CRN Interview: Steve Raymund, Tech Data

The Clearwater, Fla.-based distributor's chairman and CEO shed light on the special pricing issue in an interview with Editor In Chief Michael Vizard and Distribution Editor Scott Campbell.

CRN: How did special pricing move from being a good thing to being an albatross around the channel's neck?

RAYMUND: What started out as a good idea to allow vendors to compete more effectively with the direct channel by offering realtime flexibility on pricing, unfortunately, has turned into a kind of Frankenstein. It's creating a lot more cost and negative service for us and our vendors that impacts our customers. The dealers are all very well-trained now to see a special price deviation or a special credit. The whole administrative process is very laborious and delays the delivery of the actual price to the end customer. It's also hard to track and creates a gray market. It creates a lot of distortion.

CRN: What needs to be done to resolve the problem?

RAYMUND: If manufacturers would price the products right in the first place, with everyday low pricing, then we wouldn't have this issue. In Europe, the fastest-growing vendor is Acer, which has no special pricing. What I would like the vendors to do is set some boundaries. There are going to be instances with large accounts where we are going to have to get down and dirty. But %85 impose some discipline on it to require that an order be $10,000, $50,000 or a big number that is appropriate in order to avoid doing special-price deviation contracts to get special pricing. We need a combination where we get real about the pricing they use to sell to distribution in the first place and put some limits around the activities around price deviations.

And lastly, vendors also need to do a better job managing the back-office process. Frankly, it creates a huge vendor receivable for us, which the vendors are poorly equipped to handle effectively. We pay them in 20 days, but we've got receivables out three months with vendors that are not paying us back [in a] timely [manner]. The problem is that we are buying the products at too high of a price. Then there is a debiting down, creating a lot of headaches and administrative costs that ultimately make them and us less competitive.

CRN: Why do vendors feel the need to engage in this practice?

RAYMUND: They are trying to maximize consumer surplus and extract value by charging everyone a different price for everything based on their willingness to pay. I wish we could do that. But administratively, it's more expensive to do that than it is to give people a flat price for 80 percent of your volume.

CRN: How big of a factor is Synnex in today's market?

RAYMUND: If you look at their return on invested capital, they are not earning back the cost of capital with the prices they are charging and the margins they are generating. Long term, that will be an issue for them and maybe the industry as a whole.

CRN: Do you see an end to the price wars anytime soon?

RAYMUND: Vendors have been their own worst enemy by responding to imaginary competition. They're willing to drop their shorts at the first complaint. The lack of belief, discipline, conviction and consistency in an efficient pricing model makes them very reactive and probably bureaucratic.

CRN: What area is Tech Data most focused on trying to improve at the moment?

RAYMUND: I think we have an opportunity to improve the level of intimacy and engagement with our customers and our vendors. With the addition of Ken Lamneck as our U.S. president and the kind of skills and orientation he brings, you'll see us try and become more engaged.

In the last few years, I think that a lot of us in the distribution business were too focused on the internal activities of our own companies and reacting to industry contraction and margin pressure. What we really need is to get out in the field and find out what our customers want. I don't think I am in the field enough. I don't think our other executives are in the field enough.

What's exciting is that we're growing, new technologies are emerging, and there's more buzz surrounding this industry than at any time in the last three years. It's forcing us to refocus on helping our customers identify and grow interesting markets.

CRN: What is your sense of the strength of the solution provider channel today?

RAYMUND: Our VARs are only surviving today if, by definition, they are creating some significant value. The reseller has a lot of power these days. The hearts and minds that the vendors need to win today are resellers'. The channel exercises enormous influence over what products get specified into a solution, probably more so today than ever before.