Pass the parcel

Can resellers come up with the goods as quickly as they claim or will they stumble when orders become complicated?

Most, if not all PC vendors have responded to resellers' search forll they stumble when orders become complicated? differentiation and competitive PC prices by offering build-to-order services. Sometimes they handle the service themselves and sometimes they recruit distributors and large resellers in channel assembly programmes.

These schemes have allowed resellers to supply users with tailored, branded machines at competitive prices, with claims of savings which can be passed on to resellers and customers.

But build-to-order and channel assembly programmes have been experimental and the results have been mixed. Predictably, vendors have been claiming great success and increased sales because they can deliver machines configured precisely to meet customers' requirements, but many sceptics are less sure. All that has happened is that problems and responsibilities have been shifted elsewhere in the supply chain - sometimes onto the resellers themselves.

Ian French, director of the PC and server business at Ideal Hardware, says: 'The aim is to reduce stock holding and deliver configured machines, but someone in the chain still has to hold stock of components, if not finished machines.

'Anyway, delivering a bespoke requirement is not a big deal. Customers expect it.' French believes it is relatively easy to have a production line of machines that are built to a certain point, ready to have memory, drives and specific cards added, and can be built in a relatively short time.

The big challenge to vendors supplying build-to-order machines is achieving competitive delivery times on individually configured items. The more tailored the assembly the longer it takes to put together. Dell quotes two weeks to customers ordering fairly basic machines, although it is often less.

Some channel assembly companies are even claiming next-day delivery.

With hot competition from direct sales organisations to reduce the custom configuration delivery times without compromising quality, it is little surprise that all the major PC vendors now claim more product flexibility in less time. But, as French says: 'They can all offer one or two-day delivery if the machine is standard, but in my experience if the order is for something unusual the delivery time shoots up.'

There is also criticism from resellers that insist vendors take responsibility for components which they did not have to before. There are also reports of manufacturers being slow to keep assembling resellers informed of product changes. One reseller said: 'Vendors don't treat us any better. They are just pushing as much responsibility for holding, delivering and configuring down to us for very little improvement in margins. It's just not on.'

Vendors that switch from standard assembly procedures to build-to-order do better in reports from resellers, but there is still criticism that they take too long to produce machines which are not standard. They claim to make all machines to order but don't. And if you ask them to put together a small number of unusual machines, they take as long as they always did.

Vendors offering just-in-time assembly schemes don't wait for each order to come in from the resellers before building a machine from scratch.

They manufacture and assemble to a base configuration of chassis and motherboards, held until the order is received. Then the unit is kitted to provide the exact processor, hard drive, memory, keyboard and other options required by the reseller's customer. Once they are assembled, the PCs are tested and then loaded with factory installed software.

Resellers that want to deliver machines with bespoke software pre-installed often have to unpack the machines and load their tailored products before packing it again and delivering it to the customers.

Bill Nanney, vice president of MicroAge, a US-based reseller, says: 'Channel assembly, or having the distributors or large resellers do the last stage of assembly, is just shifting the last value-add process further down the supply chain. It is vastly different from resellers building their own private brand machines and from vendors providing their own build-to-order programmes.'

Nanney points out that many distributors' customers are the corporate resellers that need to supply brand named machines to corporate sites. 'They are different from small Vars whose focus is the software or the complete solution. They are less brand name obsessed.'

Resellers are also concerned that vendors offering build-to-order programmes are getting closer to their customers, raising the spectre of direct sales by the back door. Martin Prescott, managing director of Big Red Computers, says: 'None of it inspires much confidence. I'd rather build the machines myself than have vendors do it.'

Phil Concoran, co-owner of US-based reseller PC Wholesale, has resisted joining the rush of distributors offering build-to-order to Vars. He says: 'We don't know where the future lies with channel assembly. Vendors have difficulty getting the parts inventory right and we still have finished machines sitting on our shelves.'

Another distributor geared up to provide channel assembly says: 'You have to depend on vendors keeping you stocked up with all the components in the same way that we used to rely on them to deliver the finished machines they assembled. Not a lot has altered except now we have more options when it comes to components.'

French says: 'A lot still depends on the reseller and the vendor being able to predict demand. Nothing much has changed. Distributors still have to hold stock. Vendors are offering tailored system assembly because they recognise resellers' need to offer something different, but it is largely a cosmetic exercise. There are still going to be long lead times on unusual machines.'

Simon Shiack, director of sales and marketing at Unisys, believes vendors have to assemble PCs and does not approve of distributors or resellers building or assembling. 'There are serious questions of quality control and product consistency when assembly is passed down the channel,' he says.

The way that Unisys provides build-to-order is to take the reseller's products and integrates them into the machine within the Unisys controlled environment.

Shiack went on to say: 'Resellers do not have to open the box again and we can deliver straight to the customer site. When they send us the order they send the products they want loaded and included, and we install it for them. We do the testing and add any other cards or software which the customer requires.' This, he says, gives both reseller and customer peace of mind. 'It reduces reseller costs too, which they may or may not want to pass on to the client.' Ironically, Schiack's comments come as Unisys pulled out of PC manufacturing in favour of outsourcing it to third parties.

Ori Yioassoumis, sales director at Hi-Grade Computers, agrees with vendors building-to-order and says it can offer flexibility without compromising delivery times. But he is reluctant to see the responsibility for assembly move down the channel to resellers and distributors. 'Distributors and resellers can only provide assembly if they are set to deliver a high-quality product of European standards. I can't see that many re-sellers are capable of that.

'Vendors should not move assembly down the channel, otherwise they lose control.' Yioassoumis says that there is nothing to stop unscrupulous resellers substituting cheap clone components to improve their margins.

But vendors have to provide a build-to-order programme if they are to remain competitive. Yioassoumis says: 'There is a risk of increasing delivery times, but by combining traditional manufacturing methods with just-in-time methods, you can retain the advantages of both systems.'

IBM US vice president of channel sales David Boucher says that build-to-order and channel assembly are trends which are changing the way systems are sold. 'We are talking about a whole mindset of how a customer orders a product.

'The next major step is to get the customer, our sales force and the reseller sales staff to order a product customised to customer specifications instead of ordering by model number. They will order based on the configuration they need instead of the model closest to their requirements. That is the beauty of build-to-order.'

Boucher says IBM is still working on speeding up the process. 'We are trying to figure out how to reduce the test process that distributors and resellers go through. We are looking at taking weeks, days, hours and minutes out of the process. We want to take every ounce of cost out of the model to make it efficient, in order to be price competitive. We are looking at everything we can do to build velocity into the process.'

Quality control

Despite a widespread feeling that channel assembly - with resellers and distributors putting the final touches to PCs - has been an experiment with mixed results, Sphinx CST's business development director Mike Briercliffe believes moving the point of assembly nearer to the customer is essential.

Briercliffe's experience is mainly with IBM. He says that before IBM set up channel assembly, 'we used to order machines according to configurations defined by the US, and they were made in Santa Polumba, Italy. They were shipped to Havant, then to the reseller and then to the customer.

'Often the boxes had to be opened and reconfigured along the way.' Briercliffe points out that every time the machine is configured, it adds cost to the supply chain.' By reducing the number of times a machine is configured you reduce cost and eliminate the risk of introducing problems,' he says.

Briercliffe agrees that some vendors have taken channel assembly too far. 'There comes a point where quality starts to suffer or become questionable.

You need to have resellers who are able to cope with assembly and not all can.' He explains that Sphinx CST has a history as a manufacturer, having evolved from Systime Computers, and consequently had no trouble in moving back to hardware assembly.

He believes that build-to-order is an irreversible trend, but whether it is vendors or their high-level resellers and distributors that do final assembly depends on many factors. 'Some vendors may have to pull back from some of their arrangements for build-to-order assembly in the channel,' he says. 'There is ultimately a quality issue which is critical. No vendor can allow resellers to send out sub-standard machines, and the quality standards have to be sustainable.'