Why Microsoft put muscle in purchasing

By Douglas A Smock -- Purchasing, 1/25/2001

Before the days of heightened quality programs, buyers often specified steel that was "commercial quality." I never could find anyone that could define commercial quality. If you couldn't punch a hole through it with a bare hand, I suppose it was commercial quality. Today, some high-tech companies make the same mistake.

For example, at some companies decisions about purchasing personal computers are not controlled by purchasing pros. Computer leases may contain terms such as "fair market value," which without definition by the buyers have as little meaning as "commercial quality" in steel. "Unless the buyer gets it (fair market value) nailed down in the contract, it will be whatever the supplier wants it to be," comments Frances O'Brien, a Gartner specialist, in an article beginning on page 87 in this issue. Whether to lease or buy itself and the exact terms are a major potential money-saver for many companies, our ongoing research shows.

As recently as 1995, Microsoft-the king of high-tech-did not really have an effective centralized purchasing department, as Susan Avery reports in this issue's cover story (page 48). Since then, Microsoft turned buying over to pros who implemented three internally developed tools to automate procurement transactions. That alone has helped Microsoft save $46 million on annual purchases of approximately $5 billion. And even more important, it sets the stage for a major effort in strategic sourcing that will put more business in the hands of key suppliers.

Not surprisingly, the PC buy at Microsoft is already highly strategic. About 70 employees of PC suppliers are on site at Microsoft locations to meet extremely aggressive delivery metrics. Average delivery time for highly sophisticated PCs, often in large quantities, is three days. OEMs can view pricing of their competitors on the Microsoft intranet in what almost seems like an all-the-time, real-time auction of sorts. "So, natural market forces are in play to drive down prices to the point where we don't really have to actively negotiate pricing in this area," says Gary Croft, director of corporate purchasing.

The purchasing pros want to shift PC consumption to the lower end of the technology spectrum, with a better definition of true need.

The value that purchasing professionalism brings to computers was also a major topic of the Dec. 22 issue (see "Purchasing shows one face to suppliers, page 48) and will continue to be an important theme in our TechPlus Edition.