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ARARNN The road ahead March Distributors 2004 Supplement DISTRIBUTORS SUPPLEMENT The road ahead The landscape of IT distribution in Australia and around the world has been undergoing some major changes during recent years. But as margins have been whittled away, and the demands of vendors and resellers have increased, the men in the middle have been looking at smarter ways of operating that builds new value into the vital role they play in the delivery of technology. BRIAN CORRIGAN discussed fresh ways of thinking, market opportunities and shifting dynamics with the managing directors of some local distribution operations. Lan System’s Nick Verykios — “Niche opportunities reduce as a market matures but there will always be room in emerging he IT distribution industry has undoubt- positive picture and insisted it was time for peo- technologies and complex things like security” edly gone through some tough times in ple to clear their heads if they were going to rise recent years with the success of Dell’s di- to the challenge ahead. rect model forcing companies at all points “There has been a tendency in recent times Ton the supply chain to reassess the way they have for both commentators and industry players to been doing business. misread the opportunity presented by this new Synnex managing director, Frank Sheu, said the environment,” he said. “They have committed the major industry change in recent times had come age-old error of hoping that what was done yester- from vendors demanding that distributors become day must be fought for today. more efficient and add value to the service they “The market today is huge. All political, com- provided without offering any more money as an mercial and social aspects of modern society are incentive for doing so. influenced by IT in some shape or form. It is the “The industry average profit has been chopped future task of IT distribution to participate effec- by the success of Dell’s direct model and con- tively in the dissemination of both product and sumer demand has become much more sophisti- information to try and ensure that everyone has cated,” he said. “That’s just a fact of life we have equal access to the most exciting technology the to accept.” world has ever seen.” Sheu said Synnex had foreseen this trend and realigned its business processes to meet vendor Fundamental change expectations and reseller requirements in terms He talked of a fundamental change that has seen Synnex’s Frank Sheu — “The industry average of supply chain, information flow and customer distributors transforming out of the role of ven- profit has been chopped by the success of service. dor customer and into one of business partner. Dell’s direct model” “The bar has been raised,” he said. “The stan- This strengthening in the bond between distribu- dard to be successful has gone up a level. Unless tors and vendors was also pointed to by Express you know your game very well, have core compe- Data managing director, Ross Cochrane. “We see tencies and integrated business processes it’s a clear trend towards a requirement to do more very hard to be in the distribution game because than pick, pack and ship,” he said. “You’d better you don’t have room to make mistakes. be good at that part of the business but the big You almost have to sell everything at cost price question is always about what other value you can or below and then claim the soft dollars or special offer. pricing to make your money. This adds complexity “Vendors have experienced an environment to the internal systems and processes of a dis- where there have been spending constraints tributor.” and they don’t think the market is going to re- Westan managing director, Victor Aghtan, paint- turn, be buoyant and give growth if they just ed a similarly bleak picture of a harsh environ- leave it. They are looking for help in driving ment in recent times. “It’s been very tough the growth strategies and their view of a distribu- past few years because of low margins and ven- tor is changing from ‘we’ll ship it if the order’s dors attempting to grab market share by increas- there’ to driving the market proactively through ing distributors rather than working with their ex- reseller channels.” isting partners,” he said. “A lot of companies are The key to successfully managing these vendor then unable to make profit out of a product and relationships, Baillie said, was to avoid generali- so don’t service it properly or simply lose interest sation. The ‘one strategy fits all’ might no longer Westan’s Victor Aghtan — “It’s going to be all together.” be a viable model. tough for the little distributors but these guys have always been very efficient, agile But despite these difficulties, Tech Pacific man- He stressed the need to cost activities accord- and flexible” aging director, Kerry Baillie, painted a much more ing to what had been done rather than negotiating S2 ARN March 2004 a fee up front or basing it on previous relation- agile and flexible,” he said. “That’s how they’ve ships with a vendor. been able to survive.” “If you import a product and sell it online, for Lan Systems managing director, Nick Verykios, example, this is a low-cost activity,” Baillie said. said there was a trend among vendors to align “But if another vendor, or the same one in a dif- with global distributors because it reduced costs, ferent situation, wants assistance with marketing provided global fulfilment for international custom- activities and promotional support for a product, ers and created consistent policies. But despite then that attracts a higher fee. this, he said local operations must think niche in “The vendor gets value for money because they terms of meeting local market needs. pay for what they get, and prices reflect what we’re “A multinational vendor will have different mar- doing for the channel as opposed to us getting the keting strategies targeting different parts of the highest possible margin and holding on to what world because it is very strong in some countries we can. Some distributors are moving along this and yet almost unheard of in others,” he said. “A path quicker than others and the ones that aren’t key benefit of being a global distributor is that you are those that don’t want to be in the business get to see how strategies have worked or failed in anymore.” other countries with different products.” But Verykios said there would still be a place Greater efficiency for smaller distributors to act as niche experts. Avnet’s Colin McKenna — “You need very Ingram Micro managing director, Steve Rust, said “You need to create benefit in three areas,” he deep engagement with select vendors to be relationships with resellers were also changing con- said. “Firstly, you need to do more than just ship successful in this game” siderably because many no longer wanted to hold boxes – a good distribution partner offers resellers stock and the average size of order was reducing. assistance with pre-configuration, reconfiguration This combined with the falling prices of standard and project rollouts. Secondly, it is about market items like PCs, notebooks, servers and monitors developing services – managing existing channels meant distributors had to be more efficient. and looking for new ones. Finally, there is a need “Some of these efficiencies are around the way manage lots of different reseller relationships. distributors integrate back into vendors and for- “If a niche player can provide any of these ben- ward into resellers,” he said. “Some of the larger efits where a bigger distributor isn’t or can’t then resellers are have automated the way they place there is a place for them. Niche opportunities re- orders with distributors and, over time, this type duce as a market matures but there will always of efficiency will spread to the smaller resellers. be room in emerging technologies and complex There is also an accelerating trend for a flow of things like security.” information from vendors through distributors to Synnex’s Sheu agreed that broad-based play- make it easier for resellers to present solutions ers needed to have a niche approach to the dif- to customers.” Rust said this would help resellers ferent areas of their business if they wanted to be push more complete solutions and attack supple- successful in the future. mentary options such as power back-up supplies, “If you want to be broad-based, the danger is accessories and extended warranties. that you start to act as a fulfilment house and Express Data’s Cochrane said many vendors most vendors don’t want their distributors to oper- Ingram Micro’s Steve Rust — “Some of the no longer thought of a product as sold until it had ate in that way,” he said. “Vendors prefer distri- larger resellers are have automated the way reached an end-user, a change in outlook that bution partners to help them create demand by they place orders with distributors and, over makes a lot of sense when you look at products pushing products instead of relying on resellers to time, this type of efficiency will spread to the smaller resellers” like software licences. pull orders through.” “There is no physical stock with a software li- cence so the only way you get an order is when Workable balance a customer wants a licence. Integration between The answer to harsh economic realities at the top partners that have shared goals is much more of the tree, he said, was to create a workable bal- meaningful than a relationship where you buy ance between commodity product lines and those something from me and I just wish you the best of where a distributor could still add some real value.

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