Purchasing PC Parts

Buying PC Hardware

Buying Software and Books
Financing Purchases
Establishing Credentials
Setting Prices
The Quantity Discount Trap
Advertising vs Selling
Spending on Advertising
Inventory and Spoilage
Shipping, Receiving, Returns

Buying and Selling Computers (Excerpt)

There are three basic places you can go to buy computer parts and software, and none of them involve going directly to the manufacturer. The top tier of distributors, Ingram Micro, Tech Data, D&H and the like, sell everything you could ever want, but on basic clone computer hardware, they can't compete on price. These top distributors will be important once you're established, and offer something called "floor planning" to finance purchases for retail operations. But since we aren't talking about opening a shop in prime Main Street space just yet, leave that thought on the back-burner. The main items you're likely to want from the big distributors include software (except operating systems, which you'll buy in OEM versions with the PC parts), printers and other brand name peripherals that business and government customers insist on.

The second source for computer parts are the large In-ternet based retailers: NewEgg.com, TigerDirect.com and Geeks.com, just for starters. Original Equipment Manufacturers (OEMs) in the PC business generally mean people who import or buy direct from domestic manufacturers and put together privately branded PCs. You might think this takes all the fun out of it for you, but there are myriad advantages. First of all, by sticking with OEMs who have been in business at least five years or so, there'll be a good chance the phone won't be disconnected when you call the next week. Second, this is all they do for a business, while your real business is being a small business. Third, it greatly simplifies the warranty and defective merchandise return process if you get whole PCs from one place, rather than scattering your parts orders across a half dozen low-ball vendors each week. Lastly, since OEMs want to sell computers in large numbers, if you stumble into a big sale before you have the organization or financing to handle it, you can cut a deal where they deliver to your customer and even send the bill. You show up and take the PCs out of the boxes, and you earn a handsome commission.

Finally there are the nickel-dime (meaning five million to ten million dollar annual revenue) importers and ebay/Amazon Marketplace sellers. These are the outfits that will have the best pricing on stuff that you don't exactly want in quantities you can't really plan on, but that you can make a profit selling. For a machine here and there, the risk isn't that great, though I tend to pay more attention to the brands of the actual components when buying them from folks who probably won't be around forever.

It's best to settle quickly on one or two of these outfits, at least one of which is close enough for UPS ground to show up the next day. Inventory is a killer in the PC business, so being able to get stuff quickly without paying extra for overnight or second day shipping is a big plus. The biggest problem you'll encounter in dealing with these smaller operations is that due to their relatively low volume, you'll often end up buying a system that they've never built with exactly those parts before. When it doesn't work, they'll be happy to start swapping parts (with shipping costs and delays), but you're the one who will have to explain to your customer why the troubleshooting process seems so random.

How do you get in touch with these vendors, and should you invest time filling out paperwork for strategic alliances with everybody who is willing? Once you're solidly in business, it's worthwhile to sign up with Ingram and Tech Data and jump through whatever hoops they request. These distributors will soon grant you company credit, which helps you establish credit with other vendors down the line. You should also pick one brand name PC line that you can obtain through these distributors, and fill out the paperwork for whatever reseller program they happen to be pushing that month. This doesn't mean you can expect to open any doors selling brand name hardware, but if you happen upon a business customer who likes you for your prompt and friendly service, you'll regret it if you aren't in a position to make the easy sale.

The mid-tier OEMs and small importers will start contacting you, by email or fax, as soon as you establish a buying persona in the trade and your information gets added to lists these vendors buy. You can get a jump on finding small importers and OEMs by aggressively searching ebay for hardware sellers with large numbers of reviews, checking the vendors on PriceWatch.com, or calling the 800 numbers in PC magazines and asking if they have a wholesale operation in addition to mail-order retail. In the end, it takes a while to get established with vendors you can trust, and the smaller the number of suppliers you deal with, the better off you are.

The only real way to lower your cost on computer parts beyond the established pricing of your vendors is to bargain with them. Even the top tier distributors give their salespeople some flexibility on pricing. A fellow I used to work with would call up either Ingram or Tech Data and get a price on an item. Then he'd knock off $5 and call the other saying, "I got a price from your competitor of $X". It usually worked, though you need to have a certain type of personality to do that day in and day out. The OEMs and smaller importers are also flexible on price, but you won't find out without pushing them. There is a risk in pushing too hard, however, in that you'll never develop a good relationship with the salesperson, who needs to earn a living also. Salespeople are instrumental in expediting returns, rush shipments, and even getting you access to tech support. It's a hard balance to strike, but I usually come down on the side of establishing a good relationship and adjusting selling prices to compensate.

The fool's gold of purchasing is buying quantity to get lower pricing. This may work in some retail businesses, but not with computers. The shelf life for items like hard drives and memory is similar to that of fresh produce in the super market. Computer parts suffer from a type of spoilage I would characterize as premature obsolescence. New hardware is being released every month, and even if your customers don't push you for the latest thing, the emergence of new products causes the prices of the older products to fall as vendors who bought in quantity to get discounts try to unload them. The sole exception to this rule is the occasional shortages that show up in the spot market, particularly for memory, but these are entirely unpredictable and usually of a short duration. In summary, you should never buy more parts than you need to fill an order, though you might pop for some spare parts on very large orders to avoid installation and sign-off delays.

The owner of an outfit I was working for many years ago when the PC business was in its infancy wanted to get good pricing by buying wholesale from Asia. He ordered the minimum number of retail boxed mice he could to deal direct with the manufacturer. Way back then, mice were new and expensive, and since he had to buy over a thousand, this tied up several tens of thousands of dollars. We didn't really have an established retail channel and weren't selling anywhere near enough PCs to recover this investment in a reasonable amount of time, so we decided to try one of the large indoor computer fairs that used to be quite common. All day Sunday, a couple of us stood behind a six foot table selling these mice for $35, which was the cheapest price at the show! I made the mistake of joking with one customer, who asked where we had obtained them so cheap, that they had fallen off a truck. Lost that sale, but we sold all the mice we brought, recovering the capital invested for more important purposes.

When you purchase parts from out-of-state, which you commonly will do unless you live in California or the Far East, you won't be charged sales tax. However, when you purchase parts within the state where your business is run, you'll need to register with the state and get a reseller tax ID. Actually, many out of state vendors will also require your reseller tax ID, either because they have an office in your state or because they require it from everybody. There are still a few states left in America with no sales tax, for whom this doesn't apply. Vendors in your state may require a photocopy or fax of this certificate to drop the sales tax from your purchases. If you wonder why your state is being so generous and waiving sales tax on your purchase, it's because when you sell merchandise within the state, you'll be required to charge sales tax and turn it over to the state (and sometimes city), and they get very nasty if you forget. An excellent starting point for determining the requirements of your state is the Small Business Administration (SBA), a federal agency that promotes the development of small businesses with educational programs and loan guarantees. See: www.sba.gov/starting.

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