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Trading up.

Trading Up

The computer industry has changed dramatically in the last five years. Not just the types of computer systems that are available, but how computer companies have had to do business. You see, they used to sell both hardware (all the physical computer stuff) and software (the programs that run the system, like payroll and route settlement). That's changed in the last five years because of the increase in the power of personal computers (PCs) and the competitiveness within the computer business.

Computer vendors used to make a pretty good living off selling you both hardware, software, and support (a "total" system). There was a nifty 50- to 60-percent margin on the hardware and another 30 to 50 percent on software. In addition, the vendors would do very well financially on the monthly maintenance fees charged for both hardware and software. In fact, if you'll calculate the amount of money spent for both hardware and software maintenance fees in the last five years on your system, you'll usually find that you have paid for another system! The practice in the old days was to "lock" you into one particular computer vendor that specialized in the beer distribution business and supplied everything you needed. This worked fine until personal computers came along. All of a sudden, the vendors lost a large segment of their "lock," namely the hardware.

Changing Perceptions

Enter the "clone" manufacturers of PCs. They came out of the woodwork and have not only the physical size, but the price of powerful PCs down to the point where to resell someone else's hardware just doesn't make sense anymore. There's simply no profit in it for the vendors. Everybody knows someone in the PC business. You can buy powerful PCs just about anywhere, including the evening newspaper.

Well, if you're a "total solution" computer vendor, what are you going to do? You're definitely on the horns of a dilemma. Simple. Get out of the hardware business and... raise your software prices to cover the lost profit margins on the hardware you can no longer competitively sell. Oh, by the way, you'll also need to increase those software maintenance fees to make up for the lost hardware maintenance fees.

This is the primary reason we have seen a general increase in software prices and monthly software maintenance fees. It's a way to shift revenue stream from hardware to software. It will have to continue. So what?

The Bottom Line

If you have a computer system that was purchased more than five years ago, you are probably spending too much money on hardware and software maintenance fees. You would be well-advised to look at your current needs in view of the powerful and inexpensive hardware systems available today. This doesn't mean that your current system isn't good. But, you may be able to invest in a more powerful, less expensive and more useful system and actually pay for it over the next five years with the money you save in hardware maintenance fees alone.

Here are three questions to ask in determining whether you should evaluate a change in computer systems.

1. Am I paying over $6,000 per year in maintenance fees?

Get your invoices out right now and take a look. If you're paying over $500 a month for hardware and software fees, you're in the ice age and probably paying too much. At $6,000 per year, five years is costing you $30,000. That's a lot of working capital or bonus money that can be put to better use.

Now, you may be a large distributor (over 15 routes) who needs a huge system. Fine. If you're paying over $6,000 per year, still take a close look. With the power of personal computers today and the relatively simple applications a distributor needs, that's still too much. You can save... there are ways. Go ahead and list your costs below.

Total hardware costs per year:

Total software costs per year:

Grand Total:

2. Are my people still doing a lot of manual work?

Dead giveaway. Your office staff, particularly sales staff, should not be pushing pencils. If they are, you've got an outdated system or they are not using the system you've invested in. Either situation is unacceptable.

If it's the first, start looking around. Your system is outdated. If it's the second, call your software company and schedule some training. They should provide this training, in most cases, at no cost in most cases, with you paying some travelling expenses... worst case.

Have your people be honest with you. What is it they are actually doing by hand and why? In many cases, the system could do a better job. I was working with a Midwestern distributor last summer who had three PCs in the office, in addition to the system he'd had for several years. Almost all distributors have at least one PC for brewery communications. But when I see more than one, I have to wonder what's going on.

In response to my questions, I found that over the last two years, several employees had started using PCs to do many of the tasks that were already available in their main system. Why were they using the PCs? It was more fun. They could understand them better. They didn't have to call for support and they could customize the system faster. That was great until the person who did all the customization quit his job abruptly, and the distributor was left high and dry. Few people knew what was really going on. After we took a close look at the situation, the distributor made a commitment to get back on the main system. We developed a plan to eventually change to a PC-based system. In addition, he scheduled PC training classes for his personnel. Very smart. They'll be ready for a smooth transition when their lease expires.

3. Are my people happy with the system?

I know, I know... it's your distributorship and by golly, they'll use the system you paid for and like it! In some cases, this statement may be appropriate; in most, it is not. You see, the people running the system know whether or not it's good and doing the job. If there are complaints, find out exactly what they are in writing and contact your software company for resolution.

If you discover that they are unhappy about many areas, you may have unearthed a major problem that is costing you money. If your people (especially sales personnel) will not use the system, or if they have major concerns, you might as well get the pencils out and do it by hand.

Asking for feedback is particularly important if you do not use the system yourself! Believe it or not, you'll get out of touch quickly. You, by the way, don't have to request the input. You can have someone less intimidating, with no axe to grind, ask the question. It's important to have the responses placed in writing. Many people will make statements off the top of their heads. If they put it in writing, they are more precise and careful and put more thought into the answers.

If you receive a large number of unhappy responses, it's time to lift up the rock, take an objective look and reevaluate. By all means, use your software company to help in the resolutions. After all, that's what they're there for, remember?

If they cannot provide assistance, then start your search and heed the following:

The three biggest mistakes

distributors make when buying a

computer system

Mistake #1: Buying a system emotionally.

Make no mistake, all excellent salesmen sell on emotion. It's part of the profession. It's fun to get excited and make a decision when things are rolling.

The problem comes in when a distributor gets too caught up in his own emotion and makes a decision - not objectively, but primarily on emotion. This leaves the door open for a potentially costly mistake.

Relax. Get excited at what the system will do for you. Enjoy the process, but take some time to mull over the decision, at least a week. If you're still excited a week later... it's probably the right decision. If you've got some doubts, it's better to have them surface now rather than later, after your check has cleared. If it's a wise business decision, the soundness will speak for itself.

In addition, many distributors become too focused on the salesperson rather than the company he represents. Remember, once the sale is completed, you may never see the salesperson again! At a minimum, you need to find out the following:

The company's ability to:

* Support the system.

* Enhance the system consistently.

* Provide follow up training regularly.

* Install the system properly.

* Adapt to the needs of the beer market.

* Meet brewery requirements.

* Maintain financial stability.

Mistake #2: Responding to time pressure in the sale.

This is a biggy. Never make a decision under time pressure. What do I mean by time pressure?

Salesman: "Because you're so important to us, we've made some |special' price concessions for |just' you. The only thing is, you've got to make the decision today." Sound familiar?

When a person is rushed, the possibility of making a costly mistake definitely increases.

Here's what to do. When you're ready to make your decision, call the salesman back, and "strongly suggest" he provide you with the same deal offered before. Guess what? He'll almost certainly accept... surprise, surprise. You're happy because you took your time and they're happy because they got the order. It's a win/win relationship.

Mistake #3: Not being in control of the situation.

You're successful. You've pulled yourself up by the bootstraps, you've been honored by several breweries, you're a model businessman. Not in control? You? How can this possibly happen?

It's simple. You're in an unfamiliar area... uncharted waters. You don't understand the concepts and terminology in the computer business. Let me share with you the opening paragraph from a piece of IBM literature recently sent to one of my Texas clients:

"Start with the POWER server 320. At 9.2 double-precision Linpack MFLOPS and and SPECmark of 25.8, it offers unparalleled price performance in the UNIX server market. Add internal fixed disk storage of up to 800MB and a 3.4GB desk side expansion unit for further capacity, and you've got enough muscle for a powerful multi-user system."

Oh really?

I've been in the computer industry for 15 years and I had trouble understanding all this gobbledygook. How can you comprehend instantly what it took other people years of focused study to learn? Are you supposed to? Answer: You aren't.

However, you can control the flow of information and the selling cycle.

What's the selling cycle? You know. It's the certain number of activities that magically must take place whether someone is purchasing beer or a computer system. Every product has a selling cycle. Some cycles are longer than others.

So the goal for a salesperson wanting to earn as high a commission as possible in the shortest period of time is to what?... Shorten the selling cycle.

How do they do this? They gain your trust. They're nice people. You'd trust your first born to them. That's fine - just don't trust them with the decision to buy a computer system!

The other way some salespeople do this is to confuse you with computer phrases designed to impale you with buzzwords and leave you helpless and in their grasp. Don't fall for it.

Really good and professional salespeople make buying their product simple and easy to understand. They want you to understand, because when you do, you'll make a decision when?... Faster. Everyone wins.

The problem with a lot of decision makers (I know, not you) is they let their egos get in the way. They cannot admit they don't know what's really going on. So what do they do? They let the salesman baffle them with confusing terms and concepts. Since the salesman's a nice person and since other beer distributorships have the system, the decision-maker relinquishes control of the "selling cycle" and risks a premature decision that could ultimately cost him thousands of dollars.

The major activities

you must control

1. The amount of information you receive. Don't get overloaded. If you don't understand something, say so. Don't continue evaluating until you do. If the person you're speaking with can't explain the term or concept, speak with someone who can. Frankly, if the salesman can't explain things in simple terms, what's he going to do with the final contract?

It may seem that salespeople and computer companies go out of their way to confuse with commonly used computer terms like "RAM," "MS/DOS," "Networking," and "MB." They don't do this on purpose. They just don't see things from their customers perspective.

2. You control the time-frames of activities. Do not be rushed into anything you don't want to do. Have an appointment at your convenience, not just because the end of the month is coming up for the salesman and he's got a "special proposal."

3. You control the demo time. It may have to be on a weekend or in the evening. This is important. You and your people need a time when you aren't interrupted and can concentrate. This assumes the company you're evaluating will even give you a demonstration.

4. You control the user visit. This becomes even more critical if the computer vendor can't or won't give you a demo. That's fine. But you go where and when you want to... period.

5. You control the proposal presentation. All salesmen have a quota, just like your salespeople. So you get calls. They bug you for an appointment. Ring a bell? If you want to meet with them, fine, but if it's at all inconvenient, then don't... you have a month-end quota too.

6. Lastly, you control the decision-making process and the actual decision date. The final decision should be made without the salesman present. What happens if you have a question? Have those answered beforehand. Remember, you've controlled the information and question flow. Without a salesman present, you can be completely objective with your staff in deciding the best way for your organization to go. This is an inside business decision and needs to be made without any outside influence from a salesperson. Once the decision is made, call the salesperson back in, at your convenience, and begin negotiating (this is the fun part).

If you lack the time or desire to evaluate each system option, you've got two positive choices:

1. Appoint a task force of technically-qualified people within your distributorship to evaluate and make a recommendation. They should be given ample time away from their normal responsibilities to concentrate on this critical task.

2. Seek outside assistance from a consulting firm having specific knowledge not only of computers, but of the beer distribution business.

The decision whether to change computer systems is a complex one, particularly in light of the rapid changes in the computer industry. By avoiding common mistakes associated with switching systems, a distributor can emerge with a system that provides a strong foundation for a company's future growth.

Steve Van Ooteghem is the founder and president of First Source Computer Consulting, a firm specializing in reducing the costs and stress associated with the negotiations, selection and installation of computer systems for beer distributors. Steve has over 13 years experience in dealing with beer distributorships. First Source Computer Consulting is located in Tampa, FL. Tel: (813) 832-3636.
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Title Annotation:use of computers in distribution of goods
Author:Van Ooteghem, Steve
Publication:Modern Brewery Age
Date:Jan 20, 1992
Previous Article:Partners in progress.
Next Article:State of the art.

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