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Conference 7.286::digital

Title:	The Digital way of working

Moderator:	QUARK::LIONELON

Created:	Fri Feb 14 1986
Last Modified:	Fri Jun 06 1997
Last Successful Update:	Fri Jun 06 1997
Number of topics:	5321
Total number of notes:	139771

3344.0. "Purchasing, Sales, random thoughts..." by PASTIS::MONAHAN (humanity is a trojan horse) Wed Aug 24 1994 06:37

	After a recent private mail exchange I have been thinking about
business in general.

	In a barter economy there is no distinction between a buyer and a
seller. The distinction is an artefact of the use of money, where the direction
of movement of money decides who is the buyer and who the seller. Sales and
Purchasing are both performing the same function - exchanging what we have for
what we need.

	When we were attempting to be self-sufficient, buying nothing but sheet
metal, silicon and Post-Its, and supplying integrated solutions to customers'
problems, the role of purchasing was small. Now everything is being outsourced 
the role of purchasing as the other means of exchanging with "the outside" will
also be growing. It is the job of both Sales and Purchasing to get the best
deal with "the outside". If there is a need for Sales to be more easy to deal
with then there is probably a need for Purchasing to be more easy to deal with,
since the only difference between the two departments is the direction of money
flow.

	We are reducing our sales staff, but we will need to be increasing our
purchasing staff as we outsource more, and the skills - negociating discounts,
deciding which deals are worth while and which should be avoided, understanding
sales contracts, persuading the other party that you are the right company to
deal with because you complete the contract on time with no hassles, ... 
are virtually the same. Purchasing are in the business of selling money to our
suppliers in exchange for goods and services.

	How many of our sales staff should we move to purchasing? When will it
become crucial to the company to make DEC Purchasing "easy to deal with"?

T.R	Title	User	Personal Name	Date	Lines
3344.1		PASTIS::MONAHAN	humanity is a trojan horse	`Wed Aug 24 1994 06:40`	2
	And as an afterthought from note 1238, will the next company reorganisation show SES as a specialised department of Purchasing?
3344.2	Spot On	ISLNDS::MCWILLIAMS		`Wed Aug 24 1994 08:40`	12
	Actually you are quite correct. For some time Material Acquisition (MatAcq) charges have been more than the Manufacturing Value Added (VA) on many of our products. With Manufacturing Value Added running about 5% of product cost, the majority of cost is involved in how you design and the cost to procure the material. To increase product margins one must either specify cheaper components, or get volume pricing by standardizing on component types. An analysis I saw of the Mustang and Sable systems showed on 7 components were in common with both systems. /jim
3344.3	major profit opportunity	WRKSYS::SCHUMANN	UHF computers	`Wed Aug 24 1994 10:03`	30
	IMO, improvements in our purchasing and sourcing practices are the most promising avenue for reducing the transfer cost (and therefore increasing the profitability) of our products. As one example, we buy private-label hard drives. These drives are mostly identical to the vendor's standard offering, but they have Digital markings, etc. There are several sources of increased cost from this practice: o There is typically a lag between the availability of the vendor's standard offering, and availability of the DEC proprietary version. This translates to higher cost in the interim, because we are shipping an older higher-cost drive during this period. o The vendor may charge us slightly more for the proprietary version. o We don't have the ability to cover shortages by buying additional drives from distribution channels. This can stretch lead times on our most popular products, resulting in delayed or cancelled revenue. o At end of life, any remaining inventory of the drives is harder to dispose of. I also believe that we pay more for many components than our competitors do. It's hard to prove this, since this information is not publicly available. However, when I compare the retail price of a Packard Bell PC to the aggregate cost of its parts, as costed using our internal purchased part costs, it's hard to see how Packard Bell can have a positive gross margin, let alone a profitable one. --RS
3344.4	October 1	BABAGI::CRESSEY		`Wed Aug 24 1994 11:27`	7
	Re: .3 ...and after October 1st you'll be buying private label hard drives from Quantum, here at SHR1! Dave
3344.5	It already happened.	SWAM2::GOLDMAN_MA	Blondes have more Brains!	`Wed Aug 24 1994 11:45`	18
	re: .0 - QUESTION: (quote from memory) - "When will it become crucial to the company that DEC purchasing become 'easy to deal with'?" ANSWER: It is already is crucial...it became so as soon as we started losing money. Each and every part of this company needs to be completely re-vamped and re-designed and re-whatever (I hate "re-engineered" and "re-organized" -- ugh!) until it is easy for us to deal with, for our customers, and our vendors. Unfortunately, it seems that most of the process re-engineering (ugh!) we have done to date has involved too many lay-offs and too few policy and/or work-flow simplifications. Sigh! Time is money, and as long as this stuff takes too much time, we are losing money, no matter how strong our balance sheet looks! :) M.
3344.6		PASTIS::MONAHAN	humanity is a trojan horse	`Thu Aug 25 1994 03:25`	7
	Sorry about the typing error in .1. It was note 3238 that was meant, not 1238. The basic question still remains. With an increased emphasis on outsourcing, how rapidly should we be expanding our purchasing departments, and should this expansion be made up from some of our best sales people who are currently being made redundant?