Buying PCs 'direct' has price benefits

By Staff -- Purchasing, 2/22/2001

While purchasing PCs direct from the manufacturer isn't all it appears to be for corporate buyers, it does have its advantages, says Brad Simpson, assistant corporate purchasing, the Principal Financial Group, Des Moines, Iowa. As Simpson sees it, moves by big computer OEMs to eliminate parts of the distribution channel have given new meaning to the word "direct."

While Dell's decision to sell its PCs direct to consumers means exactly that, selling computers to corporate purchasing operations is a bit more complicated. Oftentimes, the "direct" sale still involves another link in the supply chain, namely, a computer reseller.

"For consumers, the image on a PC is one in the same-Windows 98 and some software," says Simpson. "But, the image on a machine purchased for a company like the Principal Financial Group is totally different from the image on a machine bought by another company. So, while corporate buyers may be purchasing PCs 'direct' from an OEM like Dell, someone else still has to do the imaging and the installation, hence the computer reseller." Simpson points out-as a point of clarification-Dell, and all other PC OEMs, will image machines for a company, but the challenge for them lies in the ability to manage the multiple images that many companies must maintain.

Still, Simpson says that Dell has helped "turn in the tide" in the computer industry. A few years ago when Compaq purchased Digital, the computer company believed it was purchasing a distribution channel. That turned out not to be the case. So, the company purchased Inacom, a computer reseller. This, too, was not the distribution arm it was looking for-Inacom was the single largest customer of IBM for PCs, creating a conflict of interest for the company. So, by default, Compaq moved to a direct model. At the same time, IBM and HP figured out how best to sell their products direct.

In reality, what the computer OEMs have done is taken the big reseller out of the picture, says Simpson. (Witness the demise of Inacom and Vanstar, two big resellers.) Purchasing operations at many big companies are working more closely with the OEMs, but these manufacturers are not actually supplying corporate America with an end product. Granted, there are some big companies that buy their computers direct from OEMs like HP. Still, most buyers continue to purchase PCs through the reseller channel. And, while there are still a few national players like GE Capital, many buyers have turned to local resellers for imaging and installation.

Eliminate price mechanism

Before Dell introduced its model, each of the big OEMs had "reseller pricing." The new model has eliminated this pricing mechanism, which is good news for buyers, says Simpson.

As such, pricing has become more visible. Used to be, if a buyer purchased a $1,000 computer, that $1,000 went to the channel with the buyer paying another 5% to 10% for image burning and installation. Now, OEMs discount their pricing. (Compaq, for one, has what it calls Web pricing, from which it discounts.) What happens is a buyer contracts with an OEM, who sends the invoice to the reseller who in turn marks it up for his or her services. Ultimately, the buyer pays the OEM.

So, the idea of the reseller leaving the market never really happened, says Simpson. What has happened is that purchasing can say it buys PCs direct from a computer OEM. And, in fact, the buyer can contact the OEM with performance issues because that OEM now considers itself the ultimate supplier. This was not case three years ago. Then, the OEMs would have had its customers contact the reseller channel with performance issues.

Still, a national or international company would like to have a consistent level of service from its computer resellers. With fewer national players, this isn't usually the case. The Principal Financial Group, for one, purchases its PCs through a local reseller in the Des Moines area that doesn't have capability to service the company's other facilities in the U.S or abroad. This, Simpson believes, is where the business is going to have to change. "The first one to figure this out will have a lot of people interested."

Meanwhile, computer OEMs may be pondering the profit potential of the industry. Small assembly shops are putting together PCs for corporate customers. "These folks are starting to understand that they can purchase components from Pacific Rim suppliers at pricing very close to that which the big computer OEMs are paying, assemble the PCs, and sell them.

"Where an OEM can sell you a $1,100 computer and company X sells you a $1,200 computer, that $100 is for service," says Simpson. "It's happening. A lot of midsize companies are going this route. They're buying PCs made from components purchased from top-name companies such as Intel."