Euro star
Computer 2000 is the largest UK distributor, a feat it aims to repeat all over Europe. How? By finding the right balance between local dealers and centralised purchasing power.
About 70,000 resellers across Europe do business with Computer 2000at all over Europe. How? By finding the right balance between local dealers and centralised purchasing power. every year. The company has a presence in 25 European countries and puts itself at the forefront of distribution on both a pan-European and a local basis.
Harry Krischik, co-president of Computer 2000's executive board, believes the strength of the organisation lies in its foresight and scale. It has had a European strategy for many years and set about developing an infrastructure for Europe-wide distribution several years ago. The initial model consisted of centralised functions to serve the entire group and local offices to meet regional needs.
The model has been refined over the past two years, and the current system now delivers both the economies of scale needed to compete across all of Europe and the localised understanding that enables it to compete in each individual market.
The company is looking to provide the right mix of product portfolio, Ts&Cs, sales, skillsets and complimentary services to each market, thus maximising success in each country and the market overall. Europe, however, is a complex and diverse continent, with fast-moving product cycles and intense competition. So Computer 2000's aim is likely to prove a challenge of enormous proportions. But it is one that Krischik believes the company has the ability to meet.
To back up this claim, he points to recent history. Although Computer 2000 has frequently made the headlines over the past few years concerning takeover speculation or activity, it has not built the main part of its business this way.
'Computer 2000 progressed quite early, building the European organisation that is in place today. We have started from scratch in many more countries than most people believe,' Krischik says.
Operations that have grown from an initial startup include those in Germany (the first in 1983 and still one of Computer 2000's biggest), Austria, Switzerland, Spain, Portugal, Belgium, Holland and Norway. It is continuing to produce small startups in other countries such as the Slovak Republic.
The organisation has also grown by acquisition - notably in the UK and Italy - but with mixed success. The UK operation has not been without its problems, but it has prospered under Computer 2000's wing and has grown rapidly. It is currently the largest distributor in the UK, with annual sales that should reach DM 8 billion this year - around $5.5 billion.
In Italy, Computer 2000 bought a company that was, says Krischik, 'a very ill man'. But it has turned the business around and made a prosperous operation out of it.
It also bought US distributor AmeriQuest in 1996. But in this case, the purchase has not been such a success. AmeriQuest has suffered significant losses and has had to reduce its headcount, refocusing on core businesses.
Krischik does not deny that this has been a burden, but he believes it is now a healthy business which will move forward. It will certainly not hold the company back in Europe.
While all the media attention was focused on the US and takeover speculation, European development has been continuing at a rapid pace. A major data processing system has been rolled out and the refined business model has introduced new services and flexibility to the system. Most of the pieces of the machinery are now in place, says Krischik.
In order to gain the benefits of pan-European operations, Computer 2000 has brought some functions to the centre and developed a similar business structure in each country. But it is not a rigid set of rules and Krischik claims the company has been careful to develop systems with respect for local needs.
'Local needs are important, but if you go into Computer 2000 subsidiaries you will find that they all have similar structures and the same business units. We try to take advantage of the company's size and the high volume we move, even for specialised divisions whose customers need greater support,' he says.
Computer 2000 fufils these specialist needs by forming unique groups to support Vars or, for example, to address the Apple market in each country - if it deems that such support is needed. Different products, different Ts&Cs, different sales and service approaches are taken in each country where they are considered necessary.
Despite a similar internal structure, the businesses in each country may look quite different from the outsider's point of view. 'It is only necessary to have so much centralised to realise the advantages of being big,' says Krischik. 'We have built up a business model for the subsidiaries so that they have a view of how, in an ideal world, a distributor should be structured. But if they explain to us that local necessities, cultural demands, legal demands, market demand and all of that makes it different in the local countries - or even if it is dependent on the stage in the lifecycle the subsidiary company has reached - then this company can still be, say, 30 per cent away from our ideal business model.
'So, when you ask how much is centralised and how much is decentralised ... well, only so much is centralised as necessary. You do what you can do better in the headquarters, and do all that is possible on a local basis to best respond to the market and to accept that people want to buy at their Computer 2000 in Italy, Spain, the UK, wherever. That's important.'
This way, he says, dealers get to have it both ways. They get the economies of scale of a large distributor business, with tremendous buying power and logistics, and a business that is also sensitive to the needs of the local market. The scale of the organisation is important, he continues, because it gives Computer 2000 the ability to put efficient logistics operations in place behind the scenes.
Good systems are vital to the setup, says Krischik, since large-scale distribution businesses need good information about performance, stock levels and customer behaviour. Also, he adds, it is necessary to have a common platform across the whole business to develop its services.
Computer 2000 has already put in place a product information and stock enquiry system which dealers throughout Europe can dial into. It has also developed EDI links with some customers and suppliers.
Business processes have been harmonised and the company has invested in a large-scale SAP system, which has now been implemented throughout Europe. This system supports the core distribution processes and provides a central product database, with sub-systems that apply to each country.
The group plans to develop its EDI links further and implement a supply chain management system. You can't do all this and get the resulting efficiency gains without having a platform to build on, says Krischik. He believes that Computer 2000 is several years ahead of its rivals in Europe with this system and it will be critical to the company's future success.
But it is important to put this into perspective for the reseller, says Gerhard Schulz, manager of international sales. 'Everyone has electronic systems, but what matters is the quality of the information,' he says.
'You need to change the whole organisation of distribution to get quality to the reseller.' One way in which Computer 2000 is trying to achieve this is with an initiative called 'dynamic backup'.
The company deals with around 300 vendors and some do not have accurate information when it comes to lead times, says Schulz. Computer 2000 has developed a system that predicts the lead time for products based on information gleaned from manufacturers and on past experience.
Computer 2000 has looked at the internet, but regards it as just another technology that enables reseller businesses to get hold of information.
Distributors can get into the stock system via the internet, but most use a direct dial-up number. At present, dealers can dial into the Computer 2000 system and look at product details and local availability. However, in most countries they can't yet see details of their pricing or place an order. Computer 2000 has further plans though, Schulz explains.
'Right now, we see two sorts of customers - large customers and dealers.
Large customers have a purchasing strategy based on eliminating redundancies in the value chain - they want to get as automatic as possible. They want to place an order on the system and have a seamless process in which we deliver those products straight to their customers.
'This is the most cost-effective way for them to deal with us. They don't want to enter an order on their system and then go to the internet and do it again.'
These customers want to use the internet to find information, but don't base their entire order processing system on it, says Schulz. 'But dealers still want to haggle on the telephone and don't trust the internet for e-commerce. Today's systems are too slow, so the technology, trust and culture of the customers is not yet mature enough for us to get large-scale orders.'
Computer 2000 feels that it will take dealers some time to get used to the idea of ordering electronically. In different countries, acceptance and uptake will come at different times - Computer 2000 has evidence of this.
In Spain, for example, the company has already put in place an electronic ordering system, but there remains a big gap between the number of dealers using the system to look up products and the number actually placing orders.
In the UK, where mail-order purchasing is more accepted, the culture may allow for an earlier adoption of electronic ordering, although the company does not believe that it will ever replace telephone-based ordering.
Equally, different countries need different types of sales structure.
These requirements won't be ignored just because the electronic systems are put in place, says Krischik.
But the breadth of the organisation does give Computer 2000 an advantage.
It is yet to implement electronic ordering on a pan-European basis, but when it does it will be able to invest across the whole continent. And it is likely that this will happen as soon as the demand makes it a viable prospect, even if at the time it is only a requirement in one or two countries.
The basic systems infrastructure would then be in place and available to other countries as and when they need it. Thus the investment is only made once and the entire organisation has access - a major advantage of the company's scale.
Because of this company-wide access, and the infrastructure already in place, pan-European investment is often easy to justify. Investment in individual subsidiaries does not present many more problems, says Krischik.
The company reconciles the amount of investment necessary to provide a service in each country with the return on that investment. If the country is looked at in isolation, this process is often made easier and usually proves worthwhile - even if it generates only a small proportion of Computer 2000's overall turnover.
However, the major markets, Germany and the UK, do not necessarily get a higher proportion of relative investment when compared with the smaller markets.
In other words, if Italy produces 10 per cent of Computer 2000's sales it can expect to get a similar proportion of the business development funds. But there is no rigid formula and no specific limitations - Computer 2000 invests where it feels it needs to.
The problem with this system is that many proposed investments may only prove useful to one particular country. But according to Krischik, this situation does not arrive as frequently as one might imagine. 'The basic needs for systems and the process for wholesaling are not so different, and the machinery of our business is also very similar. What is different is the way you have to deal - how many credit days you give, when people pay, how frequently people expect you to talk to them. There are countries in which the customer will say, "hey, you didn't call me this week", and other countries where they will ask, "why are you calling me again this week?"
'At these margins, even if the differences are only 10 per cent, it can affect the entire run of the business, and this is what makes localisation so important. But the general business structure and the logistical infrastructure are not so different. The real differences come out of the cultural behaviour.'
Local perceptions and behaviour cannot be ignored, he says. In the UK, for example, it is common practice for the telephone sales representative to tell the person placing the order if a credit limit has been reached and how much that limit is. This would be unthinkable in Spain, for instance, where credit limits are agreed and discussed only at the highest levels.
Computer 2000's experiences on the Iberian peninsular illustrate the need to understand local behaviour very well. Computer 2000 has built up its Spanish operation from scratch to the point where it has around 25 per cent of the market. However, its original Barcelona-based offices struggled to take orders from any part of the country other than its local area.
It was only when an office was opened in Madrid that dealers from the rest of Spain started to buy from the distributor. It would not even have been practical to re-route phone calls from Madrid to the Barcelona offices, says Krischik, since anyone who called would immediately recognise the different accent.
Similarly, when the company tried to open an operation in Lisbon, as a subsidiary of the Spanish business, it struggled - until a local Portuguese executive was put in charge. In spite of the closer ties within Europe, purchasing behaviour is still parochial in places. Many resellers do not want to buy from distributors outside their own country or even their own regions.
But there are many common elements to all of Computer 2000's businesses, even down to detailed operations at the local level. For example, it classifies reseller businesses into five broad groups - corporate/systems integrators, Vars, retailers, mail-order/direct resellers, and assemblers.
While useful for Computer 2000 internally, the reseller ought not to notice its classification since the level of service to all should be constant throughout. The proportion of business each represents is different in each country, but Vars are the fastest growing overall.
The amount of business done by corporate resellers with Computer 2000 also varies in each country, but it is approaching that of other pan-European businesses. About 10 per cent of its business is pan-European, says Schulz, and he expects it to grow.
Computer 2000 does plan to get closer to resellers, but formal schemes are not likely unless it is working on large projects. Instead, the plans will manifest themselves in the form of particular services offered to customers. The company is now starting to provide services like bid support. Electronic ordering is also being rolled out.
The ability to support major bids is becoming essential in some countries, says Schulz, and it is a better way of engendering loyalty and repeat business than simply providing lower prices. He argues that since the type of deals being struck are changing, the distribution business has to change as well.
'There is a polarisation taking place. One type of business is becoming price-oriented and turning into a broker-type activity. The other is service-oriented - essentially the distribution business - where the customer outsources procurement. In this case, the dealer looks at the distributor's service and not just the difference between the buy and sell price,' says Schulz.
In other words, if the service is good and minimises the activity needed on the part of both the reseller and user, then the activity is more profitable.
Computer 2000's local knowledge and centralised logistics have a role to play in understanding the requirements and delivering the service.
Increasingly though, customers want Computer 2000 to adhere to service level agreements and this is where the logistical support of the Computer 2000 structure delivers real advantages, says Krischik. 'Similar systems are key - a common data platform, common development of the tools, a common understanding of the logistics. If you don't have this then you can't survive with the costs. This is the big advantage of Computer 2000.'
According to Krischik, none of its European competitors have managed to strike the right balance between the cost of running the country-based businesses and the logistic support engine that lies behind them. He puts this down to local knowledge, something which US rivals don't have readily available. Computer 2000 has been building up its systems for several years and now has the structure in place.
Schulz states: 'We've managed to balance local flexibility with global economy of scale and we've also managed to facilitate cross-country learning processes.' In spite of their differences, different European countries are able to learn from each other through the Computer 2000 organisation.
The convergence of broad distribution models is evidence that the company has got the formula right, he claims.
This convergence is likely to increase as European monetary union approaches.
The major distributors - Computer 2000, Ingram Micro and CHS Electronics - are all looking to increase their centralisation and save costs as currency ceases to be a barrier to trade. Computer 2000 is well aware of the challenges it faces as the Euro arrives on the scene and Krischik says it has planned for many different outcomes.
'We think it will change things in Europe, but we will still have different languages and tax environments and different interpretations. We can't see at the moment how much of an effect it will have, but we are certainly planning for several different scenarios.'
Computer 2000 has one eye on the future and is trying to make itself the outstanding distributor in every country as well as across Europe as a whole. Krischik firmly believes that 'excellence in the basics' is the key - the rest will take care of itself. Distribution is a simple business and success for Computer 2000 will be achieved by doing more things right, more of the time, for more of the dealers than anyone else can.
Achieving this is down to the balance between local and central operations being calibrated as accurately as possible.