When Will The Recovery Ease Channel Conflict? Not Anytime Soon

Conflict issues with suppliers are a way of life in the channel, but because of the anemic business conditions of the past few years, they have been more pronounced.

With less business overall and far too many manufacturers in the market, the temptation to chase business through direct sales has been too hard to resist for many suppliers. And with more manufacturers launching services businesses in addition to their product arms, the potential for conflict has increased further.

Many manufacturers have, quite frankly, set their future on a course that puts their own business model in direct competition with that of their channel. The result is that we are facing a protracted period of channel conflict.

I believe this because there continues to be too much capacity in this market in terms of product. In addition, manufacturers understand that end users no longer buy products and instead are looking for IT solutions to their business problems.

Because of that paradigm shift in the sales model, manufacturers that are not well-versed in how to build, engage and compensate a value-added channel have felt the need to establish larger services arms. They are afraid that if they are not selling the solutions themselves, they may not get their products specified into that solution.

In a nutshell, solution providers are increasingly becoming the decision makers as to which products go into the solution.

You have heard me ask this question before: If the average solution has four technologies and 40 different product SKUs, what is the brand the user associates with that solution? It is the solution provider. So, in addition to there being over-capacity in products, we have overcapacity in service capability as well.

When you roll all this together, the question that must be answered is, how fast does this market need to grow in order to eat up the capacity on hand and thereby reduce channel conflict?

I certainly don't know the answer. It would take a thorough examination of the market by an economist to predict when we will reach equilibrium in supply and demand. What I do know is that despite the fact that business is steadily improving, conflict is not going away anytime soon.

So what needs to be done?

I believe manufacturers need to think about the issues raised in a statement that Steve Tepedino, president of Avnet Hall-Mark, made at a recent CRN roundtable. "When a supplier comes in because of an eleventh-hour reason, whether it is economics or strategic or whatever, and takes the deal direct, it undermines the whole notion of an integrated channel," he said.

Tepedino is correct, and it is an integrated channel that manufacturers will need in the future. An integrated channel is one that is in tune with a manufacturer's sales objectives. It is one that invests in that manufacturer by investing in training. An integrated channel partner sells a manufacturer's product not only because it is viable from a technology standpoint but also because it is viable from a business perspective as well.

It will take some time before the recovery helps ease this conflict, but smart manufacturers ought to begin making moves now that will help them gain share through the channel later. That means manufacturers must be clear and fair about where they will compete with channel partners. Otherwise, their channel will become someone else's integrated channel.

Make something happen. I can be reached at (516) 562-7812 or via e-mail at [email protected].