It was greatly hyped during its conception in the late 1990s, but since then silence has reigned on the channel assembly front. Compaq recently abandoned its US co-location programme while Ingram Micro has decided to get out of the co-location arena altogether. Is it time to start writing channel assembly's obituary?
Co-location is essentially an intensified version of the channel assembly model. Instead of working from a distance, the distributor rents space at one of its vendor's manufacturing facilities. Distributors then configure and ship products on behalf of resellers from the vendor's facility.
Compaq said it decided to end its co-location relationships with US distributors because a combination of its distributor alliance programme together with its Inacom acquisition earlier this year and other technological advances had left the initiative outdated.
This development has probably ended the vendor's attempts to establish any sort of similar service in Europe. Compaq's efforts to appoint logistics and configuration-only distributors failed when it abandoned its configure-to-order scheme earlier this year.
Mark Walker, hardware and systems director at Ideal, said he found it hard to see how the model was ever going to work in Europe because the differences between the US and the UK, in terms of both size and demand, were always going to cause problems.
"The UK as an island presents an entirely different problem to the US," he said. "Companies such as Computer 2000 and Ingram are global, but they still have trouble being pan-European. Centralising operations doesn't make sense where there is no universal language, level of demand or even power supply. Compaq is just one company that has learnt that it is easier to improve the efficiency of its factories than bring in an external distributor. For this reason co-location is dead. Really, it was dead on arrival."
Steve Brazier, an analyst at Canalys, went further, suggesting that co-location had never really taken off in the US either.
Steve Raymund, chief executive of Tech Data, agreed. "The industry has had a tough time making these initiatives work. We have done some channel assembly, mostly with Hewlett Packard, but we will not be looking at co-location," he said. "IBM has done both, having seen some success in each area, but I understand that its PC business is still making losses."
HP and the co-location model
In the current market, HP has remained one of the most committed companies to channel assembly, particularly with low-volume, high-mix models, but it has also shied away from the co-location model. David Griffiths, channel marketing manager at HP, pointed to broadline channel assembly as the future for those distributors involved in failed co-location schemes and claimed that success was built upon developing extremely close channel-partner links.
"HP has seen a lot of success in the time-to-order model of channel assembly," said Griffiths. "When you are building to order, the distributor needs to know exactly what it will need and the vendor has to be able to come up with whatever is in demand very quickly, in case of a sudden rush. A lot of companies fail because they do not have this close communication and end up buying lots of bulk stock which never gets used. There is a definite future in channel assembly, but it needs to be well managed."
Griffiths said success with HP's current partner, Northamber, has led the firm to expand its fulfilment model with the recent signing of an additional distributor, SCH.
Computacenter also claims to have found the secret to success, in its dealing with Gateway. It signed a multi-million pound deal with Gateway last November to distribute and offer services around the direct vendor's PCs in the government and corporate sectors. The joint operation, called Service-Direct, has been successful to the extent that both companies have had to take on new staff to keep up with growth.
Phil Williams, corporate development manager at Computacenter, said: "What value, if any, co-location added to the customer has to be seen as negligible. Our model is build to order. We take the cost out of the supply chain. No stock is bought until an order is placed. There is little money in box shifting pre-made lines, one of the reasons being that you have to open them up again if a customer wants any modifications, effectively spending time building it twice. This way we never waste money and we don't have a backlog of parts going out of date."
So if co-location is dead, long live customisation. "The future is where the customers' needs are met, not those of the vendors," said Griffiths. "Co-location tried to achieve that, but it forgot to think about the practicalities of squashing two separate firms into the same workspace. It was cost-effective and surely the trick of any business venture is to achieve that."
Both Ingram Micro and Compaq were unavailable for comment.
NASA's Voyager 2 probe set to reveal secrets of space beyond the heliosphere as it goes interstellar
The probe is now more than 18 billion kilometres from Earth, with equipment enabling it to reveal some of the secrets of interstellar space
Four glaciers located west of massive Totten glacier have lost almost three metres of ice in height since 2008
Ceres, located in the asteroid belt, has a carbonaceous-rich upper crust, SwRI study claims
The spacecraft found traces of hydrogen and oxygen molecules, known as hydroxyls, embedded in the rocky surface of the asteroid