Book by channel specialist shows just how tough the IT distribution can be, given the changing nature of technology and vendors' own rapid changes. Anyone who thinks distribution is easy should read this book, and keep it by their bed. With a thorough experience of monitoring and advising on the business, channel consultancy VIA's chairman Julian Dent has written what is actually a manual on how the business works. He is also able to point out how it differs from other apparently similar models, and where the special nature of technology product supply kicks in.
For whatever reasons, technology distribution is based on wafer-thin margins. The turnover and costs can be very large numbers, but as he says: “profit is a very small number between two big numbers”.
Perhaps this is a book that would profitably be read by any vendor or service provider looking at IT channels. Although every vendor thinks its products are world-beating and sell themselves, this is obviously not the case, as Julian Dent spells out in several ways. Careful analysis of markets, pricing and margins is always needed, but seldom done properly, it seems.
The distributor is perhaps more powerful than it realises: routes to market control brand, as the book says. How to deliver on the brand promise unless distribution is properly managed? But how many times have we seen channels stuffed, coverage ill-defined, channels conflicted and by-passed, often all in the name of short-termism.
Comparisons with other models like FMCG (fast moving consumer goods) don't seem to work in IT supply; when was the last time someone from a retail or consumer brand moved into the IT channel? He does look at other sectors in this book, but areas such as builders merchants with their emphasis on credit control, and supermarkets, which work based on customer incentives, don't have too many lessons. As he says, “Use comparisons to raise questions, not supply answers.”
Some of his points on credit control are very valid; in this business, taking discount for early payment depends on what competitors are doing; it may be affecting overall pricing of the product as one example. Credit management is not about numbers, but managing relationships with vendors, he points out, a point that may have been lost on some of the industry's current bean-counters among top management.
While written, perhaps, for a mainly US-centric audience, with examples in dollars and a welcome by the US-centric Global Technology Distribution Council, he has a global perspective, and what he says holds up well in the fiercely competitive European market where distribution has its own problems of localisation and scale. He also usefully highlights European differences where they appear, such as the fact that for historic reasons Turkish distributors tend to hold three months stock, for example.
One item that will resonate with everyone in the channel is “Nine things that vendors do that make no sense to distributors” - like continuously tinkering with reward programmes. Hardly a day passes at IT Europa without another update to some vendor's channel schemes; most are identical three-tier structures and similar in terms and most details already. Julian Dent also blasts vendors for employing account managers who do not understand how distribution works. Hopefully, they will make amends by buying all of them a copy of this book! Elsewhere, he makes a plea for predictability among vendors that will be echoed by all who have been involved in monitoring channels and the constant changes.
Several problems are highlighted which will resonate with anyone experienced in channels – the first is staffing, technical expertise and resourcing. In such a thin-margin business, there is always the temptation to either recruit madly in upturns or under-resource in the long term, and he gives some guidance on what continues to be a headache for all channels.
Then, there is the feature of the industry that distributors don't seem to know much about their customers as they should ; the best customers are not always getting best service and discounts. While some of this has been resolved by advanced (usually SAP-based) systems in distribution to monitor sales and relationships, this does pre-suppose that distributors' senior management can take a longer-term strategic view, which in a quarterly-driven world, may not be the case.
One of the newer areas to be covered in distribution is that of the service provider; getting this right is a matter of applying rules, but in such a new business type, the rule-book has yet to be fully written. He gives useful guidance on points such as revenue recognition (shades of Tesco in another market!), and other pointers which would be usefully read by anyone in this emerging sector, which is having to develop its own way of analysing its economics. This is a large and welcome addition to current developments in the managed services sector.
Retailing already has its own selection of guides and economics handbooks, but is a major part of distribution as well, so he has tacked on a section in this book on the subject which makes interesting reading, plus a useful channel glossary, which takes the whole book to a shade over 350 pages.
This is the sort of book to read parts of at a sitting, and refer back to each time a new channel deal crosses the door, Ts & Cs get amended or a new channel programme is considered- i.e. almost every day!