Don't cut out the middleman

Nitin Joshi warns that vendors have a lot to learn before they can hope to succeed without the credit control skills of distributors.

The number crunchers advising vendors that going direct to the corporates will increase profitability may have to eat humble pie.

Much of the paranoia in the channel at present would be eased if wiser counsel prevails. Vendors, you have been warned.

The credit function among vendors is at an embryonic stage. Vendors enjoy a handful of trading relationships, euphemistically referred to as partnerships, in good times and manage them like benevolent emperors governing their people.

Compare this with the sharply focused and highly sophisticated credit skills evident in distributors such as Computer 2000, Computacenter and Bell, and you soon see the deficiencies in the vendors' ability to manage highly credit-active and volume-based ledgers.

There are, of course, exceptions, but for most vendors it is not so much credit management as billing management.

So naturally, the talk of cutting out the middleman and going direct has attracted more reaction than flies to a jam sandwich.

It might be worth reminding ourselves of the pitfalls facing vendors. First, they have to go a very long way to emulate the credit ethos as practised by distributors.

Spend a day in the credit control department with a mainstream distributor. Exhaustion due to over-exposure has been detected in lesser souls.

The only cure is years of experience in a highly dynamic sales management arena. It's about using the right people, skill and money in systems.

It is not surprising that a credit manager who has cut his or her teeth in distribution is a role model for all sectors.

Second, selling to corporates sounds better than it is. It requires investment in systems. Disputes and bad debts are rife.

Third, in the age of outsourcing it is curious that vendors could consider anything short of a wholesale offloading of all non-critical functions.

Risk is expensive. It erodes the bottom line and costs a lot to control and assess. My advice to vendors is don't waste your money; let the distributors do what they are good at.

Finally, the likely calamities vendors face when going direct outweigh the benefits. The distribution model works well.

The fact that there are too many distributors and too many resellers is not a structural problem but a population statistic. And the evidence is in the growing toll of value-add reseller failures.

Nitin Joshi is a partner at accountancy and business advisory firm PKF.