PC buying takes a trip to cyberspace

Who's successfully buying computer hardware online and how they're doing it.

By -- Purchasing, 3/22/2001

Internet technologies are streamlining supply chains in a variety of commodities, not the least of which is the PC and computer hardware market. Of course, using computers to buy computers only makes sense. Computer hardware is one of the top five products being bought over the Internet in 2000, according to Catalog Age. A Deloitte Consulting poll ranks online computer buying at number one (equal to office supplies). And a recent benchmark reader study by PURCHASING Magazine places online computer and peripherals buying at number three in terms of popularity, following only office and MRO supplies.

Who's buying?

The profile of the typical company buying its PCs online varies greatly, according to those in the industry. The larger more established companies typically have greater resources to invest in infrastructures to facilitate such buys. At the same time, however, the larger players typically have longer supply chains to manage, making their move to the Internet more daunting. Smaller players can typically make the move more easily because they have fewer suppliers and orders to connect online. But smaller companies may not see as significant bottom-line savings as do the larger companies due to their lower buying volumes. High-tech companies may be more comfortable with online buying, but may require more specialized hardware, lending more to the give and take of ordering by phone.

Frank Brown, director of e-business strategies and emerging channels at Amherst Corporate Computer Sales & Solutions, an online PC dealer in Merrimack, N.H., sees some companies leveraging online PC buying, while others still cling to the same methods they've been using for years because it's such a major undertaking to change those methods. But Brown says buying PCs online allows a company to eliminate several steps in the procurement process. "Customers use our e-commerce tool to define company standards on what end users can request. Prices are pre-negotiated," says Brown. That way, users can select items and know the cost and budgetary impacts without involving purchasing or IT. Users create requisitions-the tool knows the procurement rules-and flow them through the process, ordering electronically.

Buying direct

While buying through on-line dealers has its advantages, some companies prefer to work directly with PC producers. For example, Honeywell International Inc. of Morristown, N.J., works closely with Dallas-based PC maker Dell Computer Corp. to establish standard configurations and features for PCs offered on the Web. When a Honeywell employee needs a new desktop PC or laptop, they log on to the Web site Dell has set up, select the configuration they need, and make a request to an authorized Honeywell ordering agent. The ordering agent then goes direct to Dell with the order. After using the system for a year, Honeywell is so impressed it now puts 98% of its desktop orders through the system.

PC-maker IBM is using online technologies to streamline the sale of its PCs to both large and small business customers. With its larger customers, IBM is in process of setting up a new e-procurement system, but it's not up and running as of this writing. "We found the larger companies want to buy through a private Web experience using an extranet," explains Rich Fennessy, general manager of worldwide personal systems group direct at IBM. "We have a team in place at IBM to call on those large customers specifically to understand their wants and needs."

Smaller companies typically require more individual attention, according to Fennessy. He says in a large enterprise operation, products and prices have already been negotiated, so it's easy to go on the Web site to view what's in stock and what can be ordered without need of negotiation.

Fennessy says there are still a large number of small and medium-sized businesses that want to buy on the phone, and IBM has made an effort to bring those customers to the Web gradually. And the strategy is working. Today, the majority of IBM's customers either buy their PCs online or at least contact IBM originally through the Internet. IBM uses a unique phone number to track which customers come to the company through its Web site.

Robert Derocher, senior manager in the buy-side practice at Deloitte Consulting in New York, says a small company might just look to a Web site to buy PCs, but it doesn't need the system to be integrated into its financial or inventory systems. A larger company may be looking for deeper integration to coordinate global operations.

Officials at Gateway Computer in San Diego say the profile of Gateway's online customer has changed recently. Andrew Scofield, manager of eCommerce for Gateway Business, says in the past six months, he's seen a strong shift from the larger businesses using e-marketplaces to the smaller and medium-sized businesses moving into online PC procurement. Scofield says 46.5% of Gateway's online clients are in the small or medium-sized business arena and 25.9% are from larger corporate enterprises. Government clients account for about 3.5% and education clients are about 10%.

In addition to selling direct online, Gateway is working with several online marketplaces and has a strategic agreement with PurchasePro, a B2B eCommerce application service provider, to develop online marketplaces especially for small and medium-sized businesses to leverage the Internet to improve business efficiencies.

Bringing them all in

Most businesses are surprised at how scaleable the online buying process can be. At the base level, an Internet-ready PC is enough to get a company buying on the Web, but using e-commerce software can push the integration deeper and further streamline the processes.

Jan Becker is assistant director of corporate purchasing at the Principal Financial Group in Des Moines, Iowa, which is in process of bringing all of its procurement activities online with an e-commerce system from PeopleSoft. Principal selected PeopleSoft because it interfaced with both purchasing and accounting systems. Principal employees can go online and requisition purchases, but they don't create direct orders with suppliers.

"We have a step in there that's invisible to an end user, but the request is routed through purchasing, which can decide if the requested product is available in-house somewhere," Becker says. "We may re-deploy used assets. Long term, we could put that into PeopleSoft and allow users to see re-deployable products."

Ted Herselius, a buyer at the Principal, explains the company's current method to procure its 250 to 300 PCs per month: "Each business unit assesses the needs for a technology in their department. For example, maybe they're adding to staff and want to buy a desktop PC. Each business unit has a designated requisitioner and we have a mainframe where they go online and place their order. They outline their requirements for memory, peripherals, monitor size, etc. Then they submit the requisition online and that goes to a centralized purchasing area where we have three or four people that are responsible for placing the orders. Who handles each order depends on where that requisition comes from. Then we have a cloning process where we clone the requisition into a PO on a line-by-line basis and once that PO covers the needs for that business unit, then it's faxed to the supplier."

The Principal's new system will provide each user a specified spending level and let the employee go online and research the product. Depending on the spending level, the request will either go direct to the seller (a local computer dealer) or through the purchasing department for approval before going to the supplier. But the process will be a point-and-click for the typical user either way.

"After a formal cost justification study, we estimated we would be able to pull in renegade spending to around 5% of total spend," says Herselius. "I think the industry average people use is 15% off their total spend, so we ended up being very conservative and under 5%. We estimated it would take 1.7 years until we would see it pay back."

But if a company has an established relationship with a supplier who is not selling online, the responsibility is on the buyer to make a move. For example, retail pharmacy giant CVS Inc. of Woonsocket, R.I., recently moved to an Ariba e-procurement system in which all capital expense requests are routed through the purchasing department. CVS has a group in its strategic purchasing organization to handle all its technology-related requests.

Last year, the company ordered between 2,000 and 3,000 desktop PCs and 1,000 laptop machines. This year, the company hopes to move a good portion of that buying online. But to do that, CVS needs to get its suppliers online. With that in mind, John Reilly, manager of technology and supply purchasing in the strategic procurement group, says that if a supplier is not currently offering online sales, CVS will try to work with that company to equip them for the move.

Reilly says CVS is using the Ariba software to streamline all aspects of technology procurement. Day-to-day items like printer ink cartridges and mouse pads can be ordered directly by end users, but a capital-expense item like a computer must be purchased by one of the corporate groups. Right now, CVS buys Hewlett-Packard and IBM machines from authorized resellers, who update the online catalogs.

Gateway's Scofield says the push in the government and educational sectors toward a paperless environment has emphasized online PC procurement, as well as all other types of e-commerce. And the contracts in those areas are driving PC makers toward an online procurement environment. "We are certainly seeing a heavy drive out of the government and education segments because they have requirements and timelines to be online," Scofield says. "Companies are still moving quickly, but have legacy-system problems to solve."

Selecting a PC supplier today has a lot to do with who does and does not offer online tools. It's no accident that Honeywell teamed up with Dell on its PC procurement, as Dell holds a strong reputation for offering its products to corporate customers online. Gary Cantrell, vice president and CIO of Honeywell's global business services, says Dell's focus on online sales was a major factor when it was looking for a company to supply PCs to its 120,000 employees. Honeywell uses an online catalog that offers employees several images of machines that they can choose from to limit the variety in computers used at the company.

"We had a lot of variation creeping into the desktops," says Cantrell. "And by getting onto these standards we saw both cost benefits and a sizeable standardization of the support model and that's where a good portion of the benefit was. It has made it easier to integrate, to troubleshoot and support the PCs."

And pressure from big customers like CVS has driven more PC sellers to begin offering their products online. Derocher feels the percentage of a company's computer hardware bought online will continue to grow, forcing more suppliers to offer online supply.

A brand new way

The new systems at Honeywell and CVS are examples of systems that put more responsibility in the hands of employees, who browse electronic catalogs to select and request various product configurations. This has streamlined the approval and ordering processes. Instead of purchasing having the only say in what piece of hardware a company will or will not order, the end user has access to online catalogs and in many cases, authority to make purchases within pre-determined limits.

"This is a tool that, depending on the company's culture and individual approach, absolutely will put more capabilities into an employee's hands," says Jim Illson, president of Wareforce.com, an El Segundo, Calif.-based online IT seller. "Some companies want to push that process out and others want to maintain tighter control. [Online procurement] gives them the capability to put the procurement process in the hands of their users."

Cantrell says the one-year-old program at Honeywell has been so successful that the company is now purchasing nearly all of its desktop PCs online-more than 10,000 per year-and scrapping the manager approval-driven system. The only question at Honeywell today is how its pending merger with General Electric Co. of Fairfield, Conn., will affect its current online strategy. GE has itself made an effort to move to the Internet across its businesses, so Cantrell expects it to be a sharing of best practices and not a mandate.

Illson says Wareforce works with oneFortune500 customer who wants to keep its purchasing group lean and set up standards to define which people are authorized to buy PCs. "I think companies want the procurement function to be effective in maintaining a level of process and control and push the ordering cycle out to the users so they can be cost effective in running procurement," Illson says.