on desktops ordered through an electronic commerce system promoted by HP.
Cutting out costs in the supply chain is expected to be one of the big issues for computer vendors in 1998 as desktops and servers continue to get cheaper and cheaper. Those manufacturers who can't reduce manufacturing costs will continue to find themselves at a disadvantage during price wars, observers say, and may suffer at the hands of those which have revamped their back-end capabilities.
Under the TopValue program, HP will offer participating resellers a five percent discount on the most popular Brio, Vectra, and Kayak desktops, a savings which is expected to be passed onto the customer, said Michael Eiger, supply chain program manager, North America, for HP.
To qualify for the program, however, resellers have to begin to communicate daily with HP through electronic data interface (EDI) links, providing the company with inventory volume and sales receipts at least every 24 hours, he added.
While the program is designed to cut prices on HP desktops, it will also serve as a way to graduate resellers toward EDI, Eiger said. Many use EDI to communicate with HP or their distributors, but a number continue to use telephones and faxes.
TopValue is a component of the Extended Solutions Partnership Program, which is the company's effort to streamline distribution and manufacturing. In the next 60 days, HP will unveil its "channel assembly" program. Under this program, HP will ship component parts and sub-assemblies to select HP resellers. In turn, these parties will build finished computers upon customer demand. The system is expected to cut costs by reducing inventory.
The TopValue program will be used to acclimate resellers to the conditions that will appear with the channel assembly program.
The supply chain initiatives exist in many ways so that the traditional manufacturers like HP can better compete on price with direct sales vendors such as Dell. Compaq Computer and IBM began improving their own supply chain programs last year, but HP has not lost crucial time, according to observers.
"The big thing here is bringing costs down and gaining efficiency, so it's not really a race," said Kevin Hause, an analyst with International Data Corporation. "There is probably some advantage in not moving fast."