HP moves toward direct sales

Hewlett-Packard (HWP) will overhaul its sales structure to make it more like a direct sales model, following a strategy that has been key to the success of rival Dell Computer (DELL).

The HP decision follows a similar move announced today by Packard Bell NEC. Companies are scrambling to create new sales stratagies to reduce the cost of assembling and selling computers.

All PC makers are now trying "to be more responsive and to be more profitable, to take the inefficiencies out of the system," said Richard Zwetchkenbaum, an analyst with International Data Corporation, a marketing research firm in Framingham, Massachusetts.

"There's a lot of slop in the system," said Jim McDonnell, the group marketing manager for HP's personal information products group. "If we match Dell, what do they have left?"

HP is planning a complete overhaul of its sales system, McDonnell said.

Specifically, HP wants to reduce the $100 to $150 per-system cost advantage that Dell now has, McDonnell said. HP also wants to shrink its inventory from the current six to eight weeks down to three to four weeks to better compete with Dell, he added.

HP has been holding extensive meetings with its major resellers in recent months trying to build the new sales model, McDonnell said. The upshot is to integrate HP's PC assembly business much more closely with distributors such as Ingram Micro.

HP's sales system will not be a purely direct model. Instead, HP is planning to let customers go to its Web site and order systems directly from HP distributors via the HP Web site. In this ordering process there would be a much higher level of integration and cooperation with HP and its distributors than currently exists.

"We?ll have a seamless connection [to the distributor]," McDonnell said. HP will now work much more closely with distributors to construct the computer-based ordering system necessary to do more efficient build-to-order, he said.

Currently, there?s "very little discussion that takes place between us and the distributor...there's no virtual (Web-based) managing," McDonnell said.

HP has already begun to build the system. "This is a continuum. This is going on now and will continue for the next year and a half," said McDonnell.