The New Supply Chain And How To Work With It

As we stand on the threshold of the new millennium, we all know that nothing is more certain or more constant in both the workplace and our personal lives than warp-speed change. Everyday we experience anew the convenience and connectedness created by the Internet -- whether it's emailing documents and images back and forth to professional colleagues or shopping on line for everything from computer hardware and software to groceries, books, airline tickets, toys, educational seminars and the list goes on...

We also have come to know the total frustration and lack of control that comes when our computers systems and networks are rendered defenseless and paralyzed, if only temporarily, by viruses such as the recent "I Love You" bug.

As all of this change swirls around us, often the most critical challenge for many senior managers of businesses, including those up and down the IT supply chain, is deciding how to adapt and respond in such a way that moves our businesses forward rather than driving them off course or even completely aground. Such an environment is fertile ground for spawning misperceptions based on fear, uncertainty and doubt. Being able to distinguish myth from reality can mean the difference between a successful business strategy or a misguided one. For example, as the excitement and enthusiasm for e-commerce have gained momentum, so have several myths about the role of IT distributors in the new supply chain.

MYTHS VS REALITIES IN TODAY'S MARKETPLACE

One such myth is that electronic commerce will eliminate distributors. In reality, the need for logistics and delivery systems is greater than it's ever been before. While the Internet represents an extremely effective sales and marketing tool, it relies upon the support provided by distributors through their strong relationships within the IT supply chain and their logistics expertise in delivering products to the end-user in a timely and cost-effective way.

Managing huge volumes, on-time shipping, product returns and technical support issues have proven to be very challenging for e-tailers and manufacturers who lack the expertise and experience that distributors have gained with 20 years of practice.

As distributors, we encourage vendors, resellers and e-tailers to focus on their solutions and core competencies and let us basically do the same, which means providing the most superior delivery and logistics systems available.

Another common myth is that distributors will abandon traditional resellers (VARs and Systems Integrators) to focus on electronic resellers. The loyalty factor with our customers continues to be a defining principal in our relationship with them. We see increased business opportunities from continuing to work through our resllers and systems integrators, with whom we have enjoyed mutually beneficial partnerships for a long time. For example, in the past few years, in conjunction with these customer/partners, distributors have driven such important changes as open sourcing, channel assembly, access to small businesses and incremental revenue. In addition, through the Global Technology Distribution Council, distributors have taken a crucial step toward establishing world class standards aimed at reduced costs and increased efficiencies throughout the IT supply chain. Going forward, we remain committed to offering the most innovative services and benefits possible to all key supply chain players.

One other myth about the new supply chain that needs to be dispelled is that Dell's direct model is a panacea and likely to be adopted by other vendors which will result in the ultimate displacement of distributors. Few people realize that even though Dell markets its products directly to the consumer, many of their logistics and delivery systems are supported by resellers and distributors; in fact, Dell is a huge customer for the distribution channel.

WINNING BUSINESSS MODELS VS LOSING BUSINESS MODELS

It is also critical to distinguish between losing business models versus winning models in the new supply chain. All players up and down the supply chain -- not just distributors -- must become more unified and work together in reducing costs across the entire supply chain. No longer can we afford to lob grenades at one another hoping to garner back revenues and profits at someone else's expense. If we put our heads together, we are much more likely to come up with universally beneficial opportunities. And no longer can anyone, including distributors, expect product margins alone to sustain our value proposition. We need to focus on compressing supply chain costs while offering a broader scope of enhanced services to customers.

Neither can we afford to choose risky channel partners. As we all know, there has been phenomenal consolidation and volatility in the dot-com arena as well as in all other segments of the supply chain. Unless profits appear imminent, some of the dot-coms will be "dot-gones" by the end of the year -- a natural continuation of the shakeout which will distinguish the strong and healthy players from the weak and vulnerable. Choosing very healthy channel partners with a win-win mentality is a priority to distributors as we navigate through the new supply chain.

On the other hand, a winning business model that will contribute to the health of all supply chain players and the industry, in general, is one built around enhanced service offerings to supplement margins from product sales. These service offerings, which include credit extension, configuration, tech support and education, are critical to both the vendors and the resellers, and they are services distributors can offer more economically than either vendors or resellers can design themselves. At the same time such service offerings give distributors the opportunity to supplement current revenues and offset declining product margins.

Based on the breadth of services currently offered by distributors, perhaps the simple term "distributor" is no longer adequate to describe our businesses. In light of our expanded role which will continue to evolve, it seems that "supply chain integrator" or "logistics provider" are more accurate descriptions of what we do.

In closing, as the IT supply chain continues to be transformed, several driving forces seem certain: 1) demand for backroom and logistics management will increase for all supply chain players, 2) revenues from services will supplement distributors profits while creating focus on core competencies for vendors and all categories of resellers, 3) a spirit of "coopetition" arising from collective and creative thinking among all supply chain players has the potential to create mutual benefits, resulting in a healthier IT industry and stabilized profits and valuations for all supply chain participants.