With the inexorable rise of cloud services and the challenge of margins under pressure, the role of distribution in bringing value to the channel has been a key area of discussion.
The recent CRN Spotlight on Distribution campaign highlighted some interesting views. To start with, the channel’s perception of distribution clearly suggests the market is struggling to see the value that distributors add, especially with margins under pressure from all sides.
Apparently, 14 per cent of respondents to CRN's survey were of the opinion that resellers and vendors could do without distribution, and a further third felt that distributors needed to prove their worth.
Looking closer at what value their distributor partners did provide, or were perceived to offer, made for interesting reading. Twenty-seven per cent of respondents felt the most influential factor in their choice of distributor was price, with staff relationships next at 25 per cent and logistics on 16 per cent.
With such a focus, where does this leave the value in value-added distribution?
There is no doubt that VARs do look for distribution for support with services – be that sales, marketing or technical. But the challenge is clearly there for distribution to demonstrate the value of those services, otherwise the looming shadow of battling over-reduced margins and special pricing will dictate business.
One of the forgotten services of distribution is undoubtedly finance. Ranked as the most important consideration by just five per cent of the respondents, it would seem that the challenge of affordable credit is not a priority for VARs.
But we are in the middle of some of the most difficult economic times in recent history, with credit hard to find, cashflow being squeezed and businesses disappearing all around us. Is the value of financial support by distribution simply overlooked and undervalued?
Our experience is that finance and credit certainly do remain essential parts of how distribution can help support both VARs and vendors, effectively operating as a key financial partner. While remaining distinctly unglamorous, providing credit to hundreds, or even thousands, of resellers is crucial. For vendors, it removes a massive headache and administrative burden as well as significant cost and complexity.
Meanwhile, for resellers, it is a valuable source of finance that can help them continue trading and ensure that they can source products and win business while enjoying a single, supportive relationship.
Without distribution, and the liquidity that distribution provides, the entire channel would be at risk of collapse. The credit offered by distributors acts effectively as an overdraft for many resellers while consolidating purchases and, therefore, debts into a single-supplier relationship.
Vendors do not need to extend finance to hundreds of smaller, high-risk resellers that need to be managed and supported. Repayments for invoices can be kept regular, avoiding the introduction of significant costs related to debt chasing.
The bank of distribution keeps the channel liquid. It facilitates trading between vendors and resellers of all sizes and provides access to a more open playing field for small and growing resellers. Otherwise, such resellers can often be frozen out of larger opportunities through having to balance delivering outstanding service with the short-term requirements of cash flow.
A comparison with the financial industry is appropriate. When the sector was in full grip of the recent crisis, many financial institutions found themselves in serious trouble and ultimately there were several that collapsed. Often it was not due to having an inherently unprofitable business, with many enjoying a strong balance sheet. The challenge was cashflow and immediate liquidity, and with the banks withdrawing funds and short-term financing, the system imploded.
The value of providing liquidity was clearly demonstrated.
Project financing means VARs can win large deals without any charges, enjoy full margin and fully maintain relationships with their customer. It may be a simple agreement to put in place, and may ensure that the VAR can focus on developing customer relationships and finding new business.
Innovation in distribution does not just mean launching cloud services: it can also mean improving a cornerstone of how distribution brings value to the channel.
Mukesh Gupta is managing director of e92plus
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