IBM, the manufacturer, wants to get out of personal computer
manufacturing. Inacom, the distributor, is about to get in deeper.
Watch out, Dell
By John R. Hayes
IBM IS THROWING IN the towel. Unable to match the prices or speed
of delivery of mail-order manufacturers, IBM will allow a few of its most trusted distributors to produce up to 60% of its commercial PC line-the IBM boxes that go to big corporate buyers. The distributors will assemble the computers under the IBM nameplate. IBM will design the machines and provide the parts.
IBM is doing this out of necessity. The only companies that can make
decent money selling PCs to corporate customers are those that control
their inventory costs-the standout example being Michael Dell's Dell
Computer. Dell builds a machine after the order comes in and then rushes it via truck to the customer. By contrast, IBM builds what it thinks will sell and hopes the orders will match; if they don't, the company winds up with leftovers that can get very stale very quickly, like lettuce.
The inventory suffering continues further down the distribution channel. Until recently a wholesaler that wanted to answer every possible customer need would have had to stock IBM machines in 2,200 combinations of hard drive, processor, memory and so on.
By more precisely matching its orders and output, Dell turns its inventory 32 times a year. IBM probably turns its PC inventory 12 times.
To get its products out the door faster and cheaper, IBM is teaming up
with its biggest distributor: Inacom Corp., based in Omaha, Nebr.
Shipping about 75,000 PCs a month to big customers like Georgia-Pacific and Dow Chemical, Inacom customizes about 80% of the computers it sells based on the specifications it receives from its corporate customers.
Inacom tears apart standard shelf model units made by IBM, Compaq and
others and rebuilds them with new hard drives and communication cards,
plus whatever software the customer wants installed.
Using state-of-the-art logistics services (see Replacing inventory with information), Inacom then packages the reconfigured boxes with whatever components the customer specifies. It may be a Hewlett-Packard printer with an NEC monitor and an IBM computer, says Michael Steffan, Inacom's general manager of distribution. You get a lot of options at Dell, but you get still more at Inacom.
As good as Inacom is, it doesn't make much money from selling PCs.
About 93% of its $3 billion in revenues last year came from selling
computers, but only 52% of its $19 million in profits-the balance coming from computer system design, installation and maintenance services.
Inacom Chief Executive Bill Fairfield figured he could make PC sales more profitable if IBM would let the company stock parts instead of finished goods. That way Inacom would not have to store 2,200 models or waste time breaking open boxes and storing discarded parts until they could be used to fill future orders.
For the past 18 months or so Fairfield has been telling IBM that if Inacom could assemble IBM's PCs from scratch, it could cut production time by 30% and inventory by 50%. But with its brand name on the line, IBM hesitated. To show he meant business, Fairfield built a $20 million final assembly plant in Ontario, Calif. on spec. "That certainly got people's attention," Fairfield smiles.
Late last year IBM finally agreed to let Inacom and a few other
distributors assemble its computers at their facilities.
As Inacom's Ontario plant gears up production, Fairfield predicts that
turnaround time from order receipt to arrival at the loading dock of a
custom-configured IBM machine will be four hours at most. That's down
from two days before IBM agreed to let Inacom assemble its boxes.
Inacom's Steffan says the new arrangement will cut the overall
manufacturing costs of an IBM machine by 10%. If so, Hewlett-Packard
and Compaq will likely follow IBM's lead.
"When our model begins to hit on all eight cylinders, we are going to be much more competitive against Dell," says Fairfield. Agrees William
McCracken, IBM's general manager of PC sales and services: "On speed
and flexibility we can match the Dell [business] model for sure with this."
It's about time.
Mar. 24, 1997 Issue Back to Top Forbes Today
c Forbes Inc. 1997 |
