For years, Ingram Micro Inc. has made its fortune not by producing things but by acting as a giant middleman between the manufacturers and sellers of personal computers. To most, the Santa Ana company's operations are invisible, obscure and downright boring.
But they are far from small.
With $16.6 billion in sales last year and a market capitalization of nearly $6.9 billion, Ingram not only is the largest PC company in the Southland, it also is bigger than all but two of the state's technology titans: Hewlett-Packard Co. and Intel Corp.
Now high tech's back-room big boy wants to be heard. With a new e-commerce business plan, Ingram is expanding into manufacturing and redefining the assembly line. It's also becoming a virtual warehouse for Internet-based resellers.
The shift comes at a time when computer retailing in the U.S. is dominated by direct sellers such as Dell Computer Corp. and Gateway Inc., as well as large national chains such as CompUSA Inc.
It's a gutsy move for Ingram, considering that distributors already fight for razor-thin margins. But with the promise of billions in new revenue, Ingram sees its future in Internet commerce.
"This is a fiercely competitive industry," said Shelby Fleck, senior technology analyst at Morgan Stanley, Dean Witter & Co. "To keep their lead over their competitors, Ingram has to move in this direction."
The build-to-order business has become one of the hottest segments for hardware manufacturers in the last couple of years. The trend was sparked by the success of Dell, which has been able to reach both the consumer and corporate markets. Because every computer is made to order, Dell doesn't stock parts that are more than 8 days old. By keeping its inventories down, Dell and other direct sellers can cut down on administrative and storage costs. Out go the middlemen, in comes a stronger bottom line. Traditional manufacturers such as Hewlett-Packard and IBM Corp., in an effort to compete, have followed suit.
Theoretically, this should be bad news for companies like Ingram. Who needs middlemen when manufacturers have direct contact with their customers, either in person or across the Internet?
As it turns out, nearly every player in the PC world needs someone like Ingram to act as the "umbilical cord of communication" between these two groups, said Jerre L. Stead, Ingram's 55-year-old chief executive.
Someone has to house all of those expensive components. And when retailers and resellers need a part, they want to be able to get it the next day--even if the order is placed as late as 5 p.m.
From Warehousing to Manufacturing
Size counts when it comes to a distributor's catalog of inventory. Ingram carries 145,000 products--from PC to telephone parts--from more than 1,400 vendors. Only 25% of the company's annual revenue comes from the sale of personal computer parts.
"Let's say you're in a Fry's [Electronics store]. In the future, you'll literally go to a kiosk and configure an entire home center," Stead said. "'That kiosk will be connected live from Fry's back to us," where the order will be assembled.
In March, Ingram opened its first build-to-order plant in Memphis, Tenn. The facility, one of 11 set to launch by 1999, is designed to make customized notebooks, desktops and PC servers for Compaq Computer Corp., HP and IBM, among others.
Ingram's plan, known as "channel assembly," is to store partially built machines that still need microprocessors and memory chips. These two components are the most vulnerable to price changes. When an Ingram customer needs a particular machine, it orders the PC and cuts down on the reseller's operating costs because it's not storing a lot of prepaid inventory.
PC makers such as Dell and Gateway insist such a tactic can't match the efficiency of their build-to-order technique. Yet that hasn't stopped distributors from reinventing themselves into manufacturers from shippers. Ingram started cranking computers out of Memphis this spring, as have competitors Tech Data Corp. and InaCom Corp.
"Everybody's obviously latching on to this as a much more efficient way of doing business," said Tim O'Malley, a spokesman for IBM. "Forty percent of our commercial desktops for the U.S. market are [final-] assembled in the channel."
Web Site Becomes More Important
This future, insists Stead, can blossom only with the help of the Internet. Ingram has long used computer networks to link resellers to its telemarketers, who would take orders and reel off technical information to curious customers.
In 1996, Ingram launched a Web site to reduce this burden on its 1,380-person call centers, where at least half the calls are requests for price and availability. The site is designed specifically for resellers such as CompUSA that take Ingram deliveries, then sell the products to the public.