I DON’T KNOW WHAT INGRAM’s
numbers were when I was buying from them in the '90s, but the company grossed over $25.4 billion in revenue for 2004, up from $22.6 billion in 2003. Tech Data did $17.4 billion last year, up from $15.7 billion. But these tier-one disties never called to educate us about their offerings. In all fairness, where in all those untold thousands of SKUs would they have started? In my time as a purchaser, I bought a lot of product from these tier-one distributors, but nowhere near as much as I bought from the tier-twos, the distributors that "only" do roughly $1 billion annually.

Tier-one OEM sales numbers are on the rise, so it only makes sense that the tier-one distributors that service them would be following suit. Unfortunately, tier-one disties base their entire model around servicing larger accounts. If you only sell in quantities of, say, five or ten, don’t count on getting particularly noteworthy service or pricing. You’re likely to be pushed toward a Web-based ordering form or into a calling pool where any number of reps assigned to your group could pick up your phone call.

No, tier-one distributors and small resellers were not made for each other. On the other hand, tier-two distributors are able able to specialize more effectively. You’re likely to get much better pricing. Also, the service from a tier-two, of course, is far more personal and usually more timely.

I spoke with three of these tier-two "billion dollar babies" to get a more specific idea of the value these distributors offer to their channel customers and how they can help to boost your business.

ASI (www.asipartner.com)

With 14 locations spread across the U.S. and Canada, few distributors would be better able to fulfill a just-in-time inventory model than ASI. The company uses its own delivery trucks wherever possible to reduce shipping costs, and each office operates much like an independent company, right down to inventory management and credit handling. This helps ASI work and feel much more like a local distributor than a multi-regional and no doubt helps contribute to the personal touch at which its sales staff excels.

ASI claims a customer base of over 10,000 VARs and resellers, which means that its median reseller customer is going to be small. This suits ASI just fine as it is plenty willing to gather volume in the SMB space by focusing on major PC parts than fight head-to-head against the tier-ones. And apparently ASI’s clients appreciate the approach since nearly one-third of the distributor’s resellers attended its six tech shows last year. In the world of vendor shows, one-third of a customer list in attendance is huge.

"The studies we get back from manufacturers tell us that we have more resellers than the multi-billion dollar players," says ASI vice president of product management and product marketing Brian Paterson. "We also focus on components and don’t carry complete PCs, although we do build PCs for our customers. But we do a billion dollars just in components, and that’s pretty sizable. We do very well with disk drives, optical drives, microprocessors. Motherboards are our key category."

According to Paterson, ASI’s "secret sauce" is both its just-in-time model, "which helps small to medium resellers to maximize their return on working capital," as well as its focused product line. ASI only maintains a stable of 70 to 75 vendors at any given time. The company doesn’t even carry printers. Paterson notes that this is because ASI prefers to keep its focus on system components, although I’d wager part of that has to do with the notoriously low margins in small business and consumer printing products. Either way, such a narrow vendor range allows ASI’s sales staff to become very familiar with the company’s product selection.

One of ASI’s key distinguishers is its Nspire product line. Nspire is ASI’s OEM brand of build-to-order desktop PCs and associated peripherals. Reflecting the trend for resellers to outsource their PC builds, Paterson claims that ASI is now selling 10,000 Nspire systems each month. He notes that while resellers may not make much margin on Nspire at the $400 PC level (the same could be said of boxes you build yourself, though), mid-level to higher-end systems leave a decent amount of money on the table for resellers. Additionally, another Nspire-related income opportunity coming up is on system servicing.

"We’re getting ready to hire an on-site service company that utilizes resellers and which resellers can join," says Paterson. "They’ll be able to service customers on-site for anywhere from one to three years."

Currently, Nspire systems sold via the Nspire.com site have a three-year warranty, but if you call into ASI sales, you can also get pricing on a one-year system. One-year systems pull from many hundreds of motherboards, video cards, and other components. At the three-year level, component selection is more limited, but there is the extended warranty to offset the restricted menu.

Last but far from least, Paterson notes that ASI’s focus on SMB resellers allows it to be a bit savvier with credit. Whereas some disties cater to the "VAR 500," as he puts it, ASI’s credit offerings tend to be deeper and more flexible.

D&H (www.dandh.com)

With six warehouses and an incredibly long history, D&H excels on many fronts, but if I had to narrow these down to two they would be sales rep education and technological vision.

"Ten years ago, people could probably name 20 different distributors in the U.S.," says Dan Schwab, vice president of marketing for D&H. "Now, you don’t even need two hands. One of the things that got lost with fewer options is the service model. That’s our primary differentiator—our ability to partner with our resellers and vendors and also be consultative in nature. It’s not just transactional. It’s about creating solutions."

Creating solutions requires in-depth knowledge of several product categories. It’s not enough to know that Intel makes good motherboards. A rep needs to understand the chipsets, bus architectures, processor limitations, and other factors connected to the Intel board so that a full solution can emerge based on it. D&H reps are instructed about new products and technologies by vendors hands-on 30 to 60 minutes every day. Every rep’s basic training requires building a PC from scratch. D&H knows that your customers will have hard questions, and they’ll never be able to guide you toward the right answers by only studying marketing glossies.

When I talk about D&H’s vision, I mean in areas such as whitebooks, living room convergence, and the melding of handheld CE devices with computing. Most distributors wouldn’t dream of touching such low-volume, speculative areas, but D&H makes them one of its key cornerstones.

"One of the things that’s really important to us is coming up with new revenue opportunities for our resellers," says Schwab, "things that allow them to go back to their end-users and sell them something new. Great examples in the system builder market would be things like whitebooks, where D&H was one of the early pioneers, and ePCs, where D&H is probably the leader today. These technologies may not offer revenue streams that some companies today find attractive, but we see it as very important to offer these technologies to our customers more for the future of their businesses. It may not be a high-volume, commoditized business, but it’s also harder to add value to those types of products. We’d rather expend our energies on areas that are more cutting edge."

D&H provides what so many system builders need: a way to differentiate. You’re never going to break out with a $500 box. Building a high-value machine isn’t about increasing speeds and feeds in order to inflate the ASP. You want ways to design next-gen solutions for people today, and D&H is the best in the business at showing you how.

MA Labs (www.malabs.com)

MA Labs is the shining example of what a smaller distributor can accomplish when it elects to specialize in a narrow product group. In the case of MA Labs, that product was memory. I used to buy generic modules from MA Labs over a decade ago because they had the best pricing available with acceptably low return rates. It’s good to see things have only improved.

According to Christine Rao, manager for sales and purchasing, 30% of distributor’s revenue is from memory, and 70% of that memory is actually manufactured by MA Labs. The tier-two started promoting its Super Talent memory brand a couple of years ago, and while still not as well knows as the likes of Kingston, Corsair, or OCZ, the brand holds its own in real-life testing. I paired off 1GB of Super Talent DDR400 against a similar set of Kingston ValueRAM and found the two to be remarkably similar on performance. MA Labs backs Super Talent with a lifetime warranty and the kind of aggressive pricing I remember so well from years ago. Each module is board tested by MA Labs at least four times, and the company states a defect rate of less than .5 percent.

Rao states that memory is not an end in itself. She hopes that resellers will come for the exceptional memory deals then discover the other benefits in MA Labs’s lineup. For example, the company is also particularly strong in USB flash drives and LCD monitors, both of which are categories MA Labs pegged as exceptionally high growth in 2005. The distributor is also usually one of the top two sellers of Microsoft OEM software within the channel.

With three warehouses—one on the East Coast and two in California—Rao says that MA Labs maintains more inventory than most disties and that same-day shipping is the norm. The goal is for resellers to not face any backorder situations, either when ordering or selling to clients.

Additionally, Rao stresses that MA Labs does not discriminate according to reseller or order size.

"Even when customers place small orders, we still take very good care of them. We’ve seen some of our customers from the time they begin to over ten years later when they’re still our customers. In that time, their business grows a lot, and that makes us very happy.

When Tier-Two Is Better Than One

Each of these tier-two distributors has two things in common: 1) They focus on SMB clients, and 2) they are all privately owned. A large, publicly owned company is all but forced to focus on the needs of their owners (higher earnings per share) versus the needs of their clients. Their massive size makes the tier-one distributors less maneuverable, and this means that they have to target the largest volume areas in order to hit those high dollar marks.

Smaller companies don’t have this handicap, and it shows in the ways they work to educate and service you. Tier-twos can achieve volume levels in excess of tier-ones within certain product categories and deliver superior margin opportunities. Moreover, tier-twos should appeal to vendors, because the greater personal touch they have allows them to create enthusiasm and demand through product knowledge rather than expensive incentive campaigns.

If most of your business is going to the tier-ones, consider trying out the benefits you could enjoy by aiming a little lower on the ladder. You might just give your bottom line that boost it’s been needing.