Distributor will evaluate profitability of all relationships
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Ingram Micro expects to make more cost-cutting measures this year to offset the slow economy and vendors' direct initiatives, said executives at the distributor.
"We have more work ahead of us. We are reviewing all aspects of our business, and we can still make significant cost improvements. I can assure you we're not going to stop until we maximize our longtime profitability," said Ingram Micro Chairman and CEO Kent Foster.
Ingram Micro has cut about 500 jobs since the end of 2001, or about 3 percent of its workforce, which now stands at 14,000. The company also plans to examine each vendor and solution provider relationship for profitability and make changes as necessary, said Mike Grainger, Ingram Micro's president and COO.
The distributor expects to save $70 million this year on an annualized basis through measures already taken, the executives said. They declined to state the savings expected through other cuts.
The balance between cutting costs and servicing customers is a delicate one, Grainger said. "The cardinal rule when we're looking at what we want to do is the customer. We pay attention to customer-service metrics, accounting controls, opinion surveys, to balance with the things we need to get done," Grainger said. "We've been fairly careful at [considering what it means to the customers and vendors affected, and we may modify it before we implement it. It's not just a cost exercise."
As an example, Ingram Micro went through three or four iterations of the reorganization it conducted in its sales group last year before the final version was rolled out, Grainger said. "Now we have less people in our sales organization, but our customer-coverage statistics are several times higher," he said.
Solution providers at Ingram Micro's VentureTech Invitational last week in San Antonio said they understand the distributor has to make changes.
"I'm not worried about it at this point. Everybody is looking to streamline their business processes," said Craig Heilman, vice president of professional services at Inacom Information Systems, Madison, Wis.
Of course, solution providers would prefer to see additional services rather than fewer services.
"I'd like to see as many residual-type services as possible," said Jeff Gau, director of sales and services at Marco, a St. Cloud, Minn.-based solution provider.
Ingram Micro uses 150 criteria to determine customer satisfaction, including warehouse performance, credit and invoice accuracy, Grainger said. "As we've looked at changing processes, we ask, 'What does this mean to this [satisfaction index?' If it's too detrimental, we'll come at it a different way so that hopefully any change we make in any way we do will at least be viewed as a nonevent, if not a positive note," he said.
Solution providers should not see changes in support from Ingram Micro, unless the distributor finds the relationship is not profitable, Grainger said. Ingram Micro tracks profitability for each solution provider and vendor customer.
"We're able to see which relationships are not delivering the profit we need. We can change the method of doing business, or tell them, 'This is what we need to charge.' It's a factual conversation, not an emotional conversation.
That's been important to drive our margin growth," Grainger said. "At the end of the day, customers we did business with three years ago, we may not do as much today. But some small customers three years ago, we're doing more today. It's the same on the vendor side."
For the current quarter, Ingram Micro expects revenue of between $5.25 billion and $5.4 billion, with net income, before reorganization costs, of $6 million to $9 million, or 4 cents to 6 cents per share.
"We do not expect strong demand to return in the second quarter and predicting the timing of an upturn is difficult," said Thomas Madden, executive vice president and CFO at the distributor. "Our sales guidance for the second quarter reflects a normal sequential decline from 4 [percent to 7 percent. If the typical seasonal trends continue, sales in the third quarter would be relatively flat sequentially, followed by a sequential uptick in the mid-single digits for the fourth quarter."