Hewlett-Packard is planning to recruit large resellers across Europe to assemble finished PC systems to order. The stated aim is to shorten the time it takes to deliver systems, and also to cut inventory costs for the resellers.
The initiative - called the Extended Configure to Order (ECTO) program - follows successful pilot schemes in the UK and Germany.
Emilio Ghilardi, worldwide marketing manager for HP's commercial desktop division, said that the ECTO model is just one way of approaching the reseller, and that other variations will follow. "ECTO is the first product that we are releasing to the channel. It is not the only one we are working on, but it's the only one we are releasing today, he said.
The ECTO scheme means that instead of buying finished systems from HP and holding them as inventory until they are sold, the resellers buy system components from which they assemble HP Vectra PCs. According to Ghilardi, this means they will have less money tied up in inventory, and will also be able to be more responsive to specific customer requirements.
"The channel is closer to the market and so is in a better position to finally configure products for users," he said.
He emphasised that the PCs will carry HP's standard warranty and the HP logo, and that HP will keep control of the process and ensure product quality.
"The process is managed by our people. It is the concept of building an HP PC assembly line in a container and then shipping that to the resellers. People in the channel have their own expertise, but the idea is that HP will control the process," Ghilardi said.
With the ECTO model as it stands, participating resellers will have to buy their components through HP.
"But pretty quickly some key suppliers will ship directly to the channel to save time and cost. We will be able to reduce the amount of inventory in the channel down to two weeks, while still growing the business," he said.
HP has operated the ECTO model in the UK for more than two years with Northamber PLC, and more recently with Actebis AG in Germany. Since the fourth quarter of 1994, Northamber says its sales of HP PCs have grown by more than 1000 units (60 per cent) a month. Managing director Henry Matthews cites one example where the new business model allowed Northamber to produce 50 specially configured PCs for a customer within 18 hours.
"Typically today, the channel has three to four weeks of finished goods," Ghilardi said. "With this new program, you can cut down to two weeks, and the inventory is just components. So you need so much less to sell much more. The idea is to replenish inventory every two days."
HP now plans to expand the ECTO model to the rest of Europe, initially working with one reseller per country, said Ghilardi, although that may change later on. He said the company will appoint five new companies for the program in the next quarter.
Economies of scale
He stressed that resellers will need to be of a certain size to reap the economies of scale of the ECTO model. For a market like Germany, the local reseller would have to be doing 100,000 units a year, he said. For smaller markets, such as the Netherlands, Spain or Italy, the entry level would be around 30,000 units.
Participating resellers will not receive any special terms or prices for system components, said Ghilardi. "Their advantage will come from the better management of inventory. We are keen to ensure we do not distort the competition within the channel."
For the moment, the scheme applies only in Europe, but Ghilardi said he expects something similar to be launched in the US over the next few months. IBM already has a similar scheme in the US, and Compaq is planning something along the same lines, he said, adding that the US business model will probably be slightly different from the ECTO approach, although he said it was too early to say exactly what form the US program will take.