While Italy’s longer-than-average accounts receivable cycle makes Merisel Inc wary of entering the market, executives at Ingram Micro Inc and Computer 2000 AG say they have been able to bring their payment schedules in line with their needs. The executives gave their positions at the EuroChannels 93 conference at EuroDisney near Paris late last month. Merisel, which operates in the UK, France, Germany, Austria and Switzerland, is in no rush to get into Italy, in any case. Says chief executive Mike Pickett: We are present in 80% of Europe’s markets and I feel no sense of urgency to make it 100% any time soon. The company must first complete its European logistical structure, explains Thomas Reeves, senior vice-president, Merisel Europe, Brentford, Middlesex.
Whew!
This would not be before the end of next year. We’ve got no plans right now, but of course if a good opportunity came up, we would look at it, he said. But, he adds, It’s really the AR (accounts receivable) cycle in Italy that scares me – 120 days! Whew! Computer 2000 co-president Steve DeWindt agrees that the average payment schedule in Italy is scary for a distributor. In Italy, the AR cycle should scare him. Most companies run on an average of 180 days. We used to run at 120 days. We’re down to 65 days. For Italy that’s unbelievably short, even more so because we’re still making a profit, he said. Several reasons account for the improvement, he said, including being more aggressive with collections, while giving discounts for cash payments and less credit. Also, at some point, you just have to say, ‘I’m not going to take it any more.’ It may cost you in terms of sales, but it adds to the bottom line, he explained. DeWindt adds, however, that EIS/Computer 2000 has not sacrificed any market share by being more aggressive in collecting payments. Ingram Micro’s experience is even more positive. John Winkelhaus, senior vice-president of Ingram Micro Europe in Zaventum, Belgium, acknowledged that the payment cycle in Italy varies from 60 to 120 days. But, he says, It all depends on what you establish with the customer. We’ve established 30 days/end of month, so our average is 45 days. We’re not quite there, but almost.
By Marsha Johnston
It can be done. We’ve been able to bring the DSO’s (Days’ Sales Outstanding) in line with what we need. Both Ingram Micro SpA and EIS/Computer 2000 are recording some of the fastest rates of revenue and profit growth in their companies, say Winkelhaus and DeWindt. In fact, says Winkelhaus, Ingram Micro SpA’s business is growing so rapidly, it will be expanding its warehouse in Cassina dei Pecchi in December from 85,000 square feet to 110,000 square feet. Our business in Italy is very, very strong. Of course it’s easy to have meteoric percentage increases when you’re starting from a small base, but we’ve gone from being nowhere in 1991 to this year being the second largest wholesaler in Italy, based on our estimation of the market, he says. Another reason for enlarging the warehouse, Winkelhaus said, is a change in Ingram’s product profile. It has evolved from 100% software in 1991 to a greater emphasis on hardware, with Compaq, HP’s Vectra line, and printers and monitors from NEC. So with the hardware, we need the space to store boxes, he explained. Ingram Micro SpA is currently doing 50% of its business in the north, 25% in central Italy and 25% in the south, Winkelhaus said. In 1991, we were told that a company in the north could not do business in the south. We have proved them wrong, he said. He added that he believes the success is due to Ingram’s 90% fill rate and exceptional delivery schedule. Any order received by 6pm is shipped the same day. It always arrives the next day; except in the South where it arrives the next day about half of the time, he said. Although EIS/Computer 2000 grew at a lower overall rate than the group average, its growth in profit exceeded the group average and the parent company in Munich expects it to record a higher than average overall rate of growth this year, DeWindt s
aid. He says the company’s profitability improved after Computer 2000 took control of EIS in March 1992 and undertook a restructuring to reduce its excessive operating costs. Because EIS started as a software publisher and republisher, it had high overheads. As it moved into mainstream distribution, the infrastructure was not in line with the lower-margin business, he said. At the time, there were rumours that we were closing our doors, but we were just making the company profitable.
Free in the past
We’re very pleased with the turnaround; the company has been solidly profitable for this calendar year, DeWindt said. EIS/Computer 2000 will be adding new brands to its product portfolio, as well as new product areas. PC sales in Italy haven’t been as strong as elsewhere, so we’re expecting stronger PC sales and we still need to grow the networking business there, DeWindt said. The company will not add either Unix or Macintosh to its product line, he added. DeWindt said the retail channel in Italy should also provide good growth over the next few years. By October, all Computer 2000 subsidiaries will be earning revenue from services, such as technical support, which have been free in the past. The company began unbundling sevices from products a year ago because it simply can no longer afford to offer them for free, DeWindt said.
