As HP continues to finalise the details of its post-merger channel programs, Tony Bill, HP vice president, personal systems group, South Pacific, talks to Tamara Plakalo about the changes to trading terms and conditions the vendor is implementing following the recently announced restructure.
How will November 1 [the official start date of the new channel program] change the way your distribution channel will be operating?
Our distributors will see a new rebate program, they will have new targets, and new channel development funds. The distributors will also have an increased number of HP partners/resellers that will be buying from them and they’ll see an increase in the level of account management HP provides to them and their customers.
What are the new payment terms the distributors will have to work with and how will this impact credit availability for HP resellers?
Although there is a reduction in the days outstanding in terms of debt, we will also offer an incentive through a percentage reduction -- an early settlement discount -- so there’s additional money for distributors in that. What it will mean is that, historically, distributors for both pre-merger companies that had ordering cycles of four weeks and would typically hold four to five weeks of stock will now work on two or three-week replenishment cycles. In doing that, the new credit terms become very manageable. If the channel holds six weeks of stock, for example, then credit terms become more important because we would be expecting them to fund something that HP should be paying for. By working to a new replenishment cycle, the distributors are getting the sell-through by driving demand generation through the final tier, and so there will be a flow of cash through to a distributor and a flow back to us.
Is there a market justification for shortening the cycle?
The vast majority of stock in the channel is held by the distributors and the two-week replenishing cycle implies less risk because they’ll be flushing through on a quicker cycle. Me, my sales management team, and my distribution people will be measured on sales out -- that is, on distribution -- which means that whatever goes into a distributor has to go out. Through the last couple of years, [two-weeks] has been a very predictable cycle.
Despite that, there’s been suggestions that the new terms are going to impact credit availability to the channel, as distributors have to bear the impact of shortened credit terms. We have undertaken a full credit review of all the partners that have a direct relationship with HP. We reduced credit limits for some partners and increased them for others. We worked with each of the distributors in terms of the partners who have been realigned. We haven’t realigned any partners for financial reasons, so the availability of credit more than compensates for the amount of business that’s moving through. There’s enough credit capacity within those organisations to compensate for the additional business that’s coming through.
How will the new terms impact HP Business Partners?
We’re talking a completely different model for them. Business Partners will also be eligible for early settlement discount, but will not be affected otherwise.
What changes have you made to your rebate program?
The new rebate program will be very similar to Compaq’s pre-merger program whereby channel targets are set. These targets are currently being negotiated with all the channel partners. Achieving 100 per cent of the target, a level of rebate -- and I’m not going to disclose the percentages -- is being paid. Above 100 per cent, and a higher rebate is paid. There will be specialisation rebates as well. For example, in the Unix space, in high-end storage, in the high-end Intel servers, where the resellers have to rely on a high level of technical resource to sell those products, they’ll get special rebates. We’re also developing specialisation programs around wireless mobility and notebooks.
Will the rebates for your realigned tier-one partners be managed by distributors?
Although we moved about half of our tier-one channel under distribution, we will still maintain a direct account relationship with them. However, the point of purchase has changed.
What sort of account management responsibilities will your distributors have under the new program?
They will have dedicated account managers. Those individuals will be responsible for selling the entire range of HP products. We will then have resources assigned to manage the second tier so those realigned partners, plus the 70 or so other partners, will all be part of the managed second tier. The distributors will also have account management responsibilities for those partners.
But you just said that the realigned tier-one partners were going to be managed directly by you?
Within our distribution sales team, there will be people focused just on distributors and people focusing on tier two. They need to be intrinsically linked, because our focus in on sell-through, as opposed to just selling to the distributor.
How will the terms vary from distributor to distributor?
They won’t, all distributors will operate on the same terms. It’s not in HP’s long-term interest to have any discrepancies between the way distributors or resellers operate.
What feedback have you had from the channel so far in relation to your new, post-merger program?
It’d be both naive and foolish to say that it’s been a flawless transition. The pure-play guys, such as Digiland, have experienced some challenges in terms of their revenues. So, yes, we’ve had some challenges as Digiland learns new systems and Dicker learns a new go-to-market in terms of conditions, but I think each of them went into it knowing things weren’t going to stay the same.