Two key factors involved in running a successful IT business in 2004 are: managing your stock; and managing your cash flow and foreign exchange liability.
These are business 101 principles. Everyone knows them. However, the events over the past few years - the hangover of Y2K, the dot-bomb phenomenon, the extreme volatility of the rand - have re-emphasised just how important business basics are.
By focusing on these basics, Comztek has not only survived the upheavals which have literally changed the face of the IT channel, the company has thrived and we are well placed to continue to support the channel going forward.
So, what have we learned about stock management?
We have always regarded customer satisfaction as more than a marketing phrase. It`s a strategic imperative in an industry as competitive as ours. We know that if company A doesn`t have stock available, in most cases the customer can turn to company B, or C, or even D. So we have to ensure that we always have stock available.
But that`s problematic in an industry like IT in which obsolescence is often just a few weeks away. Can you afford to stock up on a product which no one may want or need in a couple of months time? And even if your supplier accepts returns of old stock, there is no guarantee - in light of the elastic exchange rate - that you will be fully refunded in rand terms.
So what do you do? What can you do? Our experience at Comztek is that the people who are in the best position to judge future demand for product are not the procurement specialists or the financial wizards - it`s the product managers and the people who interact with customers on a daily basis.
They often have a strong gut-feel for the way the market is going. But, gut-feel is no longer enough. They need to be supported by sophisticated procurement software tools which have the capability to identify trends based on past buying patterns, current market conditions and known future developments such as when a new product - your own or a competitor`s - coming to market.
You also have to know and understand your industry and be aware of developments that could impact it. For example, the core of Comztek`s business is networking. We have developed a vast pool of expertise around networking. We represent the key networking vendors and we provide a broad range of networking products - and we have the back office expertise and software to ensure that we maintain optimum stock levels to meet market demand.
But we recognised that networking today is very different from networking 10 years ago; and networking tomorrow will be even more changed. We therefore continuously identify developments across all technology sectors and evaluate which are most likely to complement or impact negatively on our core business of networking. Telecommunications is seen as one area which provides a natural extension to our focus on networking - so now resellers can tap in to our skills and products to deliver telecommunications solutions to their customers.
Complicating the process of maintaining stock levels is our exposure to foreign exchange fluctuations.
We have always taken a very conservative approach to our foreign exchange exposure. We know on a daily basis how much cover we have and the extent of our foreign liabilities. You need to know when to buy or "not to buy" forward cover. But you also have to make provision for those occasions when your instincts let you down. It`s a balancing act.
One way in which we make provision for unexpected turns in our foreign exchange situation is to manage our foreign creditors and debtors extremely closely.
We have seen a significant reduction in the insolvency rate within the channel, which indicates a business maturity that may have been lacking before. Our bad debts have declined too, mainly because of the conservative approach we have always adopted not only with regard to the provision of credit but also the continuous management of our debtors book.
However, there remains a cash squeeze in the channel among SMMEs who service the government sector with its longer sales cycles and delays between delivery and payment, which can be due to the lengthy roll-out time frames. Comztek has instituted measures to assist these companies by providing facilities such as extended payment periods. This enables them to grow their operations without as much cash flow pressure as would otherwise be the case.
On a more macro level, the long anticipated economic upturn appears to have arrived - finally. Since the first quarter of 2004, the economic momentum has been bolstered by an increase in government spending, much of which is specific to expanding IT capacity and networking infrastructure. This is reducing the financial pressure on vendors, distributors and resellers.
However, while demand for value-added IT services is likely to grow exponentially, complemented by an ongoing demand for software and hardware solutions, as well as retail products, the channel must guard against repeating the mistakes of the past, particularly from a cash flow and credit perspective.
Business basics will always be key to success.
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