Two drastically different ways to address costs

During my short trip to Israel, I met with two companies in similar industries making similar products.  One customer used the time to talk about technology.  The other used the time to discuss costs.  Guess who ended up saving more on their costs?

Company A: The Tough Procurement Guy

The customer spent the majority of the meeting trying to squeeze Dell.  By “squeeze”, I mean the well-intentioned and ambitious procurement guy started asking for better pricing and then demanding that we provide component level costs in our quotes.

Dell pioneered many aspects of the ‘squeeze your supplier’ approach, and nowadays this is standard fare when dealing with customers.  Usually when costs come up I step out to get some water and collect my thoughts.  However, this time I sat in the room listening as the customer used their time with the Dell team to make all sorts of challenging requests in an effort to get better component level costs than Dell was providing.  Did I mention that the Dell hardware is ~5% of end product’s total cost?  In summary, we spent an hour talking about them possibly saving 0.25% of their total material costs!

Company B: The Smart Development Guy

After driving across town, the Dell team met with Company B to discuss product strategy.  In this case, the customer was trying to address costs as well but in a radically different way.  Company B wanted to consolidate multiple systems into one by using a client hypervisor, and they needed us (the Dell team) to review the state of CHV technology today, where it was headed and what recommendations Dell could provide.  We spent an hour discussing state of the art technology and how to utilize CHV to reduce the Dell hardware cost by 50% – an effective 2.5% reduction of their total material costs.

10 times the cost savings by leveraging a supplier’s strengths

When you meet with a supplier, you get to decide how you spend the time.  My recommendation is to spend some of that time learning from the supplier, especially if the supplier is a top player in their industry.  I was prepared to talk about virtualization, roadmaps, cloud, GPU computing, remote management, mobility, etc. and how these technology trends could benefit our customers.

Instead, Company A decided to talk about the cost of DRAM, and it might have ended up costing them much more than they expected in the long run.

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About the Author: Josh Neland