Hard-Drive Vendors Get Tough With Distributors

The hard-drive vendors said they will require all their distributors to implement EDI within the new few months and will demand daily POS reports.

Stephen DiFranco, vice president of coporate marketing and branding at Maxtor, Milpitas, Calif., said the steps should combat the practice by some distributors of reporting drive sales after the vendors have lifted price protection, rather than on the date the sales are made, as required. This practice can result in distributors earning extra margin on sales at the vendors' expense, he said.

For example, DiFranco said, assume a distributor paid $50 for a hard drive and then sold it a week later for $52, at which time it is supposed to report the sale. "Some [distributors] feel that if they hold the sale [until the drive comes off price protection], we may adjust their price to the then-current price of, say, $48," he said. "[Under that scenario] they make $4 for the drive."

The situation also has resulted in lower-than-expected hard-drive prices for solution providers as vendors react to price-forwarding moves affecting their competitors, one distribution executive said. "Say Maxtor has a [price-forwarding] problem. Seagate thinks Maxtor is selling lower than they really are and reacts to that price in the market," said Jerry Kagele, executive vice president of computer products sales and marketing at Bell Microproducts, San Jose, Calif. "It's a problem that perpetually feeds itself."

The problem began about 18 months ago when distributors in Eastern Europe and Asia began projecting future product price cuts and then selling drives at that lower price, Kagele said.

Maxtor took action last month when it sent a letter signed by Mike Cordano, executive vice president of worldwide sales and marketing at the company, to its distributors, telling them that by April 1 they must begin submitting inventory and POS reports on a daily basis via EDI or similar systems. The company will also start auditing distributors' hard-drive inventories and will penalize distributors that refuse the audits or are found to have inventory discrepancies of more than 1 percent of reported inventory. Maxtor is also limiting its price-protection policies and is changing its rebates to be based on drive revenue instead of sales volume.

Seagate in late November sent a similar letter to its worldwide distributors, saying the company expects them to be EDI-compliant within three or six months, depending on territory, and telling them to expect audits to occur more frequently and be more far-reaching than in the past, said Joe Cousins, senior director of global channel marketing at the Scotts Valley, Calif.-based vendor.

A Western Digital spokesperson said the company told its distributors that by July 1 they must implement EDI. And effective Feb. 1, Western Digital will eliminate price protection on all drives of less than 40 Gbytes. In addition, the company increased the price on all drives by $1 effective Jan. 5.

TSR Silicon Resources, a New York-based distributor of Maxtor and Western Digital drives, sends weekly inventory reports to his manufacturers, said Dave Liscom, vice president of marketing. "That's pretty standard with all vendors in the industry. I've never heard of daily reporting, other than Seagate."

Distributors Tech Data and Ingram Micro could not be reached for comment.