ScanSource CEO Spends Some Time With Resellers, Vendors

ScanSource

ScanSource, Greenville, S.C., is a value-added distributor of specialty technologies, including automatic data capture (ADC) and point-of-sale (POS) products. The company also offers voice, data and telephony products, as well as converged communications solutions via a separate unit, called Catalyst Telecom.

The publicly held company is gaining steam in a rocky market, with recorded sales of $233.7 million during its most recent quarter ended June 30, 2002, up 35 percent from $173 million recorded during the same quarter last year.

ScanSource markets products from 62 technology manufacturers to more than 12,000 solution providers, most of which are SMBs. The company operates two distribution segments--one serving North America from its Memphis, Tenn., distribution center, the other an international segment serving Latin America and Europe.

CRN: You describe your company as a value-added distributor of specialty technologies, yet you seem to resist the business tag of 'specialty distributor.' How do you describe ScanSource's business and where it fits into the IT industry?

Baur: Specialty distributor is a term I think you guys [news media use fairly broadly. Our whole business model was to focus on specific niche markets. ADC is the industry term, but it doesn't really mean anything. We call it bar coding, but that's not necessarily the best description of it. Retail POS products are also part of that same specialty technology market. So we say we're in the bar-code and POS business.

It's obviously a wholesale-only model, but we have resellers who are pretty much focused on these as their primary way to earn revenue. Our top customers--the customers that are here this week--are in these types of businesses. For them, it's not a specialty. This is how they make money. They sell cash register systems to retailers, to hospitality; they sell warehouse management systems with bar-code scanning and mobile computing, so they're used to selling products that require software and services and, oh, by the way, drag along hardware.

So really, for our customers, hardware is a byproduct of their application set. These guys truly are more vertical-market, demand creators than a lot of other computer-type resellers out there. So we're in these niche markets, but they're pretty a good size and most everything our customers are selling is for a mission-critical application.

CRN: What are the most important issues solution providers are bringing to the table for discussion at this conference, and how are you addressing their concerns?

Baur: Obviously, markets change, as we've heard during some of the discussions here. In particular, though, resellers are concerned with direct marketing models. For example, the CDW-type models that are picking off customers who already know what they want to buy--they just want to buy 17 more of them. So we're trying to help our resellers understand that's just natural evolution. You can't legislate it out. You can manage it to some degree. But where we want our partners focused is on new customer creation, and we want them to get paid for that, and they typically do make a higher margin.

CRN: So there's room for everybody?

Baur: There should be room for everybody. The key is you've got to be able to adapt your model over time. You can't just say, 'I'm always going to sell a cash register and make 35 percent margins, and if you don't let me do that, Mr. Manufacturer, that's wrong.'

But that's where we are, and resellers don't want to change as fast as the manufacturers need them to. So, adapting to that change is, frankly, where we step in. We got into the business early on with the POS guys; we were dealing with cash register guys. Literally these guys were selling just cash registers with no intelligence, and the industry said, 'No, you've got to sell networked cash registers that run off networks and exchange data.' These guys had to learn about Novell and Microsoft, and they didn't really want to. They wanted to sell hardware because that's what they knew; it was their comfort zone.

So early on we targeted the cash register guys who had to learn how to sell PC networking along with cash registers. We also went after some of the computer guys and said, 'Why don't some of you get into the POS business? You already know the data and networking stuff, so let's teach you about retail and software.' We've gone out and worked hard to find software applications for these new resellers so they can go and find a solution. So if you were new in this industry, you've got to go find it yourself or you can buy from an ISP or a software vendor. [To that end, we have a Technology Partner Program within ScanSource to partner software companies with our hardware resellers that don't have an application. We try to be the central place for that to happen, and that's worked well in the POS area.

CRN: How are you working with vendors to manage channel conflict issues?

Baur: This event is an important way to exchange ideas and information. We started about three years ago because each of the manufacturers wanted to meet with their resellers and, at that time, we were planning three or four conferences a year. That's just not efficient for a small reseller. So we decided on one ScanSource presentation where we bring in the key manufacturers and resellers to meet and exchange ideas over a couple of days. There's enough consistency across our customer base where everybody feels they can get enough of their peers here, and also manufacturers.

During this event, feedback and discussions will result in more programs--particularly to help solve channel conflict issues with value-added vs. non-value-added reseller models. It was the biggest issue at last year's conference, and it has come up again here. Those programs, again, will continue to address how manufacturers will manage channel conflict in markets that require a lot of value-add. So we are working with vendors to roll out even more programs to address that over the next few months.