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IT Manufacturers Can Reduce Total Costs Through Distribution, According To Study

ST. PETERSBURG, FLA. / Sept. 29, 2008 – IT distributors are the lowest-cost means for technology manufacturers to enable business-to-business solution selling, according to a comprehensive independent research report released today by the Global Technology Distribution Council (GTDC). Conducted by Milwaukee-based 21st Century Equity Research, the study presents average total estimated costs of nine leading IT companies specializing in systems, storage, peripherals, software, networking and other IT product categories. The approach included analyzing all selling, general and administrative (SG&A) data supplied by participating vendors in aggregate ranges pertaining to their U.S. businesses, by channel, over the past year.

“This study validates what is often not realized by many industry observers as well as some IT manufacturers themselves: Two-tier distributors represent both the best and most cost-effective way to reach and serve B2B markets, particularly with the crucial advantage of selling products as part of comprehensive solutions,” commented GTDC CEO Tim Curran. “Among the takeaways is that distribution partnerships give vendors the ability to focus more on and invest more in their core competencies, such as R&D and providing high-quality products that meet changing business needs.”

21st Century Equity Research leveraged a detailed online questionnaire as well as follow-up interviews with study participants, which included financial and operations personnel of participating companies. The report focused on the most relevant cost categories across all channels, including:
 
•    Discount from List - Percent off suggested retail price.

•    Special Bids / Spot Offers – Discounts allocated to specific sales channels by the supplier in unique circumstances, including competitive replacement programs, large volume purchases, and to move certain inventory.

•    Market Development Funds (Soft Dollars) – Dollars allocated to specific sales channels by the supplier to help generate incremental demand, including co-op advertising and rebates.

•    Programs / Promotions / Marketing – Dollars allocated to specific sales channels by the supplier, including training, marketing support, and product-specific promotions.  

•    AR Reserve / Credit Card Fees – Reserve to cover uncollectable receivables and transaction fees charged by credit card companies.

•    Price Protection / Inventory Depreciation – A credit to sales channel partners when pricing is adjusted by the supplier and the relevant depreciation of a supplier’s inventory when price is adjusted.  

•    Direct Sales / Advertising – Allocation of direct sales support and total advertising dollars by channel.

•    Shipping / Handling / Warehousing – Allocation of these expenses by channel.

•    Collections – Allocation by channel.

•    Warranty / Returns – Allocation by channel.

•    Inventory / AR Financing Costs – Suppliers’ cost of capital multiplied by inventory and receivable balances allocated by channel.

IT vendors have traditionally relied on distributors for a variety of services, and the reasons today are more pronounced and more diversified than ever. The advantages of two-tier distribution to vendor partners include reduced investment in inventory; lower shipping, handling, and warehousing costs; a “credit shield” with efficient collection processes from small and mid-size VARs; exceptional service levels to this customer base; and expanded overall market reach. Distributors help manufacturers penetrate new geographies, grow in emerging technology segments and also introduce them to complementary vendor lines that enable broader solution selling.  

Distributor Value Extends Well Beyond
Fast On-Time Product Delivery
“Technology resellers and service providers rely heavily on distributors to support their success on a daily basis,” Curran said. “The advantages of two-tier distribution are even more pronounced during tougher economic times, especially because of the variable cost structure of corresponding business models and the ability to respond quickly to fluctuations in demand. IT companies are ultimately differentiated based on the caliber of products they develop. They lack complete solutions, infrastructure and services to directly meet key reseller needs, which extend well beyond fast on-time product delivery.”

In addition to many other benefits of sourcing from two-tier distributors, resellers are able to aggregate their purchases to maximize respective buying power and credit lines. “They want the independent consultation, technical services, channel programs and partner ecosystem value that distributors deliver. Resellers and vendors both depend on distributors for a variety of reasons that are both qualitative and quantitative. The cost study we commissioned helps all audiences to better understand the metrics and measurements that make this reality abundantly clear.”

For more information on the Costs of IT Distribution report and the GTDC, go to www.gtdc.org.

About The Global Technology Distribution Council
The Global Technology Distribution Council (GTDC) is a worldwide industry association dedicated to defining and promoting the role of wholesale distribution in a successful and healthy information technology channel. The Council is comprised of the computer industry’s top wholesale distributors dedicated to serving “the channel,” a network of skilled value-added resellers and retail stores focused on providing hardware, software, and services to businesses and consumers around the globe. GTDC members include ABC Data, Actebis, Arrow Electronics (NYSE: ARW), Avnet (NYSE: AVT), Bell Microproducts (NASDAQ: BELM), DCC SerCom, D&H, Esprinet, Ingram Micro (NYSE: IM), Magirus AG, Redington, ScanSource (NASDAQ:SCSC), Synnex (NYSE:SNX), Tech Data (NASDAQ: TECD), Westcoast LTD and Westcon.

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