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IBM shifts server assembly plans

Big Blue becomes one of the first companies to change its manufacturing methods to reduce system cost and delivery time.

Raising the stakes in the PC server business, IBM (IBM) has become one of the first companies to tinker with its manufacturing methods to reduce system cost and delivery time.

MicroAge (MICA) will begin building IBM servers that use Intel processors in a variation of the build-to-order sales model known as "channel assembly."

In this practice, the manufacturer ships partly-built computers to distributors or resellers, which then add the central processor unit and specific components based on customer orders.

Servers are now built by IBM in configurations predicted to be the most popular, but they are often reconfigured with different components by resellers such as MicroAge based on individual customer requirements.

Although IBM is seemingly upping the ante in the just-in-time manufacturing game, the company's efforts in this area remain modest. Only a few IBM desktops are being made in this model under a program that started two years ago, and they involve simpler products.

"They are transferring from pilot to real mode. The overall volumes are still low," said Ian Morton, an analyst at Hambrecht & Quist. "It's still more of a 1998 event."

The news comes as an increasing number of companies are trying to replicate the recent success of Dell Computer (DELL) with its build-to-order and direct-sales model.

IBM's move will make its products more competitive, but only a relatively small number of servers are expected to be built by MicroAge--about 60 to 80 a month.

IBM actually started a channel-assembly program for desktop computers two years ago, and Compaq Computer (CPQ) is following suit.

Hewlett-Packard (HWP) and Packard Bell NEC have also talked recently about using some variation of the build-to-order method employed by Dell.

The channel-assembly practice promises to save IBM money on parts inventory, but more engineering has to be done to design parts so that they can be swapped quickly without compromising quality.

Maintaining quality in servers is even more critical than in desktops because a server is often used for applications used by an entire company, such as directing email or storing information in a database.

MicroAge says it is the first reseller to be certified by IBM through its Authorized Assembler Program and has taken steps to ensure that the servers it builds meet IBM standards.

Another source added that executives from Inacom, which is participating in the desktop effort, have said they are still waiting for the "green light" to begin production levels of manufacturing. Volumes have been relatively low so far.