Distribution Roundtable: Sounding Off

It ain&'t easy being the middleman. Vendors demand better returns on their channel programs, while solution providers want more services and help. What&'s a distributor to do? The best they can, according to seven specialty distribution executives who recently sat down with to talk about the channel&'s biggest dilemmas. Distributors are rarely short on ideas on how to fix problems, yet getting the other sides of the supply chain to hear them is another matter. The distribution executives feel it&'s getting to the point that they have to raise their voices just to be heard.

FIXING VENDOR CHANNEL PROGRAMS
The Global Technology Distribution Council cited research this year that only 60 percent of solution providers participate in vendors&' channel programs, pointing to the lack of success as the biggest deterrent. At the annual GTDC Summit in September, executives from vendors, distributors and solution providers all agreed that improvements are needed, but the question remains how to do it. For their part, distributors said let them lead the way. After all, they need both sides to be successful to be successful themselves.

Steve Tepedino, Avnet When we&'re brought in early in terms of the design and creation of a program, the success rate is much higher. Once we&'re involved and we know how the program works, we can help administer a program by letting our partners know where the levers are, how to pull them and when to pull them so they get the economic benefit. The fact is, with the suppliers and vendors putting out so many programs, you can be awash in programs and can feel overwhelmed. If you&'re a supplier, you feel as if you can&'t get any traction, yet you&'re putting so much money out in all these programs. It spins out of control. The best way to do it is collaborate early with distributors.

Peter Coleman, Agilysys One of the mantras that [we all use] is ‘Is it consistent, predictable and fair?&' If it&'s consistent to the distributor down through the solution provider, it&'s predictable, it lines up with rebate programs and what they&'re trying to push out in the marketplace, and [so] it&'s fair. For those things, the vendors will say, ‘That&'s a great idea.&' What they don&'t like pushback on is when we say they have too many programs. The supplier has on a particular brand 20 programs on a particular Tuesday during the month. They can&'t expect that all 400 of our resellers are going to take every program and initiate it. We take the program, and we then delineate what is right for our company.

Gary Gammon, Bell Microproducts If we can&'t get the partner to buy into the program, give it resources and execute a plan, then there&'s no way they can realize the return on the program. What you have to do is find the partners that are willing to invest in a particular program that hits their strategy. They&'re going to put a plan in place and commit resources to the technical training and sales training, and we can help facilitate that.

Tim Curran, GTDC Our research shows that the resellers have a higher degree of trust in their distribution partner than they do in their vendor. They deal with the distributor on a day-to-day basis. The vendor relationship is critically important but not as intense. The distributor can play a role in bringing vendor programs together potentially with complementary vendors and propose solutions to the resellers. There&'s a real role for distribution to play in the area of improving the effectiveness of vendor programs in the marketplace. Bill Botti, Alternative Technology The problem is exacerbated by manufacturers who have unrealistic expectations of what winning looks like. They throw a program out and don&'t see the traction they were hoping for somewhere back in the ivory tower. They modify the program, and we&'re caught spinning that for different people. The new spin might get someone else interested because it now fits their model, but [solution providers] are getting bombarded. They simply can&'t absorb all of the things that they&'re getting hit with. Unless something really clicks for resellers or unless there&'s a solution orientation that solves a specific problem, they simply can&'t afford to do it.

CHANNEL COMMUNICATION
Perhaps the toughest part of developing a channel program is finding features that benefit all parties in the supply chain, according to the executives. One of the biggest obstacles is that vendors, distributors and solution providers rarely sit down together to collaborate on a program. That needs to happen to realize dramatic improvement for vendor programs, they said.

Anna McDermott, Access Distribution Resellers are fairly open with their feedback to the distributors, but when they have the opportunity to provide that to the manufacturer, they get a little shy. There has to be direct and candid feedback to the manufacturer [from the reseller] along with ours. We&'ll partner with them in providing that feedback and then [providing] input [to vendors about] what would be a better program. Providing good feedback on not only what&'s wrong but what would make it better is necessary so that the vendor has the opportunity to improve the program. Because the distributors have such a significantly higher purchasing volume than any of the individual resellers, we have more power or ability to influence. If we collectively provide input and feedback, the vendor can&'t take the role that it&'s just the distributors. They&'re always taking this position: ‘Oh, that&'s just the resellers.&' If you go collectively and provide input, feedback and pushback, then it&'s the supply chain that says, ‘This doesn&'t work&' or ‘It does work.&' The more we come together as the supply chain providing input, the more power the messaging has.

Bill Botti Most of the manufacturers separate their input groups so that they don&'t have to deal with the fact that there might be unison there. One of the things we&'ve been pushing manufacturers to do is when they have the VAR council to include the two or three distributors that carry their products so the issues about the process can be discussed openly. The only thing you can&'t talk about is margins and all of those other drivers, but the business drivers and the program drivers you&'re discussing here would be very relevant for everybody who is in the process because then the voice that they get the feedback on is, in fact, more of a unified message.

Tim Curran Ultimately, the vendor wants the customer happy. The only person really with skin in the game on making that end user happy is the VAR. He lives and dies on the success of his client, and ultimately what the vendor wants is a committed, obsessed reseller that lives and dies on the happiness of his end users because the vendor can&'t get that anywhere else.

Steve Tepedino In some cases, VARs think understanding a program is a competitive edge against their peer partner. There&'s a level of tribal knowledge that some partners have that they like to protect, and so there are some partners that would suggest that they wouldn&'t like to see distribution aggregate and mass the ‘secret sauce.&' We think that in general that&'s not the best for the industry. We think it is our obligation. The suppliers could help us bring programs to market in a fashion that will allow us to take the data, disseminate it out and populate our tools with it a little bit easier so we can make sure our downstream partners can see the benefits more crisply.

VENDOR LOYALTY VS. INDEPENDENCE
Several vendors, notably Sun Microsystems and Hewlett-Packard, are rolling out new partner programs that try to dramatically increase a solution provider&'s incentives to attach more of that vendor&'s products to the solution, as opposed to products from a competing vendor. Some solution providers feel that practice could compromise their ability to provide the best solution possible to their customers. It&'s distribution&'s job to straddle that fence representing both sides.

Steve Tepedino Being exclusive and being loyal shouldn&'t be confused as being the same. If a partner is improving their performance around a given franchise, one could argue that they&'re fulfilling their commitment if they&'re bringing new customers to the portfolio and helping to expand a supplier&'s share base. If we&'re growing share and our investment is growing with a supplier, we tend to expect less heat about the other supply lines we may carry. It usually happens when the channel is carrying more lines than we can support with economic growth, then you get a lot of pushback on you [to] be exclusive.

Bill Botti The [solution provider&'s] reputation is on the line with the end user. He has to be customer-centric from a vendor and distribution perspective. As long as he&'s growing share, growing his end-user community and meeting his commitments on a one-by-one basis, he has to be customer-centric and provide solutions that meet their needs—not just be a subset of carrying that manufacturer&'s flag. Otherwise, he&'s not a systems integration provider, he&'s an extension of a manufacturer&'s representatives.

Peter Coleman [Solution providers] are as open-minded as the loyalty that they have from us, the communication link that we have with them and how consistent we have been with good ideas from our vendors. It&'s a quid pro quo. [But] the vendor sometimes gets into a panic. The vendor is out there pushing a program, and we&'re coming back saying the program is not going to work. They say the program has got to work. They&'re trying to get market share on a product that&'s not ready for prime time yet, and we&'re giving them all the input back that resellers need to make money during this quarter. Your programs aren&'t aligning with what they&'re trying to accomplish, it doesn&'t align with what we&'re doing. It goes on deaf ears; it can go either way.

Anna McDermott If you put yourself in the shoes of a solution provider, your approach might more logically be not a decision between loyalty or not loyalty, but a decision about strategy and focus. Most of these guys are entrepreneurs. They&'ve developed a business—what can they do better than anyone else? As a result of that, they&'ll earn more opportunities, and they&'ll maintain customer loyalty. Growth and profitability should be the key deciding factors. Whether you can achieve that most effectively through a relationship with predominantly one vendor or achieve it most effectively with relationships with several competing vendors depends on your competencies and your overall strategy.

Rich Severa, Arrow Electronics If you don&'t have the competitive intellectual property that makes you win in the comparative, a loyalty set of programs will not stem the tide of that. I would like to see the vendors temper the investment from loyalty programs for other programs that are more about selling deeper and wider in the end-user community, quite honestly. There is a possibility that some of the vendors in reaching for the loyalty lever are going to over-reach in the leverage they think is in the market with solution providers.

Tim Curran If you look at the industry, it&'s the PC vendors, where there is virtually no intellectual property in the product, that are driving these alternative means to drive loyalty. It&'s not in the product. They can&'t drive it in the value proposition of the product itself so they try to surround it with other loyalty programs, some cash incentive. But, as we heard today, that has positive and negative results in the marketplace.

MANAGED SERVICES
More and more solution providers are entering into the managed services space. As the center of the supply chain, distributors are sorting through their options to determine what role they may play in the delivery and marketing of those services.

Peter Coleman A high percentage—greater than 50 percent—of our partners are looking at investing in it. This is another one of those paradigms that the strong survive [and] the weak will put themselves out of business. As distributors our obligation is to be there as coach and counselor.

Steve Tepedino This could be a great example of a service that&'s better left to an economy of scale of the distributor&'s environment. It&'s a very high entry point to participate, and I don&'t know that, if there are thousands of resellers out there, we need thousands of managed services providers as well. This could easily be a case where a reseller partner may choose to be in this business but may outsource the actual implementation of managed services but still participate and decide what to provide uniquely. The cost to start a managed services business is tremendous, and most VARs don&'t have the balance sheets for it.

Rich Severa Managed service is a great example of one of those things that was very hot and premature for our market. I walked literally acres and acres of floors of buildings outfitted for managed services and Web hosting. The early adoption rate had a lot of fatality. One of the drivers that is different now for managed services that wasn&'t true the first time around in the late 1990s and 2000 is Sarbanes-Oxley—what you have to do with information, that infinite, forever e-mail. Where do you put it? How do you manage it? That&'s a great opportunity.