A local reseller helps Microsoft improve customer satisfaction

By Staff -- Purchasing, 2/22/2001

In order to meet "extremely aggressive" delivery metrics for standard desktop PCs, there are about 70 supplier employees on site at Microsoft's corporate headquarters in Redmond, Wash. The software company's delivery metric for standard PCs, servers and peripherals is 3-5 days. On average, the supplier delivers in three days.

At the same time, Microsoft has a relationship with Dell. Says Gary Croft, director of procurement, "Ultimately we will have direct models with every one of our OEMs providing standard PCs and servers." As director of procurement, Croft has responsibility for technology materials management (procurement and fulfillment of desktop technology-PCs and peripherals-servers, wireless technology and PDAs (personal digital assistants). TMM works with the company's end-user services department and information technology group to determine standards for PCs and peripherals.

Vendor account managers in this area manage a hardware reseller for fulfillment as well as the Dell Direct model. They also negotiate pricing with the OEMs although these agreements are not contractually binding. OEMs can view pricing of other pre-qualified computer OEMs on the Microsoft intranet. "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 Croft. Average cost savings for a standard PC compared to "e-tail" are currently 26%.

TMM also continues to work to drive down fulfillment costs. "Because of the shakeout in the reseller industry, this has been a real challenge," says Croft. "Our fulfillment costs have gone through the roof. We had been able to reduce our costs by 50% over several years. But, now, they've jumped back up to 1997 levels. Bringing these costs back down has become a major focus."

At the same time, customer satisfaction ratings fell to 2.0, on a scale of 1 to 5. Computer reseller Vanstar had been doing PC fulfillment for Microsoft when a competitor (Inacom, which later purchased Vanstar) aggressively sold the company on a business model that moved away from having the supplier on site. The new model relied on distribution centers that allowed the supplier to better leverage its resources. As many corporate buyers well know, there are costs associated with an on-site presence for the supplier.

To validate Inacom's proposal, TMM worked with a group in finance to conduct an activity-based management study. "They came out with exactly the same conclusion: Moving to the distribution-center model could save the company several million dollars a year, and in principle, this proved to be true," says Croft. "However, our delivery metrics were seriously compromised." Prior to use of the new model, end users within Microsoft took delivery in three days. This metric extended out toward two weeks.

"In such a demanding environment, we found that spending with suppliers other than the pre-qualified supplier increased to $40 million, with most of this going to small, local organizations," he says. "We were paying 30% to 60% more in the name of expediency, creating a false economy. When it comes to the lifeblood of the organization (PCs, servers) velocity (delivery) takes priority over cost. A study of 'maverick spending' indicated that we were paying as much if not more-not to mention the inconvenience to all of our customers. We learned many lessons from that experience."

Now TMM has an agreement with a small, local company for desktop fulfillment, a somewhat risky proposition. "The advantage they have over their competition is that they are local," says Croft. "Their management team can aggressively address our issues. Another risk is that the supplier had had a retail orientation: They never had an enterprise model like this before. It's turned out to be a good gamble. Not only is the MS Vendor rating (the company's supplier management program) up significantly, but also results of a recent quarterly customer satisfaction survey show 76% of users find service acceptable or better. (It was 40% with the previous supplier.) Although we still have room for improvement, it's been a real success story," says Croft. Overall customer satisfaction rating has improved to 3.4 from 2.0.