Despite questions about the relevance of "value-added" distributors in the information and communications technology (ICT) industry, and the increasing trend towards "no-frills" and "pure" distribution models, there is still room in the channel for middle-tier organisations that market their technical skills to end-users together with their reseller partners.
This is the view of Graham Duxbury, managing director of specialist networking solutions distributor Duxbury Networking, who says value-added distributors who form meaningful and mutually productive partnerships with resellers need not have to justify their position (which will remain secure) in the supply chain.
While it is no secret that many of the distribution organisations claiming to "add value" to the sale of computer components and products, add very little to the movement of product from vendor to customer, other than a delivery or "box-dropping" service, there is no reason to believe all distributors fall into this category.
Despite press articles speculating that the role of the value-added distributor (VAD) will be usurped by the vendor and the "value-added" reseller, the truth is that both can benefit enormously from the VAD who has a clear understanding of market forces, customer requirements and ICT trends - and the technical resources to back its position.
Paradoxically, it must be noted that the position of certain "pure" distributors has become entrenched in the marketplace. The challenges of logistics, product delivery, stock holding and credit management are immense and a number of distributors have emerged which perform expertly in this space without adding any supplementary value to the transaction.
Focus is key
However, it must be said that organisations that excel in this area are generally focused on the supply of "consumer" products, or products which are soon to enter this frame.
Good examples are to be found in PC and laptop distribution, as well as printers and peripheral products, cameras and accessories, motherboard, memory and related components, and many shrink-wrapped software products.
But move to areas such as local and wide area networking, wireless implementations, advanced data security solutions, storage area networks and repositories, disaster recovery strategies and off-site mirrored networks and the picture changes dramatically.
Question of economics
One of the arguments against value-added distribution has always centred on the question of economics. How is it possible for value to be added at the distribution level without the product becoming overpriced to the dealer?
Or, if the price to the dealer remains competitive, how is the value-add at vendor level justified?
More significantly, since the economic downturn, questions are being asked about the viability and financial stability of organisations that supply value-added services.
Realistically, the downturn has accelerated the gulf between organisations handling consumer products and those involved with complex solution selling.
Transparency?
Traditionally, many value-added services were factored into the product`s price, therefore they appeared to be free. Today there are increasing calls for transparency in this regard.
However, while the value-add provided by technically expert distributors is easy to quantify, it is often a different story with the reseller who is reluctant to separate out the support element for the customer`s benefit.
This is not necessarily as damaging as it might first appear. Built into the cost of every product - by the vendor - is a "value-add" component that is earmarked for training, support or other services.
It is true that this margin has been badly eroded of late due to competition, the economic downturn and other factors. But it is there nevertheless. The key question is who pays for this service and who receives the rewards?
Is the margin from distributor to reseller greater because of the technical support provided? Is the reseller prepared to accept a smaller profit in exchange for peace-of-mind technical skills from the distributor? Will the presence of the value-added distributor strengthen the deal for the reseller?
And what of the role of the vendor?
Relationships
The relationships between these three entities are at the heart of the value-add debate. The more successful the "chemistry" between vendor, VAD and reseller, the better the deals that can be struck and the greater the slice of the market "pie" that is brought back to the partners.
With this in mind, it is interesting to note that emerging value-added distribution service models encompass an ever-widening range of capabilities, such as electronic data exchange offerings, automated replenishment systems for resellers, and sophisticated forecasting and knowledge-based systems that help smooth the kinks in the supply chain.
The ability to deploy these services on a broad scale is increasingly a differentiator for the VAD.
At the same time, it is significant that at the high end of the market, where mission-critical solutions are designed and developed, price is not the only factor critical to the winning of the order.
It is here that such issues such as pre-sales configuration of products, pre-testing of model networking and other structures and corporate platforms, installation strategies that minimise downtime for the customer, on-going maintenance and support that guarantee reliability of operation and other service level agreements, gain in importance and relevance.
If the reseller cannot support the skills needed to perform all or some of these tasks, it falls to the other members of the supply chain to deliver them. It is here that the strength of the partnerships will be tested.
Cost-effective
The most cost-effective method of solution selling today is through the value-added distribution model. Unlike the average vendor, a specialist distributor is geared for the task of technical support.
It has the skills in-house - the technical "muscle" on board - to work with the customer and the reseller in partnership to achieve pre-determined goals and objectives.
The final word goes to the vice president of one of the largest electronics components companies in the US. He says the interest in value-added services has kept rising despite the economic downturn and the shrinking of profit margins:
"There`s so much inventory in the channel today that while component sales are down, finding a company to program the device, design the product, or rid the channel of excess parts, is on the increase," he claims.
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