Distribution Consolidation And The Expansion Of Distribution

The recent news that Tech Data would acquire Avnet's Technology Solutions business comes on the heels of Ingram Micro's announced sale of its entire business to a China-based logistics conglomerate.

While Ingram's move is flat out consolidation in a difficult environment, the Tech Data and Avnet move is more about performance of the two businesses with Tech obviously getting bigger and Avnet moving back to its roots as a component distributor.

About 15 years ago, The Channel Company did a research project around distribution where we asked vendors what they wanted out of their distributors.

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Remarkably, the results showed that the suppliers wanted the ’value-added distributors,’ as we called them back then, to look more like the ’broadline’ players. The value-added players were Avnet and Arrow and others like them, and the broadline players were Ingram, Tech Data and Synnex.

But what was even more remarkable was that the very same suppliers wanted the broadline players to look more like the value-added distributors. In the end, what everyone was after was a world where the best attributes of both were combined into a company that left behind all the less attractive attributes.

More likely, the driving force was the vendors wanted to deal with as few distributors as possible, and if they all looked the same you could pick two or three instead of six or eight. I only bring this up because distributors are influenced and are pushed to make business investments by their suppliers while attempting to be most attractive to the ultimate customer, the solution provider.

So what has largely happened over the ensuing 15 years is the supplier community got what it desired—a more homogenous distribution channel with less differentiation. That may be what the vendors wanted, but it isn't necessarily what the market wanted or what was best for the distributors themselves.

So we come to today, where there are some distributors like Arrow that have been able to make the new model work, and there are others like Avnet that are going back to its roots.

The bigger discussion here is what makes sense for the market. I believe in the future we are going to need and ultimately see many more highly specialized distributors that will organize more around verticals and business process solutions.

The Internet of Things is coming on fast, and with it comes all sorts of different needs for solution providers that are going to be connecting billions of devices we never imagined would be attached to a network. In its simplest form, attaching light bulbs to a network as part of an energy management system that includes smart thermostats along with the networking gear means a very different product set will be sitting in the distributor's warehouse.

ScanSource is an example of a highly profitable distributor that has focused on a few areas where it is highly specialized in the products it carries and its expertise. For many years, when you thought of point-of-sale solutions, ScanSource was the natural choice. More recently, ScanSource acquired Intelisys, expanding further into communications and broadening its specialties.

It seems to me we are going to see more ScanSource models in the future and perhaps more distributors, not fewer. They may be smaller than the big boys like Arrow, Tech Data,

Synnex and Ingram, but they won't be any less important.

BACKTALK: Make something happen. Robert Faletra is CEO of The Channel Company. You can contact him via email at [email protected].