Best Of Both Worlds: How Tech Data Became The Channel's One-Stop Shop

Logicalis found itself in a pickle every time inventory got thin.

The company, No. 29 on the 2017 CRN Solution Provider 500, took a customer satisfaction hit whenever customers experienced delays procuring equipment, according to Vince DeLuca, CEO of Logicalis U.S., headquartered in New York City. This happened roughly 10 percent to 15 percent of the time, he said.

The issues have been exacerbated by recent constraints on memory and solid-state drives, DeLuca said. And going down the natural OEM supply chain to procure scarce inventory meant dealing with elongated shipping schedules, he added.

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But that all changed when Logicalis' distributor, Avnet Technology Solutions, became part of Tech Data in February. As a broadline distributor, Tech Data holds more inventory in certain areas than Avnet did, DeLuca said, meaning that Logicalis can pull from Tech Data's supply should inventory get tight.

"Having the ability to draw inventory from your distributor versus going down the normal supply chain path is a positive," he said.

Traditional value distributors such as Avnet Technology Solutions ran pretty close to an inventory-less model in the U.S., while volume distributors such as Tech Data also stock entry-level and midrange products from suppliers, said Rich Hume, Tech Data's executive vice president and chief operating officer.

As a result of the $2.6 billion acquisition, Tech Data can now service the entire product line for data center vendors, Hume said, ranging from entry-level, drop-and-ship products to high-end, highly customizable offerings historically supported by Avnet Technology Solutions.

"Now, within a given vendor line, the reseller can have one relationship and get all of their needs met," Hume told CRN. "It really is a vendor expansion opportunity."

The purchase of Avnet's Technology Solutions business brought Tech Data into Asia-Paci­fic for the first time, returned the distributor to Latin America after a two-year absence, and took the company's top-line revenue to $35 billion.

The acquisition also stands to have a far-reaching impact on the competitive landscape. Ingram Micro — the world's No. 1 IT distributor — for the first time faces a rival with broadline and specialty capabilities spanning the entire globe. The acquisition also slashed the revenue gap between Tech Data and Ingram Micro by more than 50 percent, with the two now standing $7 billion apart in annual sales compared with the $16.5 billion revenue gap prior.

Synnex, meanwhile, bolstered its position in networking, security, and unified communications and collaboration with its $830 million purchase of Westcon Americas, which closed earlier this month. The $14 billion distributor competes against Tech Data in North America, Latin America and Japan.

Solution providers increasingly want to be able to buy a broad array of technologies in a single place, meaning that distributors with more scale will be more important going forward, said Bob Dutkowsky, Tech Data's chairman and CEO.

"It's easier to do business with one player that has those deep skills than to manage multiple relationships with multiple distributors, and then the resellers are the ones that have to cobble together the capabilities," Dutkowsky told CRN.

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Storage arrays and high-end networking products require far more engineering and support than peripherals and components, said Tom Sharp, vice president of operations for Glastonbury, Conn.-based Kelser, No. 253 on the 2017 CRN Solution Provider 500. Sharp said he appreciates being able to leverage very different levels of engineering resources with the same distributor spend.

Prior to the acquisition, Tech Data didn't have a comprehensive services offering, while Technology Solutions lacked a portfolio of commodity or transactional products, said Jody Burton, CEO of Ottawa, Ontario-based Stoneworks Technologies, No. 361 on the 2017 CRN Solution Provider 500. The amalgamation has resulted in a more robust offering, he said.

"We have a whole services organization that can help partners augment the delivery and design and setup of that solution, whereas in the past, the transaction would have stopped right there at the sale," said Joe Quaglia, Tech Data's president of the Americas.

Joining forces has paid dividends not only for existing partners, but also for new ones. Tech Data acquired 587 net-new customers in its first quarter after the Technology Solutions deal closed, four-fifths of which had previously worked with another distributor, according to Quaglia. That new customer acquisition rate is a little higher than what Tech Data had seen in the past, he said.

"Our ability to scale the organization from that highly complex value proposition to fulfillment positions Tech Data better than anyone else in the market," Quaglia said.

Tech Data needed to invest more deeply in data center architectures to fully capitalize on next-generation technologies such as cloud, the Internet of Things, mobility, big data and analytics, and security, Dutkowsky said. And growth in the data center focused on enhancing technical capabilities and vendor relationships will be vital to competing and winning in emerging areas, according to Dutkowsky.

"In order for us to participate in the growth part of the market, we really needed to increase our skills and capabilities," Hume said.

Two months before the acquisition was announced, Avnet Technology Solutions rolled out specialized business units focused on emerging technologies. As a result, Dutkowsky said Technology Solutions had already built some skills and go-to-market capabilities by the time it became part of Tech Data.

The returns within specialty distribution are also better, Hume said, meaning that incorporating Technology Solutions has enabled Tech Data to move into higher-margin business. Tech Data partners, meanwhile, have for the ­first time gained access to some data center-focused suppliers such as SimpliVity, Nutanix, Nimble and NetApp, Quaglia said.

But the data center itself is going through a transition from rotating disks to solid-state drives and ‑ ash storage and from stand-alone server, storage and networking devices to converged and hyper-converged infrastructure, Dutkowsky said. The decline in legacy data center product sales, however, has outpaced the growth in emerging data center technologies, he said, leading to some performance challenges.

"We believe that the data center and the next-gen technologies will continue to be a very robust opportunity for the channel for decades to come," Dutkowsky said. "They're not threats; they're opportunities."

At the same time, technological advances have enabled computing capabilities to move beyond the data center and into endpoint devices themselves, Hume said. As a result, Hume said that edge devices and data center technology have become more tightly aligned than ever before.

"We believe that our client device resellers will become endpoint resellers, and by definition, their value to their end users will go up," Hume said.

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Although Tech Data and Avnet Technology Solutions specialized in different technologies, they come from similar roots. Avnet started as a small, family-owned company selling radio components and over time found its way into technology, Dutkowsky said, while Tech Data started as a family-owned company selling office supplies and found its way into technology. Both organizations have been public for several decades, Dutkowsky said, and have a reach that spans across several continents.

"The two companies are almost like brothers from [another] mother," Dutkowsky said. "They had a lot of commonality amongst them."

The Technology Solutions workforce was very excited to become part of Tech Data since both organizations focus exclusively on IT distribution, Dutkowsky said. Avnet, meanwhile, also has a semi-conductor-focused components distribution business, which was known as Electronics Marketing, or EM, and remains part of Avnet.

"The EM side was kind of steering the ship, and TS [Technology Solutions] was kind of along for the ride," Dutkowsky said. "When they came over to Tech Data, they saw that they were the ride." The personnel from Technology Solutions were skilled in everything from engineering to sales consulting to helping channel partners build new practices, Quaglia said. Tech Data didn't have a lot of expertise in these areas, he said, even though they'll be vital to growing next-generation technology sales.

In order to cross-pollinate the best of the Technology Solutions culture into Tech Data and vice versa, Quaglia said a number of Technology Solutions employees relocated to Tech Data's Clearwater, Fla., headquarters while some Tech Data folks moved to the Technology Solutions headquarters in Tempe, Ariz.

For example, Chuck Bartlett—who led Tech Data's specialty Advanced Infrastructure Solutions division prior to the acquisition — relocated to Tempe so that he could infuse the combined Enterprise Solutions business with his experience and skills from AIS, Quaglia said. Tech Data and Technology Solutions have been a much better ­fit together than anyone outside the two organizations predicted, said Kesler's Sharp.

Since the deal closed, Sharp said the combined organization has highlighted additional skill sets and new capabilities within its employee base as well as ways Kelser can tighten its relationship with some of its largest vendor partners. "There's a lot of enthusiasm and energy between the teams," Sharp said.

Longtime Technology Solutions partner Melillo Consulting is still dealing with the same folks even after the Tech Data acquisition. That's because the Somerset, N.J.-based company, No. 306 on the 2017 CRN Solution Provider 500, remains focused on the value side of the business, according to Vice President and General Manager Dan Sytsma.

"Except for them getting acquired, it still feels the same to us," Sytsma said. "And I don't think that's a bad thing."

In addition to acquiring new talent, Tech Data inherited a very different set of systems and processes. The old Tech Data did roughly 50,000 transactions every day and had spent tremendous amounts of money and time ­fine-tuning its supply chain, logistics and billing for a high-velocity motion, Dutkowsky said.

Technology Solutions, meanwhile, transacted with its customers just 1,000 times a day, and had invested a lot of time and energy into building IT systems that make big-ticket transactions better, he said. Specifically, Dutkowsky said Technology Solutions has superior configuration tools for working on complex, high-end offerings.

Tech Data's ability to stock and manage an enormous inventory while still turning transactions quickly speaks to the power of the distributor's logistics and supply chain systems, according to Sytsma. That expertise should result in the entire company being more aggressive from an inventory and systems processing standpoint, Sytsma said, which should lead to customers getting specialty products faster.

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Logicalis' DeLuca, meanwhile, is excited about potentially extending self-service capabilities to customers through Tech Data's eCommerce platform. Logicalis typically delivers custom-oriented configurations to customers rather than pre-con­figured SKUs or pieces of infrastructure, DeLuca said, but some larger customers need 10 or 100 of the same custom configurations.

Delivering self-service around custom con­figurations with preset conditions and negotiated terms and conditions will enable end users to procure seamlessly without multiple rounds of configuration activities and iterative changes, according to DeLuca.

Since the Technology Solutions acquisition closed, Tech Data has selected a global leadership team, deployed a comprehensive sales coverage model, and serviced its customers with no disruption, Hume said.

Immediately following the close, Tech Data was divided into two tracks, Quaglia said, with a small group focused on integrating the two companies and a much larger group tasked with running the day-to-day business. The integration team consisted of a couple of dozen people from both Tech Data and Technology Solutions, Hume said, with expertise in everything from IT and finance to sales coverage and project management.

The integration management office has, for instance, been responsible for navigating conflict between line-of-business leaders who want to quickly get the IT deployment done and the IT department itself, which would prefer to take a more proscriptive, make-sure-it-doesn't-break approach, according to Hume.

"This is a transaction that the industry hasn't seen in 25 years, something of this magnitude," Dutkowsky said. "We're 1.5 quarters into a couple of years' journey."

In North America, Quaglia said Tech Data has established enterprise, commercial, retail and nationals as their own sales segments with distinct go-to-market strategies. The enterprise practice is made up primarily of Technology Solutions customers and run largely by the Technology Solutions leadership team and organization, according to Quaglia.

The commercial segment is comprised largely of traditional Tech Data midmarket and small-business VARs, Quaglia said, who are already very familiar with the distributor from a service and operations standpoint. Many of the national accounts worked with both Tech Data and Technology Solutions, he said, and the distributor has sought to maximize ease and minimize disruption for those partners.

Stoneworks' Burton said Tech Data and Technology Solutions have always maintained two completely different ecosystems, with Technology Solutions providing the personnel and sales process for end-to-end enterprise solutions and Tech Data executing substantial volumes of transactional, commodity-type purchases. The relationships on both sides have been working quite well, Burton said, and Stoneworks would prefer that the broadline and enterprise ecosystems remain separate.

DeLuca is similarly pleased that Tech Data has clearly demarcated its endpoint and advanced solutions businesses, with the distributor fully understanding that end-user devices such as phones and PCs aren't part of Logicalis' go-to-market strategy.

"They're not pushing all of that volume business on us," DeLuca said.

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The biggest concerns around the deal were initially voiced by partners that had lines of credit with both Tech Data and Technology Solutions, Hume said. Tech Data moved quickly to allay those fears by indicating that the size of the post-acquisition credit line would equal the sum of what solution providers received from each separate organization, according to Hume.

Melillo Consulting leans on Tech Data as the end of the quarter approaches to get quotes done faster and expedite shipping around infrastructure vendors including Hewlett Packard Enterprise and Dell EMC. This process has been aided by the distributor's knowledgeable employees, according to Sytsma.

"They act as the advocate for the partner, understanding the OEM's business processes and challenges," Sytsma said.

For its part, Onsite Technical Services was looking to take advantage of Lenovo's partner demo program, where solution providers selling more than $10,000 of hardware in a quarter would get 50 percent off select servers and 30 percent off some workstations, said Jim Hunton, owner of the Phoenix-based solution provider.

Onsite received a server order on the last day of the quarter, Hunton said, meaning that it would need to ship out right away to qualify for the 50 percent discount. Hunton sent a couple of emails, and despite it being after-hours, Tech Data ensured that the hardware his customer ordered would ship out that very day.

Solution providers also have heaped praise on the distributor's technical resources. Waypoint Consulting has moved into cognitive computing over the past year, and Tech Data has been instrumental in helping it make key industry connections, get up to speed on new service lines and technology, and roll out new product lines, said Jon Serafino, partner at the West Chester, Pa.-based company.

Tech Data also has been a tremendous partner for Waypoint when it comes to marketing products and services through joint events and conferences such as IBM's Mini World of Watson, Serafino said. These events allow Waypoint to meet new prospects, expose current customers to other areas within analytics where the company excels, and facilitate peer-to-peer sharing of best practices, according to Serafino.

"I view Tech Data as more of a partner versus a vendor," Serafino said. "In the past, we've had other relationships, and it's truly been more about order-taking than anything. With Tech Data, there's a genuine interest I see from them in helping us to grow."