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By William Van Winkle |
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Here's how bad it is now: WHEN
a five item order takes more than three days to arrive from anywhere, we get miffed. If we can't track it with nearly GPS-like precision, we get annoyed. If it gets ordered after Thanksgiving and costs more than $19.99, it better not have a shipping charge tied to it, and if it does, it sure better show up the following business day or someone is gonna hear about it. If there's no one this side of New Delhi to tell about it live in under five minutes, our blood pressure spikes, and if the customer service manager actually lives in New Delhi but tells you his name is Roger, we start screaming for a refund. E-commerce sites should now have latency times on par with Halo 2. IM-based support reps better have the knowledge of a Britannica—sorry, Google—at their fingertips. |
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THAT BIG FRIEND IS YOUR DISTRIBUTOR. UNLESS you're one of the top 10 or 20 resellers in the country, so large that you yourself have become a distributor to other resellers, you need a short list of big disty friends standing ready to protect your business's back. You can go out and sell your staff's expertise, leverage your social network, and talk about what an optimized solution you offer until the cows come home. But in the end, the brain power you have to offer over your etail and mass merchant competitors is only one factor. For this factor to be decisive, you at least have to be in the ballpark on things like pricing, fulfillment, and servicing, and this is where having reliable distribution partners is critical. These big friends can literally make or break your business. We know of a lot of small resellers, especially the mom and pop type of operation, who source from places like Newegg. Fair enough. Even we at RAM occasionally buy from Newegg for another hard drive or some similar commodity. If all you need is a handful of components to cobble together in a garage, then this approach makes probably 5% to 10% of good sense for your margin. But once you move out of the garage and your volume increases, then it becomes hazardous to miss out on the back-end benefits and promotions that many vendors run through distributor partners. With these figured in, pricing gets much closer to that e-tail ideal, plus, as we'll see, there are many, many additional benefits to working with distributors. Distribution is not a one-size-fits-all affair. Just as it's unlikely that your reseller shop meets every one of any customer's laundry list of IT needs, no one distributor is going to (or should) solve all of your sourcing issues. Each has its own strengths and weaknesses. Over time, you'll probably settle on one or two to accommodate the lion's share of your purchases, but it pays to examine the field and keep your options open if only to make sure that the good relationship you cultivate one year stays as good as you think the next. No matter how small you are, if you're fair-minded and equitable, distributors should always crave your business. Top Reasons Despite vendors' ongoing efforts to crush the gray market, the channel continues to have a love-hate relationship with non-authorized stock. As a case in point, MA Labs for many years was a thriving gray market house. This author remembers buying endless stacks of gray market CPU and RAM trays from MA Labs in the '90s, and not until about three years ago did the distributor whitewash its operation with authorized parts. Obviously, the ever-growing disty was succeeding with such sales, but times have changed, and it became clear that if MA Labs was going to remain a true channel resource, then it needed to focus as much on partnerships as profits. With gray market, there are no incentives, no programs, no bundles—nothing that would help reseller customers to broaden their businesses and thereby make MA Labs a more value-added resource. Any monkey can sell on price if he's willing to live on banana peels, but there are a lot of monkeys in the market, and MA Labs knew it needed to commit to helping its customers succeed over the long-term with smarter product solutions if it was going to succeed with them. This is the typical mentality of a channel "partner," the kind of distributor you want to be dealing with. Yes, every distributor is different, but nearly all share a handful of things in common, and these things are the foundation of the argument for why you should be buying through distribution. "Our industry has really moved away from point products," says D&H vice president of purchasing Dan Schwab. "It's not just about selling five PCs to a doctor's office or putting in a server and networking it to the clients. On an average D&H invoice now, there are 8.4 different items, which is pretty astounding." Some things are obvious when you're trying to pick a distribution partner. Bigger distributors will have a larger selection of SKUs, vendors, incentives, and other resources, including more capability to help you delve into emerging market opportunities. However, the bigger the company, the less flexibility it will have and the less incentive to focus on smaller reseller accounts. Unless yours is a high-volume, high-priority account, don't look for much hand-holding, and don't be surprised if low volume ordering gets you lumped into a sales pool with no dedicated account rep. Small disties tout their shorter line cards as an advantage. It's easier to excel in a few things than try to do a little of everything. Because smaller providers try to specialize in the brands they carry, vendors like the fact that they can generate demand among resellers rather than rely on expensive vendor-created campaigns to spur channel pull-through. Smaller distributors also tend to be more region-centric, which can offer some unique benefits if you're within their geographic reach. As a general rule, smaller distributors will work harder for smaller resellers. This can manifest as anything from showroom training talks at the reseller's site to efforts to help resellers sign up for the "right" vendor programs that will yield the best bottom line returns. Beyond these points, there are a handful of universal attributes every distributor offers. But you want to be careful to investigate exactly how each disty's handling of these points can impact your business since each distributor will approach these in different ways and with varying levels of priority. Credit Some small resellers do everything on a cash basis. Small shops with a cash pool ranging up into the low six digits specializing in one-off end-user boxes may find operating solely on cash advantageous. Many distributors offer a discount for cash payment or even payment within Net 10, and getting to keep an extra 2% on your bottom line when system margins are already slipping under the 10% line can make a world of difference. The one downside with cash is that some distributors have either tightened the number of situations in which they'll accept C.O.D. payments or stopped taking C.O.D. altogether. To handle larger bids or deal with a larger customer base, most shops can't float this solely out of pocket. Net 30 terms remain standard throughout the industry, but the demands distributors can make for granting these terms varies. Some disties, particularly smaller ones, tend to be liberal with net terms. Others may require the reseller to pick up a credit insurance policy to protect against default. Many distributors are happy to work with joint purchase orders from larger, reputable customer accounts, in which the order is given to both the reseller and distributor. In such cases, payments are sometimes sent straight to the distributor, which either issues the reseller's margin percentage to the reseller each month or in a lump sum upon completion of the payments. Sometimes deals can extend beyond a distributor's credit comfort level, and this is when deep resources can make a lot of difference. Tech Data, for example, has a close relationship with IBM Global Financing (IGF) and uses this to assist SMB resellers. With deals ranging from thousands to hundreds of thousands of dollars, the only way a small business might be able to afford such a purchase is on a lease through IGF. The buyer gets a palatable monthly payment, and resellers can earn multiple types of fees tied to the financing deal. Meanwhile, this large-dollar arrangement has zero impact on the reseller's Tech Data credit account. Alternatively, IGF/Tech Data recently instituted the IBM Flexible Credit option, essentially a line of credit up to $500,000 with interest-free financing for up to 60 days that rolls over into a competitive rate line of credit account. Even if you're a predominantly cash-based reseller, you should be prepared to grow and anticipate the ability to win and deliver on larger sales. Make sure your distributors have the right credit programs to help you land the right deals. Inventory Once you get past the money involved in making orders happen, you then have to decide how much of a role distribution should play in your inventory management. In the post-Y2K bust, many resellers found that carrying too much inventory was a recipe for disaster, especially for those depending on the gray market, where prices can change precipitously by the hour. Local distributors are more inclined to shoulder this volatility and are better equipped to obtain some degree of price protection from vendors owing to their higher volumes. As such, many resellers have opted to shift from carrying weeks of inventory down to just a few days—or potentially even next to none—as distributor warehouses become an extension of their own. In general, only time and experience will determine how smoothly a reseller and distributor will work together in this regard. If a reseller emails an order every afternoon at 5:00 and sees those parts at his back door by 9:30 every following morning, that's a pretty sweet arrangement. But if those deliveries run late, if the reseller has to roll his own driver out to will-call, if the frequency of orders is somehow causing bottlenecks in the disty's credit department, then such issues complicate the relationship. Logistics here are everything, and this is the key buzzword larger resellers like to tout. A smooth procurement process can save a reseller untold thousands of dollars, and with the resources to automate much of the procurement chain, larger distributors generally have more bragging rights on this front. Still, there are critics.
"When you pitch a small reseller shop," says Scott Twomey, marketing director for MA Labs, "there's no point in saying how great you are at logistics. There's not enough volume of business for it to make sense. But if Scott's Computer Shop is a medium- to large-size organization, then the tier-ones will say, 'How about if I take all of your inventory off your shelf, inventory it in my warehouse, become an integral part of your supply chain, and save you a couple million dollars in carrying inventory. Would that be of interest to you?' Sure! But is that really any different than me carrying tens of millions if not hundreds of millions of dollars worth of inventory here? I can ship it out and you'll have it tomorrow. Is that any different? The big question you have to answer is whether it makes more sense, given your client base, to wait the two or three days for ground shipments from a larger distributor, which may offer a pricing advantage, or take the quicker delivery but perhaps higher costs of a smaller, local disty. Another factor to consider here is that smaller distributors are less likely to mandate volume requirements. Sales Relationship
Nothing beats a good rep. As a reseller, your business is probably built on personal relationships with clients. They could buy any given thing more cheaply somewhere else, but your expertise is what fuels the pre-sales process and wins you POs. The same is true of distributors. If you're stuck in a sales pool, odds are that you have no relationship or connection with the sales staff, and the general level of expertise in that staff is well below your own. If a technical question needs answering, you'll probably be in for an inconvenient wait. "At the end of the day," says MA Labs' Twomey, "the real reason a reseller buys from me versus somebody else is that they happen to like the person on the phone and feel they're really working for them. That's the greatest challenge. Half the struggle is hearing a customer's requests and questions, then going through all of the bureaucracy internally to make it happen so that they can get back to the customer with that price point, product allocation, information, credit limit adjustment, all these things. How effectively they demonstrate how they just busted their butt to get things to happen so the reseller can stay in business, that all boils down to having the right people." The sales relationship is usually one of the first casualties of more/better/faster. When was the last time you enjoyed ordering from an e-tailer? For that matter, we can't recall a single IM-based sales/support session with a shred of personality. Organizations often work best when they are homogeneous. If your reseller business thrives on solid sales relationships with your clients, it only makes sense that your procurement relationships would be similarly effective. Make sure your distributors can deliver on this. Integration Most system builders grew up from being one- or two-man outfits working in small quarters with a lot of time behind the screwdriver. The build-from-scratch habit gets so ingrained that some shops have a very hard time relinquishing control over the build process. But the fact is that outsourcing your builds can save a lot of money, and distributors are often set up to build desktops, servers, and notebooks more quickly and cost-effectively than resellers once you cross the line where man-hours are more lucratively spent selling boxes than building them. Some distributors offer their own house brands—ASI's Nspire and Bass Computer's BCI are two easy examples—but nearly all have the ability to apply the reseller's own branding for a small fee or a minimum order volume. With enough volume from a given user account, distributors will also maintain system images on your behalf, which in turn helps to drop build times and costs. But the real kicker is when your building distributor can drop ship finished systems direct to your customers and pack the units such that they appear to have come from you. You have zero hands-on time and quite possibly lower overall freight costs. The assembly charges may run from $50 to several hundred dollars, depending on the system complexity, but consider the corresponding costs of your own techs doing the work plus the added expenses involved in swapping and RMAing parts that fail during the build process. Distributors eat those expenses. Another facet of dealing with integration-savvy distributors is their ability to assist in the sales process. "There've been several instances," says Kent Tibbils, senior director of platform technologies at ASI, "particularly with resellers working in education, government, or even business clients, where they need to offer a complete hardware solution. We've been able to come in and help the reseller put together a sample product for that customer, something that really fit the need. There were times when a customer needed some specific software loads or configuration done in special ways, and multi-national companies couldn't do that. That level of flexibility helped us to help the reseller win the deal." Education We've lost track of the number of vendors who have confided to us that they don't have the resources to mount educational campaigns direct to resellers but rather work with distributors and let the information trickle down. Obviously, the quality of the distributor has a direct bearing on how well that vendor information gets disseminated. Education is often last on everybody's must-discuss priority list, but if you think about it, education is what makes the difference between being a screwdriver shop and a value-add systems house. Large vendors are likely to offer certification programs, white papers, and webinars, and these cover a lot of ground in getting you a basic education followed by spot updates in particular areas. But take something like SATA 2.5 or the finer points of HDCP and you're unlikely to find any help from vendors. This is where an educated distributor is worth its weight in gold. An experienced distributor rep will either know the answer or know how to get it to you quickly. Moreover, many distributors will go out of their way to educate you about new products and technologies because they understand that without this knowledge, you are at a competitive disadvantage and increasingly susceptible to ordering less product. Tech Data, as a case in point, has its TDEducation division covering training and certification services, part of which is a collection of 15 boot camps—crash courses on major certifications to help resellers get up to speed quickly.
"ASI has always done an exceptional job at educating the reseller or pointing out trends occurring in the market relating to our core competencies," offers ASI's Kent Tibbils. "Through various tools we have like tech shows and our technical Web site content and newsletters, we help resellers to understand and point out the latest things. As an example, one of our site links is called ASI University, and resellers can go there and see the latest technologies, like Core 2 Duo. And there's sort of a two-track course there—a technical side explaining the new products or technologies and then the marketing side. Because it's all well and good to understand the technical side, but you should also understand how to bring these things to your accounts and help them make decisions about the products." Trade shows are another prominent way for distributors to accomplish this education. ASI puts on six or seven tech shows each year in alternating locations, each of which is typically attended by 150 to 200 resellers. Bass Computers puts on its barbeque twice each year for a cast of nearly 2,000. D&H hosts several events, including its Digital Convergence Expo and the Mid-Atlantic Trade Show, the most recent of which packed in nearly 1,100 attendees. As any educated person knows, though, the more you know, the more you realize you don't know. Education must be continuous, and it's the distributor's responsibility to pass this information on at every available chance. Part of your mission is to figure out how much effort each distributor puts into the gaining and disseminating of this education. "Virtually every day," says D&H's Dan Schwab, "our sales reps are trained for a half-hour to an hour on our vendor partners' products, and then they're on the phone evangelizing these technologies to our resellers, giving them a reason to go back to their end-users. All of our sales reps go through a training where they have to build a system. That's required. And we request that vendors make their trainings hands-on, so reps have products they can get familiar with first-hand." When you're selling multiple technologies from multiple vendors bundled into a coherent solution, you need a trusted source for both procurement and advice. What are the solution's pitfalls? What other products would the distributor recommend as part of it? Where is money being spent that yields little or no benefit? This is a role your distributor should be filling and helping to push you toward. A value-add distributor wants to hear you say you're rolling out digital signage or security, not ordering five PCs. Why sell IP cameras when the discussion should be about wired versus wireless or Power-over-Ethernet or the kind of storage device being used for the recording? The more you find distributors willing to educate you in this direction, the more your business will be positioned to grow. ...more |
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Copyright © 2007 RAM Magazine. All rights reserved.
Do not duplicate or redistribute in any form. |
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