Tech Data Likely To Lose Vendors Due To New Cost Model

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Tech Data expects to lose some vendor partners after implementing an activity-based costing model with its manufacturer partners.

The distributor said it is not making money with some vendors and plans to give those partners three options: change the way they do business with Tech Data, subsidize the partnership or end the relationship.

Tech Data last year adopted a similar plan for solution providers, and it was successful, company executives said. The new vendor model will affect mostly second- and third-tier vendors and is necessary to keep costs in line, said Nestor Cano, president of worldwide operations at Tech Data.

The distributor's fourth-quarter profits fell 32 percent to $36.5 million from $52.7 million in the year-ago quarter.

"We need to ensure we have the key [vendors, but we don't need to have every single vendor just to be able to sell the last 2 percent [of market share. It costs a lot to maintain those accounts," Cano said.

The distributor declined to speculate how many vendors it may lose or how much money it would save with the new model.

The model would not affect newer technologies with no real market leaders, Cano said.

For its part, distributor Ingram Micro lost some vendor partners last year after undertaking a similar plan, said Pat Collins, senior vice president of sales at Ingram Micro.

"If you want to [sell in the channel and the characteristics of your product are not channel-friendly, there is a cost to that, and that cost needs to be borne by the vendor," Collins said.

Vendors may have to repackage products or change allocation strategies to make them more distribution-friendly, according to Collins and Cano.

The distributors' actions could make it more difficult for new and smaller vendors to get their products to solution providers, but the Internet makes it easier to find any product these days, said Joe Spampinato, president of Computer Marketplace, Tewksbury, Mass. "It could mean we do business with smaller distributors for hard-to-find items," he said.

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