Reseller targets small buys

At a time when most computer vendors are targeting enterprise or agencywide opportunities, CDW Government Inc. (CDW-G) is focusing on the smaller, day-to-day purchases made by many federal employees.

Large contracts or blanket purchase agreements are the more traditional sources of profit in the federal market, rather than the individual sales that typically go through the General Services Administration's Federal Supply service schedule or the open market.

But according to CDW-G, agencies clearly welcome the more modest sales approach because the company has done plenty of business on the GSA schedule since last September.

"There was clearly a piece missing from the federal market," said Larry Kirsch, senior vice president of CDW-G, a wholly owned subsidiary of CDW Computer Centers Inc. (CDW).

CDW's business model is built on capturing customers with small orders, providing excellent service and moving them gradually to larger orders. "I would rather have 1,000 orders for $100 than one order for $1 million," said Michael Krasny, CDW's chairman and chief executive officer. "We are not whale fishermen. I don't want to be reliant on any one customer, and our business model is designed to serve small orders.''

CDW has built an inventory management system and an extremely efficient distribution center that enable the company to make a profit on small orders, Krasny said.

"We specialize in providing the service you can't get other places. We offer free tech support for the life of the product. If you need your purchase to be at your office today, I'll get it to you today. We have the inventory and the systems to make it happen. No one else can offer that kind of service," Krasny said.

The company offers hardware, software and networking products from a large number of manufacturers, including Cisco Systems Inc., Compaq Computer Corp., Hummingbird Communications Inc., Lexmark International Inc. and IBM Corp.

When CDW noticed that a good portion of its business was coming from the government, management decided to turn some of its sales people into dedicated government representatives and then eventually spin them off into their own company—CDW-G—Kirsch said.

Despite the company's focus on responding to the single-sale business in the federal market, CDW-G will not turn down any opportunities for large contracts that come along. "When you take care of someone for the day-to-day stuff, the bigger opportunities come," Kirsch said.

The single-sale strategy, as other companies have discovered, can be risky, especially with the increasing emphasis on past performance in federal procurement, observers said. Buyers may rely on CDW-G for a single desktop or printer, but they may turn to vendors with proven track records in the large-contract arena.

"It seems to me if you're buying from a mail-order company, that's a quick-and-dirty solution; you're not going to turn to them for your enterprise needs," said Roger Kay, an analyst with market research firm International Data Corp., Framingham, Mass.

But while CDW-G is relying on the delivery and pricing power of its parent company, the government group has developed its own electronic-commerce World Wide Web site tailored for government procurement practices and is pushing that as the way to buy from CDW-G. And that focus on the Web, rather than a paper catalog, could help, Kay said.

"If they go to the Web to sell their products, it could work since they'd be functioning more like a Dell [Computer Corp.]," he said. Still, CDW-G also must realize that many other vendors already have established themselves as the e-commerce experts in the federal space, he said.

However, if agencies are willing to take CDW-G's commercial experience and performance into consideration, that will help the company's cause, said Chip Mather, vice president of Acquisition Solutions Inc. But while acquisition reform has progressed to bring federal purchasing in line with commercial practices, most agencies still want to see a vendor's experience in the government market, he said.