Standardized systems, software discounts, diversity program are among the new benefits offered the businesses with which Microsoft does business.

REDMOND, Wash., March 21, 2002 -- Microsoft has announced changes in its Microsoft Vendor Programs. This FAQ explains those changes and Microsoft's vision for its vendor relationships.

Q: What was announced today regarding the Microsoft Vendor Programs?

A: Microsoft announced a major expansion and enhancement of its Vendor Programs. Under these changes, Microsoft will:

Q: Why is Microsoft introducing these changes?

A: These changes are part of a broader initiative within Microsoft's corporate procurement. With tools such as MSMarket and MSInvoice, Microsoft already has one of the most efficient processes for the transactional aspects of hiring and paying vendors. But the company has not focused as strongly on ensuring that Microsoft is receiving the best possible goods and services -- and contract terms -- from the best vendors. Today's changes are part of an effort to address these concerns by adding vendor negotiation and management functions to the corporate procurement process.

Q: What problems are these changes designed to address?

A: For example, Microsoft has had a very distributed procurement model, under which employees in a position to buy, for example, promotional items, could receive solicitations from several such vendors each month and have to spend time meeting and negotiating with each of them to understand the relative value of their products and services. Each vendor, meanwhile, has had to make its solicitation anew to each potential customer. That's a lot of time and money spent unnecessarily on both sides of the equation. Our vendors also find they have to work differently with many of our internal Microsoft groups -- further adding to the expense of doing business with Microsoft, an expense that's eventually paid by Microsoft.

Q: How do the program changes address these problems?

A: The program changes address these problems in several ways. A key way is by reviewing all of our vendor relationships and classifying vendors into Premier and Preferred categories. Premier vendors will be the first ones we go to in order to purchase goods and services. Preferred vendors will be the ones we go to when Premier vendors are unavailable or unsuitable for a given procurement. And we will have a Provisional category to accommodate special needs -- for example, when we're doing an onsite event in a location where we don't have a Premier or Preferred vendor.

Q: How will you categorize vendors into Premier and Preferred categories?

A: Between now and June 21, procurement managers for each vendor category -- such as manufacturing, marketing, professional services, and so on -- will work with Microsoft employees who hire these vendors, and with the vendors themselves, to assess their performance and their ability to accommodate our needs. There will be basic, standard requirements we ask of all our vendors -- such as non-disclosure, indemnification, payment terms, and so forth. And there will be additional requirements that are specific to each category, related to performance indicators and quality levels for the particular good or service the vendor is providing.

Vendors that can fully accommodate us will become Premier vendors. Microsoft employees who need to hire a vendor will know in advance that these vendors are meeting all of our requirements and providing the best possible terms and service. This will save Microsoft considerable time and money in establishing relationships and negotiating contracts. Vendors that meet many but not all of our Premier requirements will be categorized as Preferred vendors.

Q: What changes are you making in how Microsoft pays its vendors?

A: Until now, we have had a system under which many vendors are paid in a one-size-fits-all way, and others are paid on an ad-hoc, negotiated schedule. We are, for the first time, going to a standardized system that gives our vendors a choice: They can select full payment in 60 days or full payment less 2 percent in 10 days. This allows our vendors to choose the payment schedule that's best for them. Many of our vendors will decide that the increased cash flow that comes from faster payment is a net financial gain for them; others will prefer the 60-day payment schedule. These payment options are increasingly standard at Fortune 500 companies.

Q: What is the software discount program?

A: Microsoft, for the first time, is offering its vendors significant discounts off the prices of many of the Microsoft products they already use in the course of doing business with us. Each Premier vendor will be allowed to spend up to US$1,000 per year toward software worth $6,000 or more, depending on the specific products they choose. The discounts will be a new reward to our Premier vendors for their commitment to us.

According to recently completed analysis from a Microsoft consultant, 69 percent of our vendors bill us less than $100,000 per year; clearly, the savings that these companies will get from taking advantage of the new software discounts will more than compensate for the two-percent payment reduction they take if they choose to accept the 10-day payment schedule. So, this is a win-win for us and for our Premier vendors.

Q: What about the new vendor awards program you announced today?

A: In June 2003, Microsoft will honor a range of vendors in different categories, based on their service and performance over the year starting July 1, 2002. It's our way to recognize and thank our best vendors, and also to inspire all of our vendors to come up to these performance levels. We plan to make awards in the following categories: Vendor of the Year (across all of Microsoft), Best in Category (in each of our 10 functional categories for vendors), Best Use of Women- and Minority-Owned Businesses (as partners or sub-contractors), Best in Customer Satisfaction, Best Implementation of Microsoft Technology (in the vendor's own enterprise), Vendor Innovation Award (for the vendor working with us most successfully to implement a technology change that reduces costs and/or enhances service), and a Shareholder Benefit Award (for a breakthrough idea that revolutionizes the way we do business and impacts our bottom line).

And today, Microsoft issued two awards to key vendors whose performance over the past year demonstrated exceptional commitment and service to us. Those companies are Waggener Edstrom and eCompanyStore. Waggener Edstrom is our primary public-relations agency, a deeply committed strategic partner and a women-owned business. eCompanyStore provides the Microsoft Company Store to our employees; it has built an innovative Web shopping site --based on Microsoft technologies -- that has dramatically reduced our costs for providing this benefit to our employees and further demonstrated the value of the Microsoft platform for enterprise and Web-based solutions.

Q: What enhancements is Microsoft making to its support for women- and minority-owned businesses?

A: We believe that diversity enriches our performance and products, the communities in which we live and work, and the lives of our employees. We have established a number of initiatives to promote diversity within our own organization, and to demonstrate this commitment in communities nationwide. Microsoft's Vendor Diversity Program focuses on significantly strengthening our relationships with diverse vendors, primarily minority and women owned and operated businesses who sell their goods and services to Microsoft, both on a local (Puget Sound), as well as national basis.

As part of our vendor program initiatives, we want to strengthen our record, ensuring that we are a national leader in this area. We have created a new senior-level position to oversee this effort.

Q: What has been the response to date from your vendors?

A: We've shared our plans with 30 or more key vendors over the past two weeks. The response has been very positive. Vendors tell us that this is an important step in the right direction, that the changes will make it easier for them to do business with us. They see the new software discounts as an important benefit with very positive financial implications for them. They also recognize that we are asking them to make a stronger commitment to us than they have been asked to make in the past. The bottom line is that they see benefits both for them and for us in these changes.