Sun Eyes More Efficient Distributor Network

The move will have a positive impact on Sun's U.S. distributors and VARs, but it may hit some of its international distributors, the Santa Clara, Calif.-based company said.

Under the strategy, Sun plans to sharpen its distribution channel efficiencies by trimming its distributors' capital requirements, which will be done through changes in the supply chain, said Jeff Bartelt, director of Sun's U.S. channel sales. Sun is piloting a program called Rapid Customer Deployment that aims to have 80 percent of products from Sun's internal and outsourced manufacturing centers move to the customer within four days of an order, he said.

A key issue in the program is how Sun can ship products from the manufacturing centers to VARs and customers without making the products a part of the inventory of its "channel development partners" (CDPs), which is what Sun calls distributors, according to Bartelt. The pilot already has hit its initial target of 45 percent, he said, declining to specify the figure before the program began.

"We are now shipping products into CDP inventories," Bartelt said. "But as we move toward our goal, we can cut CDP inventories. This will release our CDPs' capital and cut expenses for everyone in the channel."

Tom Wagner, who in July took over as Sun's vice president of partner sales, said the move to shorten the supply chain will benefit Sun and its channel partners.

"We are looking to share the wealth with our CDPs," Wagner said. "They like the idea of reducing inventories and freeing up the capital associated with inventories. It's a win-win situation."

Any manufacturer initiatives to boost supply-chain efficiency are welcome news, especially given their increasing dependency on outsourced manufacturing, said Mark Teter, CTO of Advanced Systems Group, a Denver-based Sun solution provider.

"The main problem with distribution is not the time of the shipment but the logistics, things like what will be shipped where and when," Teter said. "Customers understand there are delays, but they want to know where their products are. We've had to play middleman to our customers to provide the ship times. We'll appreciate the change."

Sun also is seeking ways to consolidate its distributors worldwide, Wagner said. Sun has four CDPs in the United States and 80 CDPs globally, including several instances -- particularly in the EMEA (Europe, Middle East, and Africa) and Asia -- where one country is served by a single distributor.

"From a financial perspective, our opportunity to get our arms around our distribution is significant," Wagner said. "In the U.S., we have Access and [Arrow Electronics'] MOCA, plus two specialty distributors. It's much more efficient."

The EMEA and Asian channel understands the distribution landscape and the need to move more toward the U.S. model, Wagner added. "At the end of the day, our EMEA and Asia-Pacific models are distribution-heavy," he said.

A more efficient distribution channel is important as Sun moves forward, Wagner noted. "We are looking at this on a global basis. If you look at the numbers, there's an opportunity to increase efficiency. And as a result, that increases Sun's profitability in 2007."