Why vendors and distributors break up... and how to avoid it

Distributors are the unsung heroes of the Australian IT channel. They provide vendors with vital services such as warehousing, national coverage, relationship management and credit management, freeing them from chasing money and other administrative tasks. Often distributors also provide training and support services, and act as the arms and legs in-country for a vendor.

Clearly, with so much resting on their shoulders, selecting the right distributor is a critical task for a vendor – because when breakups happen, the outcome can be deeply traumatising for all involved.

“Distribution is probably the least understood tier of the channel,” says the co-founder of channel consulting firm Channel Dynamics, Moheb Moses. 

“You get this disconnect with vendors who don’t understand the role of distribution expecting something the distributor could never have fulfilled, because that is not their business model.” Moses says there are many reasons why a relationship between a distributor and vendor can collapse. Often it comes down to the vendor signing up too many distribution partners (see box, right), or the vendor having gained multiple distribution arrangements through acquisition. 

“When vendors merge, one thing they try to do is consolidate internally,” Moses says. “So suddenly they may not have enough resources to manage five, six or seven distributors.

“But the most common reason is the vendor believing the distributor is not doing what they expected them to do. Sometimes that is the case, where the distributor has over-promised, and other times there is a lack of vendor clarity around the role of the distributor.”

According to the former CEO of distributor Express Online, Danny Moore, it is important that distributors truly understand what they are getting into, and why.

“You have to understand what you are good at and stick to it,” he says. “Any distributor that tries to bring a vendor on in order to open new markets will to fail. You need to already have a strong market opportunity the vendor can tap into.”

Cameron Arnold, director at specialist distributor Sektor, says his firm invokes a rigorous process before accepting any vendor, examining everything from the margin and market potential through to whether the vendor is a good strategic fit.

“That’s not as simple as saying it has to meet ‘x’ threshold, because there are a lot of variables such as how the vendor operates and their pricing structure,” Arnold says. “We have to work through them all, so there isn’t a straight metric. It becomes an individual process for each vendor.”

It sounds arduous, but Arnold says it makes good economic sense to do it.

“Short-term vendor relationships are  costly relationships” Arnold says. “The process of on-boarding a vendor, building market share and growing, is a significant investment for the distributor and the vendor, so it is never a short-term strategy.”

Handling a breakdown

But even with the best preparations, things can still go wrong. Moses says the blame for breakdowns can often be sheeted home to the vendor, particularly when  their actions prove toxic to the distributor.

“An example of that is where a vendor has an unscrupulous direct sales model,” Moses says. “From a vendor’s point of view that’s just one deal, but from the distributor’s point of view and a partner’s point of view, they may choose to take all their business elsewhere.”

Changes in the distribution mix are inevitable as vendors grow and mature, and particularly as vendors merge or demerge. Hewlett Packard Enterprise (HPE), for instance, recently went through a major shake-up in the aftermath of its demerger, dropping Synnex, Avnet and Westcon, and expanding coverage for Dicker Data, Distribution Central, Ingram Micro and Lynx Technologies.

HPE’s South Pacific channels director for mid-market, enterprise and SMB, Chris Trevitt, says successful partnerships start with goal alignment and skills matching.

Next: Partnerships must be two-sided