Why these distributors aren't stockpiling kit ahead of Brexit

Disties outline the risks of bolstering inventory ahead of the Brexit leave date

With the Brexit leave date creeping ever closer, and no resolution from Parliament forthcoming, many in the channel are implementing contingency plans to try to mitigate any disruption.

At the start of this month Pure Technology Group published its strategy, claiming that a number of broadline distributors are increasing their UK stockholding in case UK ports become blocked - a problem that many expect to materialise if no Brexit deal is agreed.

Security vendor SonicWall told CRN that it is hoarding kit in a new Basingstoke warehouse taken on by Exertis, while HP Inc said it will use a number of different ports in the event of a "worst-case scenario exit".

Meanwhile, in Parliament today, dubbed Super Tuesday, MPs are set to vote on a number of amendments that may create a clearer picture of the Brexit outcome.

Theresa May reportedly told the Cabinet this morning that she plans to ask the EU to reopen negotiations.

But while some channel firms have already initiated plans, others are reluctant to make their move just yet. A number of distributors have told CRN that they have no plans to stockpile hardware - at least not yet.

Frank Salmon, CEO at CMS Distribution, said he has plans ready to implement in the event of a no-deal exit, which he sees as an improbable outcome.

"We have our contingency plans but of course it is being reviewed almost day by day at the moment," he said.

"There is no panic - a lot of our product is on a 21-day or four-week cycle so there is no panic at the moment from our point of view."

Salmon said that a large proportion of CMS' business is software based, and therefore would not be affected by border delays, but said that the distributor is capable of holding more stock if need be.

He explained that the firm has enough warehousing space in the UK and across mainland Europe to cater for an increase in stock, but is aware of problems that could arise from currency movements.

"We're conscious around currency fluctuations so we are hedging most of our international trade, especially our purchases in US dollars and euros," he said.

"Currency exposure is a very realistic risk to our business but at the moment we have contingency plans in place for stock, which we'll start to trigger mid-February if there is a hard Brexit at the end of March, but that is looking more unlikely."

Paul Cubbage, managing director at Target Components, told CRN that it is too soon to stockpile kit while there is still a chance that the 29 March leave date could be pushed back.

"It is too speculative at the moment," he said.

"Anybody who is stockpiling is doing it on the assumption that it will be harder to acquire hardware, or there will be confusion or currency fluctuations.

"We're playing things by ear. I suspect that the leaving date will be put back. We will have to know that in the next two months. I suspect it will be put back and then it will be a case of building up to whatever final date is announced."

Cubbage said that the repercussions of stockpiling kit unnecessarily could have a more damaging effect on the channel than any border blockages would.

"If people stockpile, what happens if no-one wants the stock in inventory? If people stockpile and it's speculative, companies will release stock and it will drive prices down," he said.

"It might cost you money in that way. I'd say keep an eye on things until you have clarity. There is more risk in stockpiling than there is in inventory declines."

Dave Stevinson, managing director of QBS, said he is currently in early discussions with some vendors to increase the amount of packaged software the distie holds.

"It's a trade-off between foreign exchange risk, price differences, the costs of holding the goods and the opportunity of making extra margin going forward," he said.

"The distributors I know holding extra hardware are having it funded by the vendor.

"I would say be conscious of the cost of holding extra hardware. There is extra insurance risk, currency exposure, the physical space of storing it. Is it an effective use of capital?

"For us, we are aware of the risk. We think we have sufficient inventory in stock at the moment. Hardware is less than five per cent of our business, but we do have a big packaged software business and we are having conversations with suppliers about increasing the amount we hold.

"However, packaged software is mainly held on consignment, so the risk we have there is the cost of insuring it."

Serial stockpiling

Rich Marsden, managing director at VIP Computers, said that he too has opted not to bolster inventory, partly to avoid an issue where numerous distributors are all holding more stock than is necessary.

"I don't want to take stock up for a no-deal Brexit with five other distributors because all you'll create is less demand, but more product in the channel and that doesn't work well," he said.

"I don't think demand will be great and if you have four distributors stocking up on a product and demand goes down, dealing with that product is a bigger issue than being slightly down on product.

"If a vendor comes to us and says they're expecting one or two distributors to support a strategy, and they'll make sure there is a clear exit for that inventory, I'm more than happy to stock up. But I won't generally stock up on the off chance that there is a no deal - I'll take my chances."

Marsden said he is open to being involved in contingency plans with vendors if he is approached, but is against blanket overstocking.

"I'm telling our vendors that we need a unique approach," he explained.

"While I don't need to know the commercials of their deal with a different distributor, I think vendors need to take over and say if they need to hold more stock with one or two distributors.

"That way you don't risk overstocking the channel. If a vendor comes to us and says ‘you're part of our plan', then we are open to discuss that, but if it's every distributor overstocking then we won't be a part of that."

However, he said that most of the advice he has received from vendors suggests that any logistical issues will likely be resolved within a month.

"There are certain partners we have contracts with where we will make sure we have enough stock, but we carry four weeks' worth of inventory anyway," said Marsden.

"All the feedback we've had says there'll be some delay, but we expect it to right itself within three to four weeks - we are pretty much OK.

"I understand the commercial disties stocking up because schools [for example] will still want to buy, and companies will still have budgets, so I can understand that - but in our industry I expect demand to remain flat or go down."