CPQ takes a page from SEG's book; they are thinking bold thoughts in Houston, very bold thoughts. It must be giving them a migraine.
Compaq Retools Distribution -- Streamlines distributors through four Alliance Partners
May. 07, 1999 (VARBusiness - CMP via COMTEX) -- Houston-Compaq Computer Corp. today will simplify its product distribution and inventory management, reducing the number of distributors it engages directly from 39 to four.
"This is a bold step for Compaq," says Mike Pocock, Compaq's vice president of U.S. Channels. "It's the biggest change we have made in our history."
Come Aug. 1, channel orders for commercial products will be fulfilled by one of four Distribution Alliance Program Partners: Ingram Micro Inc., Santa Ana, Calif.; Tech Data Corp., Clearwater, Fla.; Merisel Inc., El Segundo, Calif.; and Inacom Corp., Omaha, Neb. "If you want speed, you have to keep it simple," says Frank Doyle, one of three Compaq executives who shares the office of the co-CEO.
Under terms of the Distribution Alliance Program, only those four Alliance Partners will be able to purchase build-to-order commercial, classic products directly from Compaq. The products comprise the lion's share of Compaq's business today. Resellers will still be able to purchase nonstandard, configure-to-order SKUs directly from Compaq or through one of its four new partners.
Among other things, the move will reduce the number of warehouses where Compaq products are stored from nearly 100 to approximately 30.
Tony Ibarguen, Tech Data's president and COO, says Compaq's move reaffirms what many channel companies practice every day. "Every reseller has experienced the same issue with its own customers," he says. "It's easier to integrate systems with one, two or three large customers than it is to offer the same level of service to hundreds of customers."
Over time, the new initiative should help the Houston-based PC-maker lower its inventory by as much as half. Current inventory levels on basic Compaq products have already been reduced to three weeks, but, nonetheless, they remain more than twice that of Compaq's chief rival, Dell Computer Corp.
Doug Antone, executive vice president of Ingram Micro, is concerned about a possible fire sale on existing channel inventory. "We don't want to see any unnatural acts," he says.
The drive for simplicity won't come cheaply. Compaq's technical infrastructure will need to be changed before the supply chain can handle the dramatic shift. A lack of IT connections between various partners, for example, continues to suppress Compaq's order fill rate.
And current distribution partners have concerns, as well. Jeff McKeever, chairman and CEO of MicroAge Inc., the Tempe, Ariz., parent of Pinacor, worries about price hikes Alliance Partners may impose. "Pinacor will have to pay a markup to an Alliance Partner, but we will also be liberated from certain costs that [Partners] would have if they stocked the product," he says. "How does that balance out? I don't know."
Distributors chosen to participate say the balance suits them fine. For example, Merisel's chairman and CEO, Dwight Steffensen, says the choice of Alliance Partners recognizes the industry's current leaders. "It was about who had performed and could deliver, as opposed to [offering only] promises going forward," he says.
Because past attempts to address distribution ills have met with only mixed success, Compaq has decided to overhaul its strategy with this sweeping change. It has, however, ruled against adopting Dell's direct-to-consumer model due to the many benefits it continues to enjoy by doing business with reseller partners.
"Despite what you may have read about the direct approach, clearly we remain committed to the channel," says Ted Enloe of Compaq's office of the chief executive.
-Distribution editor Karen Franse contributed to this story.
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The Players
Ingram Micro-
"Not all of us are created equal, and that's OK."
Doug Antone, executive VP
Tech Data-
"[Compaq] has been struggling with how to make the whole supply chain work...while wringing out
redundant costs."
Tony Ibarguen, president and COO
Merisel-
"A common SAP system will interlock our companies and create tighter bonds between us."
Jim Illson, president and COO
Inacom-
"Managingexpectations will be difficult. This won't change the world in six months."
Bill Fairfield, president and CEO |
