On Site With Ingram Micro: Webifying The Channel

By JOHN EVAN FROOK

If the Internet changes everything, why not change everything to fit the Internet? Ingram Micro Inc. is headed in that direction. Already one of the leaders in Internet commerce, the $16.6 billion high-tech distributor is preparing to take a burgeoning extranet strategy to the next level.

By tying together a series of high-tech initiatives, Ingram is forging into channel assembly--the practice of collecting computer components from various manufacturers and putting them together in response to a customer's order.

Channel assembly is the ultimate extension of one-to-one marketing on the Web: the ability for customers to use interactive Internet apps to specify exactly what they want, rather than buying cookie-cutter products pumped into a channel by manufacturers. Yet it also is a new concept; high-tech is one of the first vertical industries to actually execute channel assembly via the Internet.

"The Internet strategy should help Ingram be more efficient in channel assembly," says Roberta Fleck, vice president at Morgan Stanley, Dean Witter & Co. It is a concept it is "working with to get the right product out to its customers in a timely fashion."

Competitive pressures also are driving Ingram's Internet commerce plan. Computer makers, including Compaq, Hewlett-Packard and IBM, are demanding channel assembly from distributors. That's partially in response to the build-to-order success of Dell Computer Corp. and Gateway 2000 Inc. Ingram's channel-assembly program also is viewed as a way to serve the needs of CompUSA Inc. and other major retailers and resellers.

Channel Assembly

The manufacturers and retailers see channel assembly as their insulation from ever-changing microprocessor and memory chip prices--the two most expensive pieces of any personal computer. By taking on channel assembly, Ingram assumes the inventory costs, but as a distributor, that's familiar territory.

For Ingram, the advantage is that data can be accessed over the Internet from its online sales apps to better calculate inventory requirements, reducing the possibility that Ingram will need to store costly parts and accessories that aren't in demand.

Competing high-tech distributors such as Tech Data Corp., InaCom Corp. and Merisel Inc. all have heady Internet strategies under way. Ingram's ability to execute the plan will either solidify the company as the industry's leading technical partner or open the door for a more agile innovator to gain market share. Ingram is twice the size of its nearest competitor, Tech Data.

Channel assembly is causing Ingram to change its business operations as well. Manufacturers increasingly send Ingram half-built computers and assembled components. Server farms at the distribution centers automatically match demand taken from interactive Internet applications to inventory in stock.

Ingram employees, once responsible for only distribution and shipping, are being retrained to build the requested computers, put them on hot racks for burning in applications and check as a quality control.

Ingram set up two channel assembly facilities: one in Memphis, Tenn., and a second in Hertogenbosch, Netherlands, to configure, assemble and ship desktop PCs and network servers.

The company also formed a strategic alliance with Solectron Corp. to run channel assembly operations at nine other plants worldwide, all of which should be up and running by the year 2000.

This early work just scratches the surface of what channel assembly and Internet application development could mean to Ingram, according to chief executive officer Jerre Stead.

"The key investment is our ability to use technology--specifically e-commerce and the Internet--to reduce cost for customers," Stead says.

"We long ago made the decision that those two would be our top investments in communication systems. I think we are at the tip of the iceberg in terms of what it will do for our customers," he says. Ingram hasn't disclosed exactly how much it will spend in channel assembly.

Delicate Balance

Ingram's e-commerce push is a delicate dance between supply and demand. In these systems, most of the back-office functions remain in traditional legacy systems, but the ability to match that data to the demand is critical--if the flow of real-time information breaks down, inventories could pile up or run dry--eliminating profits for Ingram.

That's why Ingram is beginning to use front-end Internet applications to collapse production cycles, reduce inventories and fine-tune production. Moreover, it is using IngramMicro.com to beef up customer choice.

Specifically, Ingram is deploying a series of applications that can either be accessed from its site or posted on a reseller site. These applications will let salespeople and customers compare products, get accurate pricing reflective of their purchase agreements, check whether it is in stock and post an order.

Ingram expects that automated Web applications also will reduce the number of errors created by telephone ordering and prevent customers from ordering items Ingram just can't deliver on time--a nightmare scenario that happens all too often at some distributors.

The beauty of channel assembly is that much of it leverages Ingram's existing efforts. Middleware designed to act as an interface between Web transactions and Ingram's existing back-end systems was developed in-house. A licensing agreement with software developer pcOrder.com Inc. also provides much of the secure data necessary to take relatively insecure Web data and push it through the supply chain.

Ingram licensed pcOrder.com's technology to link together buyers, sellers and its channel assembly operations through a series of Web applications. Ingram has essentially taken pcOrder's back-end integration tools and joined them with SpeedSource ordering and PrimeAccess--a tool for resellers to deploy online stores, which will be released commercially by the end of the year.

The pcOrder deal lets Ingram and its manufacturers send data over the Internet to systems responsible for managing production processes.

In addition, early Web development led Ingram to take a leadership position in RosettaNet--an industry effort to standardize product information that could make the information processes for channel assembly easier to manage.

The channel assembly operation is supported by a dozen T1 lines that deliver the bandwidth required for interactive ordering. Ingram uses Cisco Local Director for load balancing. Four replicated Web servers are loaded with Windows NT and run SQL databases, Lotus Notes, Netscape Enterprise and CICS apps. Internally developed middleware interfaces with proprietary ordering and inventory management systems.

This backbone architecture ensures high availability on the Ingram site--a corporate priority, given that an outage can affect customer confidence and productivity.

Coordinated Efforts

Tying together legacy channel-assembly data with real-time Internet transactions is a complex task. It takes network managers, Web development teams and corporate alliance partners working in lockstep to win the support of buyers--many of whom now demand sales tools for processing orders in real time, as well as store creation tools that let them carry those apps on their own branded sites.

"Our development lies in the integration of various packages put together in newer, innovative ways," says David M. Carlson, Ingram's senior vice president and chief technology officer, who formed the implementation team. "When history is written on this era, we want Ingram Micro to be categorized as helping move the industry from vendor push to customer pull."

The pull for Ingram was an opportunity too great to pass up, says CEO Stead. Today, only 25 percent of Ingram's revenue comes through the sale of PC parts--a number that could skyrocket if its channel assembly project takes hold. The bulk of Ingram's revenue comes from networking, computer telephony and software products.

The Ingram model could prove to be an architecture for other distributors in other industries. Many industries already are seeing significant Web strategies as the role of the distributor changes and evolves.

W.W. Grainger Inc., which sells $4.1 billion worth of maintenance, repair and operations products to 1.4 million active business accounts, is offering online sales. And in the laboratory sciences niche, Fisher Scientific and VWR Scientific Products also are very aggressive.

"Ingram's is an architecture that other industries need to look at," says Bruce Temkin, an analyst at Forrester Research. "Its ability to empower the indirect channel will be an important breeding ground--if it is successful. The company is using a broad channel strategy to collapse cycles. If it proves it can compete with Dell and others, there's no reason distributors with strong indirect channels in other industries won't want to copy."

One important aspect of Ingram's strategy is to proceed conservatively. Although its development team is scrambling in their gray cubicles at company headquarters to develop the next big Internet app, Ingram is careful not to hype the efforts until it is ready to deliver.

Carlson says that's been important in developing buy-in from its suppliers and buyers, many of whom are salivating for functionality but weary of results that fall short of promises.

"We've been conservative about talking about things in development for a reason," explains Carlson. "In the e-commerce space, it is really too easy to get trapped into preannouncing, overcommitting and underdelivering."

Ingram runs purchasing transactions on a proprietary system called Computer Assisted Purchasing System. But CAPS is based on a 3270 text-only window to Ingram's mainframe and is limited in reach--about 6 percent of Ingram's overall customer base of 100,000 resellers have access, explains Daniel Greaves, Ingram's senior product manager, information technology.

Greaves says other technologies, including traditional EDI and a proprietary EDI system, had even lower buy-in rates. Access is typically through a point-to-point telephone connection--more expensive over the long haul than logging in through an Internet service provider or the corporate TCP/IP network.

Since the Internet exploded, Ingram has deployed a series of lightweight applications, including SpeedSource--a Java-based thin-client interface--into its payment system. These apps let smaller customers access Ingram in real time or set up a sale offline.

Speeding Payments

According to Stead, the day is at hand when orders taken on SpeedSource or through other Web interfaces--potentially even at kiosks in computer retail stores--will be routed automatically back to the manufacturers.

If the RosettaNet standard takes hold, Ingram will be able to match back-end capabilities with real-world demand, according to Carlson.

"This is about getting the best configuration possible into assembly," Carlson says. "If on a Monday there's a new business card scanner announced or a new zip drive, the customer should be able to sign on and get that product in their configuration that day. We know the traditional manufacturing models. They are not the end. We have 140,000 SKUs, and channel assembly positions us to meet or exceed customer expectations."

And judging from Ingram's ability to adjust as the Internet bobs and weaves, it's a safe bet the company's customers won't be disappointed.