The hidden jewels of distribution

It's no secret that the value-add has become one of the, if not the, most important contributor to any channel player's arsenal.

Not so long ago, distribution was considered by many lay observers as solely about tribes of middle men and women skimming cream off the top of an ever-shrinking IT sales pie.

Today, few and far between are the IT distributors that don't claim some fame from value-add, whether they be full-fledged Value-Added Distributors (VADs) themselves or merely providing something extra as a sideline to a more traditional game. It hardly needs to be said that the aim behind it all is to make distributors indispensable to the supply chain.

As the US economic landscape got tougher, distributors invested millions of greenbacks in recent years in moving beyond stocking inventory and extending credit -– a move that to some extent has been mirrored in Australia.

Today, distribution is rising again and one reason for that is the trend to value-added distribution. That trend is not going away, and in an atmosphere of ever-shrinking margins, it's hard to see if it will ever be reversed. Many services offered by VADs appear to be stumbling across the firing line into reseller territory.

Professional services

Professional services are a big focus for many resellers, both in the US and here in Australia. It's not just distributors who have felt the pinch of tiny margins. When professional services include technical skills and knowledge outside a specific reseller's core competencies, some resellers feel they can gain by outsourcing them to a VAD.

Ross Cochrane, MD at Express Data, argues that the increasing complexity of IT in many areas means resellers benefit by buying in certain skills. In particular, the shift away from proprietary technologies to interoperable, open standards and systems is fanning the flames.
'People want best-of-breed and that means complexity, and we think we can remove some of that complexity,' he says. 'We can provide the right product and advise whether those products will work well together, how to integrate it and give some confidence to the reseller. A lot of resellers are being asked to do unbelievable things.'

Meanwhile, the more VARs try to take on themselves, the more it costs them administratively. Vendors, on the other hand, are limited to advising about their own products only, he points out.
'We think there are things like content delivery, everyone needs to be having integration with their accounting system or their websites and that's very difficult. You'd make a huge investment in the number of product managers you have, putting the information together so you can deliver multi-vendor content to your partners,' Cochrane says.

Wendy O'Keefe, GM at 14-year-old networking VAD LAN Systems, says professional services is the strongest contributor to its growth. Unfortunately, the parent company is seeking an IPO at the time of writing, so the company isn't allowed to talk about the speed of that growth or release financial details.

She singles out staging as one important part of its role as a networking VAD. 'Staging is [when] we take a switch or something and it needs some software downloaded. Staging is all about taking product and adding something to it,' she says. LAN Systems also specialises in onsite and offsite installation of the products it distributes, O'Keefe says.

Education and training

Education is one area where VADs can really assist. 'We've run “networking 101” for the past 10 years. That's not selling a product –- that's saying, “this is networking technology, these are the issues, this is what it all means”,' Express Data's Cochrane agrees. 'We provide our partners with some [comparative] thoughts on what we see in the market.'

LAN Systems, a dedicated VAD, offers certification and training on top of its range of professional services. O'Keefe says the distributor has trained 639 people for diverse requirements since January this year.
'That's growing, it's fantastic, and we see that as continuing to grow as our strategy,' she says. 'Many people will see there's a big need for education and different types of it.'

As IT gets more complex and businesses seek more integrated, efficient ways of using IT in business, the appeal of whole-of-package initiatives targeting specific verticals or providing a 'solution' to a particular business need has also intensified.

Vertical market and 'solution' initiatives are two of the most popular ways for distributors to add value, both here and in the US.

LAN Systems calls itself a networking, data communications and security VAD. Once upon a time it provided services just for LANs and WANs but has diversified into security and mobility in general, O'Keefe says.

IT is no longer peripheral to business, she says.

Michael Costigan is national marketing manager at Avnet, a 40-year-old distributor that has been consciously value-adding for three years. Avnet provides professional delivery and integration services but has a stronger focus on IT packages that specifically answer business needs.
'Our partners do services and we don't compete with our partners,' Costigan says.

He says that Avnet also does not target specific verticals – instead focusing on individual VAR needs, which may or may not centre on a vertical market. Costigan argues that as long as technology keeps changing, there'll be a place for VADs to help VARs package up that technology for end-users in a way which makes sense, which clearly shows how IT can help.

Multi-vendor 'solution' labs

In the US, distributors have set up demonstration sites putting together offerings from diverse vendors to help end-users choose the best option. Seeing is believing for customers, as it is for most human beings. Few resellers remain unaware of the value of display and demonstration in convincing end-users to vote with their wallets.

American VAD Arrow Electronics set up labs for its resellers two years ago in two US states. At the Arrow Electronics labs, resellers are encouraged to build and test storage offerings.

Lance Sedlak, marketing director for enterprise storage at Arrow, says the labs even have conference rooms and have been set up so resellers can use them remotely –- a feature which Arrow believes will increase the labs' appeal.

Ed Gogol, enterprise systems director at US reseller Solarcom, says Solarcom habitually uses an Arrow lab for executive briefings and closes about 80 percent of the deals it showcases there.
'Software demonstrations of storage management suites seem to be the most common request. We have built at least two proof-of-concept environments for EMC Clariion sales,' Gogol says.

As long as the sale margin justifies investing in using the Arrow lab, the practice will continue, Gogol adds.

However, Australian VADs don't appear to have taken up this challenge with the same enthusiasm as their compadres in the States. While many VADs certainly claim to offer demonstrations -– whether onsite or offsite –- of some kind, few claim to have invested in a purpose-built facility to do so. Is it an issue of resourcing? Or is it due to Australia's relatively small market size?

Special financing and business programs

Some players think financing offers are a given in distribution these days. Yet there's no doubt that VADs are expanding their financing programs and see such offers as a genuine value-add.

US distributors have been credited with helping resellers to close millions of dollars in de