The industry has changed, the products are generally simpler, users are more knowledgeable and the price customers are willing to pay the channel for moving a box around has also changed. Paget says the industry needs to work more efficiently and transparentlygiving end customers the choice and benefits of the channel with the price advantages of the direct model.
The pyramid shape of the traditional IT supply chain saw product move from manufacturer to distributor, dealer and then on to the end customer via distribution channels. As a product made its way along the chain, like a snowball rolling down a mountain, it gained overhead, logistic charges and excessive margins due to the amount of companies involved.
The ability for manufacturers that support the channel to remain competitive against those who sell direct has become tougher and tougher. Sometimes manufacturers have chosen to part bypass layers in the channel by using hybrid companies that are both distributor and dealer. This has had the desired effect of reducing channel margin for the particular manufacturer but has had a negative impact overall. To have to fight the competition is tough, but to have to fight against unfair rules is harder still. The solution to the pure resellersell a pure channel product only if possible somewhat defeats the original objective of the manufacturer.
Presently, pessimism dominates the IT media with regard to the channel. Our view is that there are a lot of positives within the industry at the moment, if we could just make the channel smoother. Yet, with box prices tumbling by, on average, 22%, the mentality of the industry has become very serious, almost miserable. The bottom line is the channel needs to change its attitude to survive.
If the channel isnt more effective and efficient, manufacturers will be forced to sell direct. The channel has never followed rules but in many respects, now is the time for shake up. The supply chain needs to be revolutionised and made more efficient and the only way forward is the cost plus model, where a transparent mark-up is put across goods in a uniform manner.
In addition, technology has changed and improved. Products are becoming easier to set up, install and use, with information being more accessible, so people have a better idea of what they want, particularly in terms of everyday equipment such as printers, servers and scanners, along with a desire to compare like with like.
As a result, much of the reseller channel has been reduced to the role of fulfilmentparticularly in the case of the business-to-business marketplace. Indeed, the business model that supported the luxury of sales representatives visiting customers in a luxury car or earning high levels of commission on simple IT sales is finished. The products or their level of complexity will just not support it, particularly when many of them are available in supermarkets amongst the washing powder and potatoes.
The old channel followed a path that started at the manufacturer, moved on to a dealer, distributor and finally the end customer. If everyone in the chain was previously able to sustain a significant mark up, it is now an impossibility. Therefore, the layers of the channel that were previously dealers and distributors will eventually become logistics companies, operating out of large warehouses, fulfilling and shipping. Manufacturers will need distributors to hold stock, as part of the distribution chainand maybe offer basic configuration services. The need for them to add any other value in the supply chain will be gone.
So who will act in the space between manufacturers and the distribution channel? The future is independent, IT-led virtual companies, offering price-sensitive choice. Through the exploitation of the web, all that matters is price and choice. Companies will buy specialist services from specialist service companies and complex solutions from product specialists, yet other IT hardware needs will be sourced virtually, electronically and cheaply.
Technology is now making it easier for us just to move boxes. Therefore, high mark ups are just not needed, never mind being a thing of the past. In many respects, we must all strive to lower costs in order to make sure that manufacturers that support the channel continue to see it as attractive. If not, more and more manufacturers will be forced to sell direct to the end customer in order to chase the margins enjoyed by a previous generation.
However, there must be a distributor level of some description in order to give the customer what he wants in terms of choice. Most orders from business to business organisations contain a mixed bag of hardware and IT supplies from different manufacturers; its about price and choice and we as an industry have the technology to offer both.
It can be seen, therefore, that service in the modern day IT reseller market is driven very much by resultsthe end customer wants information, competitive pricing and on time delivery, accompanied by the correct invoice. Service is not complex and it is certainly not about subsidising fleets of five series BMWs. We must adapt quickly as a channel in order to deliver to the customer exactly what he or she wants, or be prepared to be circumnavigated and die.
Port-P Limited (formerly Pacific Business Products Limited) was formed in 1994 in