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Thursday, February 19, 2004
Ng: Cheapest not always best
By Wilson Ng
WIRED DESKTOP
BUDGET. As a computer solutions reseller, I have customers with different budgets, expectations, and attitudes toward computerization.
Some we work closely with, helping plan how they can move forward in improving their business processes, and designing their infrastructure, and providing them with solutions and services that help the business grow. These are our loyal and happy customers. They enjoy the best we have to offer, since the relationship is excellent.
There are also many companies that will deal with you only if you have the cheapest price. Every time they have a requirement, they must get at least three quotes, and they will buy from the one with the lowest price.
This is prevalent not only in the computer industries, but cuts right across a wide variety of industries. However, there are now trends and studies to see whether a primary-vendor or multi-vendor strategy is really the way to go.
For sure, we see many instances where companies work closely together and even interconnect their systems. By working with fewer vendors, and working closely, they cut the processing time, and can initiate activities like on-site support/assembly, electronic transactions, or just-in-time inventory, which cuts overall costs for both sides.
Dealing with the cheapest vendor is an issue when the other aspects of the business are not taken into consideration.
Things like quality, service and the right technology are important factors. Many times, we have witnessed companies stuck with technologies from companies that have ceased to exist, or that have bought technologies that are not well supported, or have reached end of life.
SAGE REPORT. A Sage Research report last year on the issue studied 236 companies in the United States with over 500 employees. Some 110 companies had a computer network with only one network brand. Some 116 companies had a computer network bought from different suppliers and multiple network brands.
Their conclusion was that there was a 29 percent saving on capital expenditures and operating expenditures. There was a lower cost of network maintenance as well as better overall network performance, as well as less hassle in having to learn so many different technologies and interconnect different systems.
Perhaps one of the best examples of being able to excel through a one-vendor strategy is Southwest Airlines. This major US airline was the only one profitable after the Sept. 11, 2001 terrorist attacks. And while two airlines went bankrupt, and everybody else was losing money, Southwest added airplanes, employees and
outes.
In 2003, it increased net income by 83 percent. It has been profitable every year since it started in 1971. It has spawned countless imitators of its business model, Cebu Pacific among them.
There are many reasons for Southwest’s success. The most important is it had the lowest costs in the industry. The primary reason is that it operates only one aircraft—Boeing 737, running only on one type of engine, General Electric. All the 400 or so planes it operates are of the same type. This lowers employee and pilot training, inventory and turnaround.
Has Boeing Corp. ever overcharged it for the 737s knowing it won’t buy Airbus planes? No. In fact, the loyalty of Southwest is rewarded by Boeing, which constantly gives it the best deal in the industry, the best support and service.
There are many ways to grow the business. Multi-vendor and single-vendor strategies are at the core of them.
I just talked to a company that just let go of the purchasing manager. He was always so proud of the savings he made for the company every year by getting great deals, until the company found out that many of the purchases were cheap but not very usable.
For my part, I am confounded that people who don’t believe in buying the cheapest shirts, going to the cheapest schools, or buying the cheapest cars, believe they are saving when they buy the cheapest computers and technologies.
(email: wilson@esprint. com.)
(February 19, 2004 issue)
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