Group therapy

Do buying groups really have the strength to muscle in on distribution big boys, or are they merely all talk and no action?

In most industries with a similar tiered distribution structure,bution big boys, or are they merely all talk and no action? groups of resellers at the lower end of the supply chain get together to form buying groups. The objective is to create economies of scale and strength through size. But in IT, buying groups are rare and, when they do emerge, they don't usually last long.

There is fundamental scepticism about whether they have a role to play.

Colin Gallick, senior vice president of FTP Software, says: 'They have no value in the IT market. The savings that resellers achieve through buying groups is so marginal it is scarcely worthwhile. And some buying groups charge a fee, which eliminates any savings.'

Mike Briercliffe, business development director at Sphinx CST, disagrees: 'They are an excellent idea and there are plenty of benefits.' But, he says, they will never succeed in the IT industry because 'there are too many entrepreneurial personalities running channel businesses, and they don't always work together.'

Gallick has experience of buying groups working well in Europe, 'particularly Germany, where the market is more regionalised and there is less direct competition between resellers'. But in the UK, Gallick and Briercliffe are in agreement - there is too much competition between resellers and Vars for them to work well together in buying groups. Briercliffe says: 'The personalities involved with many Vars and resellers are too aggressive for them to survive in buying groups.'

Ian French, director of PCs and servers at Ideal Hardware, says: 'I've seen a lot of buying groups start up and I've seen a lot that don't work.' Like Briercliffe, French believes there is too much competition between resellers in the UK. 'The problem is that they start off working as a co-operative but quickly seem to start playing off each other.'

Alison Heath, sales director at Datrontech, says that from a distributor's point of view, there are obvious advantages to dealing with buying groups.

'We like dealing with them, but there aren't many, which probably indicates they are difficult to set up and hard to keep running. There are probably questions over whether they are worthwhile.'

French says, in his experience, buying groups offer the most benefit when used to buy commodity products. He says: 'At a simple level, say, you have to buy 10,000 envelopes and they cost 10p each. If you can get together with others and increase the order to 100,000 cutting the cost to 5p each, it is obviously worthwhile.'

But he agrees that in the IT industry there aren't exactly many products like envelopes.

'A buying group can work when resellers are combining forces to get better prices on printer consumables and systems basics,' says French. But, argues Briercliffe, the buying group becomes a distributor and that is not the idea.

'The lack of success of buying groups in the IT industry indicates that the distribution chain is doing a good job,' Briercliffe says. 'The skill of bulk buying is surprisingly specialised, and that's what distribution firms do well.

'A group of small resellers getting together to form a buying group are just trying to set up their own distribution company, and there is more to that than placing a combined order,' he says.

'The fact that they don't last very long is a validation of the existing distribution businesses,' says Briercliffe.

Heath insists that the distributor treats each member of a buying group separately for credit control purposes. 'We have to check each one and take orders and deliver separately. They are only treated as a collective in the way we communicate with them.'

Heath explains that Datrontech has one sales executive who deals exclusively with buying groups and one email address for a group which is circulated to each member.

'They get special offers and prices based on volumes, and they get a priority service,' he says.

Clive Bishop is general secretary of NASCR - set up 10 years ago - which is not a formalised buying group but does have arrangements with suppliers to give its members special prices. Bishop says: 'Small and medium resellers can't get the economies of scale to get the price advantage of big resellers, so it makes sense for them to get together. We charge #150 for annual membership, and for that they get discounts with some suppliers equivalent to the big resellers.'

Bishop says that members also get access to a legal advice scheme, and special terms and rates with Securicor and Lombard Tricity Finance. 'This means that a small reseller can offer a hire purchase scheme to a customer and still get full payment within two weeks of making the sale. It puts them on an equal footing with the big high street resellers.'

The NASCR committee meets monthly to address issues facing small and medium-sized resellers. Bishop says: 'The concept of NASCR was to make members' lives as easy as possible and give them as many tangible benefits as we can.

'Buying power is one of those, and although we do not have a separate buying committee, we are constantly looking for new opportunities to bring to members.'

Bishop agrees that buying groups can suffer from a 'committee syndrome' meaning decisions can be hard to reach. 'When there are commercial decisions involved, everyone has to make their own decision about what will affect them. We can offer help, support, special offers and group deals, but ultimately every member is on their own. We are not a collective or co-operative.'

Although Bishop is evangelical about the supportive powers of a group like NASCR, he is realistic about its limitations as a buying group and agrees with Briercliffe about leaving certain things to the distribution experts. 'We can offer collective buying power, but we do not buy and stock,' he says.

'We would not want to move into the distribution business,' says Bishop.

'We can offer a lot to resellers or solution providers trying to survive in today's market by offering help and support through the experience of others.'