Buying Strategies

In an era of rock-bottom computer prices, rapid technology introductions and electronic catalogs, no one could blame state and local purchasing officials for going directly to manufacturers for their information technology equipment. Nonetheless, most buyers are sticking with hard-working local resellers who add services and other value to their offerings.

Traditionally, the reseller channel was all about stocking and shipping products efficiently, but today the emphasis is on the value-add. Paper-thin profit margins on the resale of IT equipment are inspiring resellers to bring new and more valuable contributions to the table, such as configuration services, integration, technical support, engineering services, network administration and training. "It's no longer a case of just pushing boxes," said Tom Davies, senior vice president for Federal Sources Inc., a public-sector consulting firm in McLean, Va. "Services are becoming more and more important to state and local governments, so instead of being pushed aside because of lower commodity prices, resellers have become an absolute key part of the channel today."

There are three reasons why demand for services is exploding at local levels: the widespread adoption of client/server technology across all levels of government, the variety of technologies available to end users coupled with a dearth of in-house technical know-how and a fundamental change in the IT buying-and-selling process.

"Companies now need large volumes of selling in order to meet sales objectives, so it's not enough to sell to one or two states anymore," Davies said. "They've got to expand to all 50 states and...expand deeply into each of those states. And in order to reach those buyers economically, you can't rely on a direct sales force. You need channels of distribution."

In fact, those channels win out even when forced to compete against Internet-enabled and wholesale-priced manufacturers such as Dell Computer Corp. and Gateway Inc. It's the personal touch that can be a true differentiator, even when it comes down to straight PC buys.

"A lot of resellers come in and talk to you face-to-face and answer all your questions and concerns, which is a value that you're just not going to get by calling a phone bank somewhere or looking at a picture on the Internet," said Carmen Hernandez, director of business operations for the Texas Department of Information Resources (DIR), which buys about 70,000 desktops each year for state agencies and state universities and also resells IT equipment to local governments.

Hernandez's office holds contracts with more than 70 vendors, including manufacturers and resellers. DIR buys directly from manufacturers mostly when agencies require a few replacement PCs or peripherals and no implementation or other services are needed.

By contrast, the Maine Division of Purchases, which buys about 3,000 PCs a year, deals with only one reseller and no manufacturers. "Right now, it's a lot more efficient for us to have one or possibly two contractors to deal with," said the state's division director, Richard Thompson. "We don't have to worry about individual solicitations or visiting numerous [World Wide] Web sites trying to get information about several products and then doing value comparisons. A reseller can help you sort through all of that and find the best deals. They're also familiar with what the state runs in the way of applications and network connections and any interoperability issues. That's their strong suit, and we're happy to have them offer that expertise to us."

The new selling environment marked by the profusion of options has made for a true buyer's market, according to George Banks, Florida's state purchasing

director. He notes that end users can choose from several vehicles and make cost-effective purchases based on their own needs and comfort level.

Banks used Florida's Department of Education as an example. "You'd think that within one agency, there would be some uniformity in terms of needs, but, in fact, our K-12 schools need a lot of hand-holding and support, while our universities just want to buy boxes at the lowest possible price and do their own implementation," he said. "So we've put together multiple-award contracts that allow our end users to utilize both local resellers and large manufacturers who sell off of electronic catalogs and drop-ship their products. Everybody's happy with the way things are right now."

For the reseller, the market's evolution and maturity inevitably leads to new business models. "A lot of vendors resist change and are run over by it," said Harry Martin, president and chief executive officer of Intelligent Decisions Inc., a value-added reseller in McLean, Va., that holds a contract with Virginia and several localities, including Montgomery County, Md. "But most resellers now recognize that they have to embrace this recent change in the market's needs and harness it in order to deliver improved service to the customer."