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Tech Data shipping setup quietly ends

But in the fast-changing tech world, the distributor simply moves to a different method that does not affect the bottom line.

By MICHAEL BRAGA

© St. Petersburg Times, published June 24, 2000


For two years, Tech Data Corp. has been trumpeting the fact that three of the largest computer manufacturers in the world have invited the Clearwater company to ship personal computers and printers directly from their manufacturing facilities.

IBM, Compaq Computer and Hewlett-Packard have all provided space to Tech Data -- and a handful of other large computer distributors -- to cut costs and compete with their principal rival, Dell Computer Corp.

But now, two of those manufacturers, Compaq and Hewlett-Packard, have ended their "colocation" agreements with Tech Data and other large computer distributors.

In March, Tech Data vacated Compaq's campus in Houston, and on May 31, it exited Hewlett-Packard's plant in Sandston, Va. More recently, Tech Data's largest competitor, Santa Ana, Calif.-based Ingram Micro Inc., announced it was exiting the colocation business altogether.

The end of the site-sharing experiment has not put a dent in Tech Data's continuing expansion and fast-growing revenues. But it underscores that fads in technology manufacturing can lose their luster almost overnight.

"The colocation model has not lessened Dell's advantage as much as everyone thought it would," said Martin Kenney, a University of California-Davis professor who has studied computer distribution channels.

Rather than selling computers through distributors such as Tech Data, Dell cuts out the middleman and sells directly to the consumer. By doing so, Dell has been able to speed up delivery and offer its products at greatly reduced prices.

In response, IBM, Compaq and Hewlett-Packard attempted to simulate the Dell model by asking major distributors, including Tech Data, to operate under their roofs. They moved in about two years ago.

There, they grabbed computer equipment directly from assembly lines, installed components and software ordered by clients, boxed the products and sent them on to consumers. The net effect was to eliminate a step in the distribution chain. Products no longer needed to be shipped to warehouses before being sent on.

But the colocation model began to break down earlier this year after Compaq purchased the distribution arm of Inacom Corp., a large but struggling computer distributor that has since gone bankrupt.

"Once Compaq had Inacom's technology, software and systems, there was no point having other companies hanging around its campus," said Steven Brazier, an analyst with Canalys.com, a British consulting firm that specializes in advising distribution companies.

Compaq did not return calls inquiring about the change. Joseph Serra, Tech Data's vice president for systems product marketing, acknowledged that Compaq's purchase of Inacom's distribution facilities was a factor in Compaq's decision to end the colocation agreements. But Serra said that's only part of the story.

Serra said improvements in e-commerce made colocation unnecessary. In fact, Serra added, it is now more efficient, in most cases, to locate final assembly and distribution closer to the end consumer.

By the time Tech Data cleared out of Houston, Serra said only 18 of its employees worked at the Compaq facility. That number was down considerably from the peak of the colocation agreement, Serra said, although he did not say how many people had been employed.

Serra said the end of the colocation relationship did not hurt Tech Data in any way. He said 70 percent of the remaining employees opted to stay with the company, and Tech Data's sales of Compaq products have actually increased.

Reasons for the termination of the Hewlett-Packard colocation agreement are different, according to Tech Data spokeswoman Beth Hardy. The arrangement entailed boxing and shipping printers from Hewlett-Packard's Virginia manufacturing facility.

"That was a six-month pilot program, and the pilot ended," Hardy said. "Both sides agreed that there weren't enough savings from the model to make it financially feasible." The colocation arrangement with IBM is still in effect, Serra said. And he doesn't expect the relationship to end any time soon.

But some analysts think its only a matter of time before the lingering colocation agreements fade away.

The reason, according to Kenney, the University of California-Davis professor: "In the Dell model, distributors like Tech Data and Ingram Micro have no place."

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