The relationship between resellers and distributors has always been a's decision to pass on increased freight costs to partners makes itself felt. love-hate affair. Some resellers - and the 'some' is stressed here - question why they should continue to use distributors when the majority of resellers have sufficient expertise to manage without them?
The replies from distributors to this question vary from: 'if resellers did have the same set of expertise, distributors' pre-sales teams would not be inundated daily with reseller enquiries', to 'the trend now is that manufacturers want to cut costs which means even more emphasis on the distribution partner in all aspects of service, support and inventory levels'. Last, but by no means least, comes the tried and tested, 'while reseller expertise is increasing there is a great demand for added-value distribution'.
It had to get in there somewhere, that well-known phrase, value-add.
It has long been a bone of contention in the channel as to which practices or services should be deemed as value add and which should not. During the past couple of weeks, one of the services which has come under the spotlight in the channel has been distributor delivery charges and delivery itself.
This was sparked when it was exclusively reported in PC Dealer (5 May) that Computer 2000 was putting up its delivery charges because it was no longer able to absorb the costs imposed upon it by its freight company, TNT.
At the time, Graeme Watt, managing director of C2000, confirmed that the distributor's prices had been increased on average by almost nine per cent across the board and that its highest single increase was for standard next-day delivery, which had leapt 37 per cent from £10.95 to £14.95. It followed on the heels of CHS Electronics' hiking-up of its next-day delivery prices in April from between £11 and £12 to £14.50.
Admittedly, it's the first time in six years that C2000 has put its prices up on the delivery front, but the situation highlights the issue of whether delivery is a part of the value-add service distributors provide for resellers or par for the course. It also raises queries over the passing on of freight costs down through the channel and if the nature of delivery as the industry knows it is changing.
The extra costs that have been imposed on C2000 by TNT are, Watt claimed, down to this year's Budget, which put up fuel costs and, he suggests, the problem of theft. 'Carriers have had a problem with goods theft and they are either having to shell out for claims directly or their insurance prices are increasing. Either way, their costs have gone up and, in the end, we recover less than one-third of the cost we pay to them.'
Geoff Dossetter, head of external affairs at the Freight Transport Association (FTA), confirms the Budget is an overriding factor in the price increases of freight operations: 'The price of diesel has risen by 11 per cent and there's also import excise duty to take into account. The overall cost of running a delivery vehicle has gone up by between two and five per cent. There is also the added cost if it is carrying high-value items - computers would add about another one per cent.'
He adds: 'Crime - as in theft of goods from freight vehicles - peaked two or three years ago. It is falling now. I can't really say if TNT has had particularly bad luck on the crime front, so I don't know if the backlash of theft has been sufficient to merit an increase in its prices to its distributors, on top of the fuel increases. But there's certainly a reality there.'
Watt adds C2000 has incurred price increases not only from its carriers, but from all angles of its business, and cites competition and vendors as big cost increasers, too. He says: 'We've had to absorb those costs for four years and we couldn't continue to do so. But you need to look at this with a balanced view - we are adding more value for our resellers through our delivery service. We're picking up returns for our resellers, helping with shipping costs and there's an increasing trend now for distributors to drop ship goods directly to users, on behalf of resellers. And any reseller can take advantage of these services. We are not passing costs down to the reseller - to say that is missing the point. We all want to take the cost out of the channel. We are looking at the whole way the delivery model is going.
'We will soon be offering 48-hour delivery for about £3.50,' Watt adds.
'Next-day delivery is not always the option customers are looking for.
Resellers want distributors to take on more responsibility for them and we can do it more cheaply, too. We're not that unhappy with the coverage we've had over this, although it is only focusing on one set of charges, which is the next-day delivery price. But we've been honest and come out and said this is the cost. We can't do more than that.'
Taking advantage of C2000's honest mind set, Watt was asked why the distributor put its prices up when rivals, also using TNT, had not. Watt refutes the notion: 'We won't be the only ones putting up our delivery costs and I'm not just referring to those who use TNT. Two distributors, which shall remain unnamed, told me they are about to do the same thing with their prices and were glad we had openly said that we were doing it and why.
We're the first to do lots of things, but we certainly won't be the only ones in this instance.'
But until it happens, there is still concern within the reseller community as to why C2000 is increasing its charges on delivery, when other TNT partners are not. One reseller says: 'The carriage of goods is a cut-throat business these days, but we will consider whether we buy items from C2000 when they can be sourced from other distributors that charge less.'
Watt would not confirm if Ingram Micro is one of the unnamed distributors due to put up its delivery charges. And Ingram refused to make itself available to comment on the subject. But it had previously disclosed to PC Dealer that its next-day delivery charge, which stands at £10.50, was under review with changes expected soon.
Industry observers believe the only reason such increased charges are being made by distributors is because they are trying to put money back on to the bottom line. One industry source says: 'Look at C2000's results.
Its bottom line was very low, so it's not surprising it is taking this course of action. The rise is either to recover additional costs or because it wants to put more back on the bottom line.'
But the candidness of some distributors not wanting to reveal such costs or charges is seen as pointless by Eric Roth, manager of market intelligence at ICL Multivendor Computing. He makes no bones about the fact that costs throughout the channel have to be faced.
Roth says: 'Because margins have shrunk so much, it is difficult for distributors to absorb the costs, so they have to be passed on. Someone has got to bear the cost - the Budget has put fuel up and so on - these are real costs that TNT has to meet, too. It is part of the business chain and it can't be avoided. Any bits of money made along the way is part of the chain. It doesn't matter if it's software, hardware or services, eventually the user will end up paying. So why should resellers be upset about it?
'The only situation when questions will be asked by dealers is when delivery being charged by one distributor is significantly more than the others.
It is naive for resellers to turn round and react to such cost increases by saying they shouldn't be passed onto them or by saying a distributor shouldn't be able to make a profit out of this bit, but should only make a profit from another part of the business - that's just ridiculous.'
He adds: 'Delivery is a value add. From my experience with users, they are willing to pay more for special deliveries such as Saturday morning or out-of-hours. Giving the option of 48-hour delivery at a cheaper rate is the right way to go. It's a waste to offer a faster delivery time than a customer needs or wants - they may not have anywhere to store kit.
Customers want us to ask when they want the delivery. The value-add bit is that it will be delivered without fail, whenever they want it.'
Mandy Birtles, marketing communications director at Datrontech, more or less shares Roth's views. She too believes the nature of delivery is changing to meet different customer demands and says Datrontech is asking when the customer wants delivery, rather than pushing next-day delivery.
Birtles also believes delivery is a value-add service, but stresses: 'We're talking bespoke deliveries when we talk about value add, not fulfilment - moving kit from A to B.' But she adds: 'Customers do get upset when they see a massive price hike or when distributors are giving free delivery to some and not others based on the level of business or the type of order, or if there is a special agreement in place.'
Richard Pryor-Jones, managing director of Azlan, explains that as a distributor, it tries to keep delivery costs free of charge or to a minimum. Its next-day delivery costs £12 and there are no plans to change that price.
'People come to us for that,' he claims. 'The only things we might charge a small cost for could be same-day, pan-European or bulk deliveries - some resellers even expect things like that to be part of the service.
As users are becoming more demanding, we are tending to do more of those type of ad hoc deliveries.
'Having delivery charges put onto them is not what resellers are in business for, so they try to pass them back to distribution,' Pryor-Jones adds.
'If you were to go to Marks & Spencer to buy something and there was a one per cent extra charge being put on it, you wouldn't want that passed onto you as a consumer. You would only want to pay for something if it was above and beyond what was normally expected. So why should resellers be any different?'
But one distributor which has a completely different outlook on delivery is Ideal Hardware, which handles its own logistics from start to finish.
It has its own fleet of 35 vehicles delivering kit nationwide. It consists of 30 delivery vehicles and five trunking vehicles - the latter deliver overnight.
Joe Breen, customer services director at Ideal, says: 'Some customers don't pay carriage - it's based on their business levels with us. But there is a cost to distribution and we have to get customers to understand that. We offer the cost as an additional charge or up front in the price.
But it's not just a carriage charge - if any kit needs to be returned we'll collect it and we deliver on behalf of our resellers at no extra costs. Some other distributors I know of charge for that.'
He adds: 'Twenty per cent of our delivery business is being made by directly delivering to users, so naturally we want to increase that business. But we do want to keep costs down in the channel as well. Dealers are always looking to reduce costs to get more for their money. If anyone is not delivering the next day, then I really don't know what they are offering the reseller. What resellers want as a minimum is next-day delivery, and for the kit to be in excellent condition when it arrives and for it to be on time. They don't care who delivers it to them at the end of the day, just as long as that criteria can be met and they don't have to fork out a load of money for it.'
Breen is doubtful that Ideal could be confident that the criteria he outlines would be fulfilled if it relied on a third party to deliver its goods. 'We couldn't really trust them to carry out the delivery the way we would,' he admits. 'There is a reduction in product failures - less than two per cent - which we attribute to the fact that we have trained drivers who are professionals in product handling and we spend a lot of money on the packaging of kit, too. There's a value to us to do it ourselves and we'll continue as long as that remains the case.'
Ideal sees its drivers as ambassadors for the company. Each driver is trained in customer care and product handling and they are given the same route each time, so they build up a relationship with customers. 'We ask them on a monthly or quarterly basis if there is any feedback from the customers,' Breen explains, 'and so far it's been positive. We've been unable to find a third party that could match the system we have.
'This is the most competitive it's ever been in distribution, so we have to differentiate ourselves. But the bottom line is that for us, distribution is about a just-in-time service - customers don't want further delays in the process. And they want to pay less for an excellent service, not more. If they are charged more they want to know what value is being added.
If there is no perceived value then how can it be justified?'
Despite such views from its counterparts, Watt claims that since C2000 put its delivery charges into place at the beginning of May, the distributor has not noticed any marked objection from its resellers. 'Of course, they aren't happy about it, but they accept that prices have gone up. I'm not aware of us losing any customers because of this and there has certainly been no noticeable impact on our revenue either.'
But what do resellers really think about the delivery charges? Some simply shop around the other distributors to find a delivery price they can afford.
But some resellers are more open minded about the increasing delivery charges. Luke Ireland, operations director at Evesham Micro, says it doesn't pay any delivery charges because it keeps a reasonable quantity of PCs in stock. He adds Evesham only pays charges if kit is to be shipped directly to users or if there is a bulk order.
'The distributors we have worked with weren't charging us for small shipments, but they realised that wasn't making business sense so they started putting on a carriage charge. It is a cost and distributors have to deal with it somehow. You're fooling yourself if, as a reseller, you think distribution is going to be zero per cent - the cost has got to come out of somewhere.
Distributors are working on single-figure margins now - whereas three or four years ago distributors would have shipped kit direct to customers at no charge, now they can't afford to because the margins have changed.
'Some distributors only charge the carriage costs, which can be about £5. That doesn't represent the delivery costs at all - it's a bargain.
It's ridiculous for resellers to take the view that they shouldn't get delivery costs put onto them. The cost is there and any reseller that doesn't take that into account should look at how its own business model is working,' Ireland says.
Another rather charitable view is offered by reseller INS. Managing director Chris Bushell says: 'I am not a lover of distribution, but if they are getting prices for delivery imposed on them by the freight companies, then we have to accept the charges they make to us. We'll just pass them onto the user anyway. We'll charge expenses and the customer will have to bear the brunt of the cost increase.
'The whole thing goes back to the last Budget and the prices that have been set on diesel, so the fault, in my opinion, lies 100 per cent with the Chancellor, Gordon Brown. There are a lot of resellers that will try to play ball with the situation, but we go for the distributors that we have relationships with. C2000 is one of our distributors and we have not noticed the impact of the increased delivery charges yet. So what if they charge £15 now for next-day delivery? So be it.'
Part two next week.
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