Solution Providers Work Distributor Relationships To Trim Costs, Maintain Focus

Kevin Murai has witnessed the birth of a new breed of solution provider/distributor relationship over the past year. In large part attributable to the current economic crisis, solution providers have begun to forge deeper, more trusting relationships with their distributors and are now looking to their two-tiered partners for services that can help them ward off ever-shrinking margins.

"Solution providers were initially skeptical about having their distributor partners get close to their customers," says Murai, executive vice president of Ingram Micro and president of the Santa Ana, Calif.-based distributor's U.S. operations. "But [recently], we've seen acceptance change 180 degrees."

For example, there has been a total turnaround in solution providers' acceptance of the agent model. In the agent model, a solution provider maintains the relationships with end customers, but never takes title to the products sold; the distributor passes products to customers, bills customers directly and pays solution providers a commission. The benefit? The solution provider doesn't tie up much-needed capital

in inventory.

Murai says solution providers want to pull costs out of their business models and focus on what they do best, such as consulting and integration services. "Why should they be using their working capital when they can use ours?" he points out.

Solution providers also want distributors to help them trim costs. As a result, a host of new distributor-offered outsourcing services, including creative financing options and software-hosting aggregation deals, have become popular.

In a slumping economy, distributors can absorb some of a solution provider's risk. Distributors, which post billions of dollars in annual revenue and tout efficient operating models, have the wherewithal to spread investment risks and limit solution-provider exposure in hard times, says Carol Miltner, CEO of the Global Technology Distribution Council, Santa Ana, Calif.

By off-loading back-end functions to distributors, Miltner says, solution providers can leverage the sheer size of their distributor partners. "The ability to convert fixed costs into variable costs is the most important thing," she says.

Of course, not everyone agrees with Miltner's rosy distributor position. Jim McKenna, principal at consulting company Technology Channels Group, Pleasanton, Calif., contends that solution providers actually tend to outsource less in a downward spiraling economy because they want to hold onto job functions to keep employees busy.

Either way, distributors say they're seeing a greater demand for financial services outsourcing and its next-generation agent model. In fact, Ingram Micro began beta testing the agent model earlier this year. "The VAR community is very receptive to this," Murai says. "It's going to grow very quickly."