DSS Streamlines Operations To Regain Profits

By Richard McCaffery, Staff WriterAfter its first year of making no money since its inception 17 years ago, DSS Inc. is getting a tuneup to ensure a return to profitability."It's a challenging time," said John Jamshid, founder, president and chief executive officer of Decision Support Systems. "The days are long, the projects are hard, and every day is sliced between different meetings and challenges."These aren't easy days for distributors in general. Like its peers, the Reston, Va., firm faces price pressure, competition from rich rivals, shrinking margins and the belief by some analysts that distributors just get in the way."The landscape has changed dramatically," said John Allen, vice president of Quarterdeck Investment Partners Inc., Washington. Allen said the soaring success of Dell Computer Corp., which skips the sales channel and sells directly to end users, has many manufacturers following its lead.But don't count out distributors yet. "A lot of distributors are doing creative things," Allen said, like finding niches to exploit or becoming experts with certain products. "The key is they just can't look at it as business as usual."DSS has plenty to show in the way of changes. In the last year, Jamshid spent $7 million to build a new headquarters in Ashburn, Va., where he plans to consolidate the company's offices and five area warehouses. He spent $2.5 million on a full suite of Oracle Corp.'s business software to improve operating efficiencies. He is revamping DSS' Web site to offer customers full electronic commerce services. Also, Jamshid plans to increase his sales force by 100, expand the company's territory and continue to offer more in the way of bundled products and services. The re-engineering is aimed at streamlining operations, "which allows us to pass along savings to customers and stay competitive," said the 52-year-old Jamshid.The privately held company is using bank financing to pay for its transformation, including a portion of the new headquarters. Jamshid plans to pay off a piece of the loan by selling warehouses the company won't need after March.Founded in 1982, DSS sells computer products such as storage equipment, desktops, notebooks, Web servers and multimedia equipment to government and commercial clients. Business is split pretty evenly between the public and private sector, said Jamshid, whose customers include Lockheed Martin Corp., Vanstar Corp. and Tri-Cor Industries Inc.DSS sells a wide range of gear but focuses on storage products such as disk drives, Jamshid said. It has been the exclusive provider of Seagate drives to the federal government for the last four years.Seagate Technology Inc., Scotts Valley, Calif., announced Feb. 1 a plan to reduce its number of distributors from 13 to six as part of an effort to increase market share. DSS, Seagate's oldest distributor partner, was picked along with Ingram Micro, Bell Microproducts Inc., Arrow Electronics Inc., Synnex Information Technologies and CHS Electronics Inc. Since 1982, the company's top line has continued to climb. DSS had revenue of about $300 million in 1998, up 20 percent from $250 million in 1997, Jamshid said. He declined to disclose previous earnings or revenue estimates for 1999, but did say he expects growth of up to 18 percent for the year and a return to profitability. Jamshid said this would be accomplished by reducing expenses through the use of new Oracle software, training employees to handle more technical tasks, beefing up his sales force and selling bundled products. Still, competition is fierce. Giant distributors such as Ingram Micro Inc. of Santa Ana, Calif., and Tech Data Corp. of Clearwater, Fla., have well-funded divisions focused on the federal market. "I would say it's the most challenging time since 1982," said Jamshid.The company's profit margins have eroded in the last 18 months, he said. Though last year's losses weren't steep, "it was the only year we didn't make a substantial profit," he said.Jamshid didn't disclose the company's 1998 losses, which are still being audited, but said he expected to either break even or lose a small amount. The re-engineering plan is aimed at halting the slide, he said. Changes include:* Redesigning DSS' Web site, which will offer full e-commerce services by June;* Expanding to at least five new sites in the next year, including cities in Illinois, Michigan, Texas, Georgia and an increased focus on New York;* Increasing the line of products built to order. The company used to sell just two packages, and now sells up to 12; * Increasing advertising to support its V-Squared division, a subsidiary that assembles white boxes.Steven Ashley, first vice president of research at Robert Baird & Co., Milwaukee, said the big challenge for small distributors comes from Ingram Micro and Tech Data, the behemoths that just entered the white box market last year. White boxes are generic computers assembled by distributors and resellers that compete against the big name brands, like Dell and Compaq. Ashley said hundreds of distributors have done well selling white boxes for the last few years. But now that more computer manufacturers are skipping the sales channel and selling products directly to end users, Ingram and Tech Data are fighting back by selling generic computers.To survive, small distributors must rely on their business partnerships. "If they have good relationships and a good business they'll do well," Ashley said. "But that's the challenge."