The Rise Of Value-Added Distribution

s the new Hewlett-Packard searches for the right hybrid of channel programs, balances its direct/indirect sales mix and strategizes about how to best engage thousands of midrange solution providers, it might want to revisit the early 1990s.

Harper Thorpe, who worked at HP for more than 20 years and was national reseller and distribution manager from 1992 until he left the company in 1999, remembers that time well. Sometime toward the end of October 1992, he recalled, HP decided it that to compete effectively it must focus on and invest in midrange VARs and value-added distributors.

Harper Thorpe was instrumental in leading HP to use value-added distributors for its midrange systems, starting in October 1992.

“When we delivered systems to customers in the early ’90s, we’d tell them the boxes would arrive at a specific time, to collect the boxes and put them someplace near where they would be installed. Then they had to call us when they thought they had all the boxes so we could integrate them,” Thorpe said.

“Imagine trying to send multiple systems through distribution warehouses with no bar codes,” he added. “We had to reconfigure our manufacturing process so the systems could be assembled by our distribution partners.”

Rick Hamada, now president of Avnet Computer Marketing, Tempe, Ariz., worked for Avnet’s value-added distributor, Hall-Mark, at the time. He remembers how crucial Thorpe’s efforts were in convincing HP execs to seriously develop the midrange channel.

“Distribution used to be one big world, so one of the biggest impacts was when it separated—with midrange systems going the value-model route and the thousands of other products going through the volume model,” said Hamada, who named Thorpe as one of the most influential proponents of the value-based distribution model. “When Unix exploded with client-server technologies in the mid-90s, it became evident to the manufacturers that open server products needed a more diverse and broader channel through which to penetrate both the big enterprise and the medium enterprise.”

However, Thorpe remembers a fateful day back in October 1992 when his plan almost crashed to the ground. After spending months trying to convince his bosses to work with value-added distributors, HP agreed to ship $1.6 million in midrange products to Arrow Electronics. When the sales contract ended, Arrow returned the products. The reason? Arrow execs said customers weren’t calling to buy the equipment.

After that incident, Thorpe was called on the carpet, but he was prepared to defend his master plan. “I said, ‘These are the things that we’re asking for, and this is what we need for this model to succeed. You have to understand that we’re breaking new ground here,’ ” said Thorpe.

Some of ideas included creating channel development and marketing funds specifically for the midrange products, creating easily configurable machines, and developing training and support programs. “Sadly enough, we had to allow the failure [with Arrow] to occur in order to get the attention we needed,” Thorpe said.

HP’s attention to the value-added distribution model helped drive $1.6 billion in complex systems through the indirect channel by 1999.

One legacy of that model, Thorpe said, was the creation of a “level playing field” among the top integrators and consultants that previously received discounts based on volume and the two-tier distributors that were forced to heavily invest in building and supporting a channel. From then on, value. not volume. drove discounts and incentives, Thorpe said.

“We wanted to reward the consultants and the distributors for service,” he said. “What we didn’t want is for the Avnets of the world to invest in recruiting a channel only to see someone steal revenue from those VARs with volume pricing. If you didn’t put together the best program, you wouldn’t get the best discounts.”