By Siobhan Kennedy
Compaq Computer Corp yesterday all but officially confirmed that it’s gearing up to slash the number of its European top tier distributors as part of company efforts to streamline business processes and reduce inventory costs. In addition, the company is expected to axe a further 5,000 to 8,000 staff by the end of the year, with the first round of job losses being announced as soon as October, sources said.
The company has hinted about its European sales realignment over the last few months but yesterday, during his first visit to the region since being made CEO seven weeks ago, Michael Capellas confirmed that Compaq plans to look at what it’s done in the US as a model of where it’s going in Europe. We need to simplify the distribution model and reduce infrastructure costs, Capellas said. Inventory is the enemy, he added, we don’t need a model where product is touched at various stages, we have to drive programs to reduce inventory at every stage.
As part of that process, the company axed all but four of its 39 US distributors back in May, a move which doesn’t bode well for its estimated 20 partners in the UK, France and Germany. Capellas didn’t give any details about numbers but it is widely believed that he will thrash out the plans with executives during his visit to Europe. The moves, he believes, will help Compaq meet its goal of reducing inventory levels from four and half weeks today, to just two weeks by the end of the year.
David Petts, director of Compaq’s commercial personal computing group confirmed that the company was currently drawing up plans to drastically cut the number of its tier one distributors, 15 of which are UK-based. He added that the moves would also affect the additional 40 or so distributors throughout Europe, Middle East and Africa. Although he wouldn’t give an indication as to how many, analysts suspect the reduction will be quite severe, leaving the vendor with just one or two key partners in each region, with some distributors covering more than one area.
Petts said the aim was to make the second tier partners, of which Compaq has around 1,500 to 2,000 in Europe, outsource the majority of the logistics – customization of machines and so on – to the reduced number of top tier distributors, leaving the second tier partners free to concentrate on pushing value-added services. One analyst, IDC’s Andy Brown said drastic cuts were a necessary measure to drive down inventory costs and streamline the business but he said the move was indicative of Compaq’s current confused state.
Up till now, Compaq has said its European rationalization process wouldn’t be as a harsh as it was in the US, he said, but it now seems that Capellas’ prepared to stick his neck out and talk honestly about what he plans to do. He added: But if you’re one of those resellers and you suddenly have Compaq pull its business, you’re going to have a big problem.
