Channel Strategies: Compaq's Progress

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January 12, 1998

Channel Strategies: Compaq's Progress

VP Robidoux says PC vendor takes a gradual approach to inventory reduction

DITOR'S NOTE: Ray Robidoux, Compaq Computer's VP of business planning and operations, spoke recently with Computer Reseller News channel editor Craig Zarley about the company's efforts in the burgeoning area of channel assembly and how the vendor is rebuilding its supply-chain model. Compaq's channel assembly program is expected to hit full stride this year. With the program, Compaq will join IBM and Hewlett-Packard in shifting some manufacturing responsibility to the channel.

CRN: Could you give us an update on Compaq's progress to date on channel assembly?
Robidoux: We previously identifi ed nine companies [that will participate in channel assembly]. We expect all will be delivering systems by the end of [first-quarter] 1998. We have pilot-system work going on now, which is basically debugging our process, but they will all be up and running by the end of [the first quarter]. I look at the progress we've made so far on the [build-to-order] piece of this, and it's gone fairly well. If we can get the channel [configuration portion] running and backed up with a configure-to-order capability, a year from now we should be in pretty good shape.

CRN: Most PC vendors have stated that they hope to reduce inventory to 14 days. How long will it take for Compaq to reduce its inventory to two weeks?
Robidoux: Our approach has been to transition into the model we want to end up with. For the desktop, that goal is two weeks of inventory. There will be a gradual transition. There are a lot of factors that affect inven tory. Some are vendor-driven; some are customer-driven. There are a lot of project rollouts and many of the Fortune accounts like to see a large portion, if not all, of the project rollout inventory in-hand at the reseller's location. It will take some education and some believability from those accounts that we can execute on the [build-to-order] before they're going to be willing to let the channels not operate with all that inventory on hand. It's hard to nail down a date because of those types of factors. The other part is being able to correctly forecast and anticipate demand. We're involving the channel in part of our forecast as far as lining up components to be able to build the right SKU. But we still have to forecast how many parts we'll need, and we're not perfect on that process.

CRN: What must Compaq do to improve the forecasting process for itself and its resellers?
Robidoux: It takes experience on the p art of the channel and manufacturer to be forecasting, in essence, a component-based forecast and how accurate we can get. Let's say the best get 80% accurate on forecast and we allow for a 20% variability in certain key components, depending on which way the market goes. Those processes are some of the drivers that determine how quickly we can get to two weeks of inventory on the desktop. We don't want to artificially force the channel [to run out of stock].

CRN: What behavioral changes are necessary to make this new supply chain work efficiently?
Robidoux: Historically, the channel operates off inventory and the sales reps sell what they can see in inventory. What we all need to transition to is not only selling what's in inventory, but what electronically can be built within a certain time frame. So, instead of having six weeks [of products in inventory], they might have two. But in essence they can look forward a nd see that Compaq can deliver these materials or these SKUs or these components in the next four weeks. [We need to get to the point where] Compaq can provide an electronic signal of what we have to work with and what we can deliver, and the channel being able to provide that signal in terms of products that are available to sell.

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