All by myself

Resellers are doing it for themselves, but are they wasting time and money if users still want the security of brand names.

It's madness, isn't it, resellers and small Vars building their ownd money if users still want the security of brand names. PCs? There are a million reasons not to go for self-assembly, not least the fact that the investment in space and technical skill are daunting and the headaches of quality control and DOAs severe.

But despite this there are a growing number of resellers are moving towards self-assembly. Many channel businesses are developing at least a level of final assembly and own-branding, if not full PC manufacturing. The margins themselves make it worthwhile for even high street resellers to take the plunge.

Many are scathing of the trend, wondering if it can ever be a sound business decision. Ori Yiassoumis, sales director and co-founder of Hi-Grade Computers, is in this camp. 'Apart from the obvious costs, there is the complication of combining two different business processes,' he says. 'Reselling and integrating require a certain business pattern and set of processes, while manufacture and assembly demand a whole different set of routines and skills. It is hard to integrate the two successfully.

'These days there are so many manufacturers and vendors making desktop PCs so cheaply, it is hard to see why anyone would want to enter that market.'

But he concedes that self-assembly benefits some sectors of the market. 'There is some sense in resellers putting their own notebooks together because the margins are healthy and there are lower overheads involved in setting up an assembly operation. The trigger which is encouraging Vars to make their own machines is the speed with which distributors can get components, and the need to personally ensure quality.'

Integrators and Vars can now get quick access to newly released chips and other components, so they can compete seriously with the latest branded models. Robert Epstein, business manager for PCs at Datrontech, says resellers and Vars are able to deliver the latest configurations more quickly than some brand name leaders, whose businesses are bogged down by cumbersome research and development processes. But according to Colin Gallick, senior vice president of FTP Software, customers still look for brand names when they purchase PCs and do not mind paying a premium for them.

'If something goes wrong with a machine, a customer wants someone to kick. If the machine has been made by a small reseller or Var, who are they going to kick? There is a comfort factor in brand names, which resellers and Vars building their own cannot offer.'

The big name vendors will have you believe that brand counts for a lot, and to some users it still does. But the old maxim that no one ever got fired for buying IBM has worn thin at the PC end of the market. Not because IBM has lost its strength, but because fewer customers lay great store by brand names. Sixty per cent of PCs sold are high-profile brand names; of the rest, an increasing number are no-name or brand-irrelevant.

As PCs are increasingly commoditised, the brand matters less. Furthermore, as resellers try to stay one step ahead of the game, they find the components suppliers are bending over backwards to help them move into self-assembly.

Datrontech is rapidly growing the self-assembly side business. George Evans, business manager of Datrontech's components division, says he finds component vendors want to work with Datrontech to build a reliable supply chain to resellers wanting to self-assemble.

Ideal Hardware is another distributor which has an active components division. However, Ian French, director of PCs and servers at the distributor, admits that problems with reseller-built machines have given self-assembly a bad name. 'Some Vars and resellers do it very well, but others have had their fingers burned,' he says.

French draws the distinction between channel players which do their own final assembly and those which assemble from a base level. 'Trying to assemble a complete system with a motherboard, CPU and power supply, plus all the user's unique specifications, is a complex and specialised business.

The reseller has to be geared up to do it. There is a big difference between that and just putting in extra memory, a more powerful disk drive and a CD-Rom.'

The latter, says French, can be done by most resellers and Vars, but anything more fundamental requires greater technical competence. 'Some have been found out trying to source cheap components. That is one of the dangers of self-assembly - the temptation not to stick to reliable and approved sources.'

In addition to the temptation to use cheap and less reliable sources, Vars report that the major hurdle is testing, particularly when they are trying to keep costs down and delivery times short. Martin Prescott, MD of Big Red Computers, which makes its own machines, says none of these problems are difficult to overcome. 'As far as testing is concerned, I can categorically say our machines are built better than any you get from high-profile vendors,' he says. 'We build our machines to last. They are built extremely well.'

He adds that any reseller is going to have to support the machines it builds, so it is going to make sure they are well assembled and properly tested. 'It is a red herring to say that resellers can't test the machines they make.'

Datrontech's Evans points out that self-assembly is attractive to software resellers and Vars specialising in software. 'Channel businesses with a software focus often use direct suppliers to provide boxes to run their software, but they are missing a huge opportunity, not just for margin but for raising their own company brand profile.' He explains that software Vars can earn two or three points on direct vendors' PCs, and up to seven or eight on a high-profile brand-name vendor brand, but if they sell enough they can earn 18 or 20 points on their own-brand PCs.

'They can have machines which are brand-rich inside,' says Evans, 'but carry their own company brand on the outside.' Furthermore, he says, resellers and Vars which take the self-assembly route can offer their clients the latest in graphics, networking and multimedia long before those resellers which depend on big name vendors to get their latest boxes through to the channel.

'The large vendors can take several weeks to integrate new developments into their machines and get volumes of the machines to the channel. We all know about shortages in branded products - they are avoided when resellers put their own boxes together.'

Prescott expresses surprise that more resellers do not take the self-assembly route. 'It means better profits, a higher profile and a long-term link with customers. We can offer better products, with the latest features and facilities, long before our competitors.'

It would be incorrect to say that nothing ever goes wrong, he admits, but with a sensible support system, Big Red is prepared for anything that comes along.

'The benefits far outweigh any problems and difficulties, and it is far easier to support systems that you have built from scratch with quality parts,' says Prescott. 'I am only reluctant to recommend self-assembly to other resellers because we would be advising our competitors to do something which would chip away at our competitive advantage, but the fact is that it makes sense and it is the way forward.'

OUTSOURCE YOURSELF

For Vars and resellers that are interested in building their own PCs, but daunted by the challenges, Epstein suggests another option. 'You can outsource your do-it-yourself assembly,' he says.

This is not such a contradiction in terms as it sounds. The process is well-established in the US. Tech Data runs a private label service, which customises all the packaging with the reseller's company logo, personalises the text and ships the machines direct to the customers. Its catchline is: 'You don't have to touch the order, but the order has your touch.' Datrontech's idea is that resellers use its assembly processes and skills to manufacture PCs to their customers' specifications. Epstein explains: 'The difference between what we do and what the make-to-order vendors are doing is that we deliver white box machines which can be branded with the reseller or Var's logo. We provide all the packaging, manuals and the machine to the customer's specifications, but with the reseller or Var's brand on the machine and the box.' There is a minimum order for the service, which is negotiated with each reseller, but the end result is that they are able to offer risk-free, own-branded PCs.

'The reseller does not have to think about the problems of setting up a self-assembly department or quality control, or about conforming to CE regulations or testing. We do everything, just like other manufacturers and make-to-order suppliers do.'

The ability to provide your own PC is a critical differentiator these days, says Epstein. 'It is very hard to be different when you are just another reseller providing Compaq or Hewlett Packard machines.

There is no edge in that. But when you have your own brand, and it is extremely competitive on price and features, then you have something which sets you apart from the pack. Resellers and Vars find the idea of outsourced self-assembly attractive, and with good reason.'