03/06/2003 - CRN February 10, 2003 “Playing the Field”
By Jeff O'Heirm, CRN Magazine, Cover Story, February 10, 2003
Solution providers are increasingly turning to independent sources and small and specialty distributors…to augment the products and services they buy from traditional broadline distributors. The trend represents a changing dynamic in the channel where solution providers, more than ever, are playing the field for price, ease-of-ordering, faster delivery, hard-to-find or constrained inventory and more personalized service.
"We have to shop around because we need the flexibility," said John Sullivan, president and CEO of First Computer, an Easton, Md.-based solution provider that serves rural communities. "Tech Data and Ingram Micro are huge corporations that are slow to move, slow to adapt to new technologies and slow to bring in new products," he said. "I see a day when a new, virtual distribution channel will replace the channel's current model."
"We found ourselves in a dilemma because the prices from distributors were higher than the rest of the industry," said Chris Cangero, vice president of Epoch Data, a $10 million full-service solution provider in New York. Cangero cut his distribution purchases by almost half in the past year and now buys (outside of traditional distribution). "We've had to augment distribution because we lost bids to other solution providers who were buying (outside of traditional distribution) Unfortunately, it has come down to price," he said.
Solution providers say that many of the products and services broadline distributors offer don't always fit their changing business models. The distributors, they say, focus too much time trying to please their vendor partners instead of learning the needs of their bread-and-butter customers. "All my Tech Data and Ingram Micro reps want to talk about is how to increase my IBM sales…." said Grady Crunk, executive vice president of Central Data, a $16 million solution provider in Titusville, Fla.
Todd Glassberg agrees. As director of supply chain consulting at Delta Corporate Services, an IT consulting firm based in Parsippany, N.J., Glassberg finds the most cost-effective products for his clients. The rules are changing, he said, as the variety of sourcing options increase. "The sources don't matter," he said. "It's the rules of engagement that matter."
According to CRN's 2002 Sourcing Study, solution providers bought 56 percent of their products from distributors between July 2001 and June 2002, down from 75 percent in 1997, a 19 percent decrease. Products bought through independent sources such as direct marketers, retailers, exchanges and corporate resellers and local VARs accounted for nearly 26 percent, up from 14 percent in 1997. Products bought directly from manufacturers increased to 19 percent from 14 percent during the same period.
Tech Data and Ingram Micro, according to the study, also lost significant ground as solution providers' top sourcing preferences. Although they still lead by significant margins, Tech Data, the current overall leader, dropped 19 percent between 2001 and 2002. Second-place Ingram Micro dropped 33 percent.
Jeff Sherman, CEO of Warever Computing, a small full-range solution provider in Los Angeles, decreased his buying from Tech Data and Ingram Micro about six months ago after a series of shipping, credit and return problems. "The traditional distribution model is dying," Sherman said. "When I need something, they charge me for every little thing I want to do. It's like they don't want to deal with the little guy."
Like Movahedi, Scott Koerner, executive vice president of Zones, said the Renton, Wash.-based direct marketer is trying to attract more channel business from influencers, consultants and solution providers serving small and midsize businesses. He and other direct marketing executives also said they have had discussions with more top-tier vendors that hope to increase their use of independent sources to push more high-end products into small and midsize markets. "It's going to be something that's more prevalent," Koerner said. "The channel is becoming more understood today than it was five years ago. It's being recognized as a huge market, and it's a big win for anyone who penetrates it."
That's good news for Villa and other solution providers, who say they'll welcome doing business with any source that can provide them with a competitive advantage. "The source that actually takes the time to tell me about new programs, pricing specials and industry trends gets our mind share," he said. "That's not done enough today. I wish it was."
Arbitech, LLC, founded in August 2000, has achieved over a billion dollars in total sales. Arbitech is the nation's leading independent distributor of servers, storage, virtualization, networking and mobile solutions including IBM, HP, Cisco, Juniper, Sonicwall, VMWare, Kingston, Lenovo and other manufacturers. By offering creative, cost-effective solutions, Arbitech enables its reseller partners to win more business and earn additional profit margin. For more information please visit www.arbitech.com.