Original equipment manufacturers OEMs, who have squeezed suppliers margins to the bone in the relentless drive for ever-higher profits, may now face similar treatment themselves as a result of a deal between Ingram Micro Inc and Solectron Corp. The two companies have linked up to provide a global build-to-order and configure-to-order service for PCs, servers […]
Original equipment manufacturers OEMs, who have squeezed suppliers margins to the bone in the relentless drive for ever-higher profits, may now face similar treatment themselves as a result of a deal between Ingram Micro Inc and Solectron Corp. The two companies have linked up to provide a global build-to-order and configure-to-order service for PCs, servers and related products. It does however create a dilemma for OEMs. If they go along with it, they hand over a considerable portion of the added value in their products to Ingram and Solectron. To shun the system though, would be to hand over a large slice of business to their rivals. Santa Ana, California-based Ingram, which claims to be the world’s largest distributor of computer technology products and services, recorded 1997 revenues of over $16bn while Milpitas, California-based Solectron recorded revenues of 3.7bn last year providing services for leading OEMs. Will OEMs resist a system that seems bound to hit their profits? Diplomatically, Solectron suggests that to do so would be to go against economic trends within the industry. With most OEMs all trying to follow Dell Computer Corp’s build-to-order model, while simultaneously attempting to protect their channel sales, the prospect of a channel which offers build-to-order prices promises huge repercussions at a time when margins are under intense pressure. By linking up, Ingram and Solectron can offer customized systems to resellers from 11 worldwide locations. To stay competitive in today’s rapidly evolving marketplace, OEMs need lower costs and improve time-to-market and time-to-volume. The way to do this is to reduce costs and time in the supply chain, said Solectron’s chairman, president and CEO Dr Ko Nishimura. The alliance is designed to help resellers to lower inventory carrying costs and cut out the expense of reconfiguring already assembled systems. The two companies say OEMs will benefit as it will open up additional distribution channels, reduce their logistics and handling costs, limit their inventory liability and avoid obsolescence costs. All these advantages however may not quite compensate the OEMs for the kind of mighty squeeze on their margins that they have long imposed on their own suppliers.