The future of Distribution and the broader Channel

06 February 2018

An fantastic report by IT Europa on behalf of the Global Technology Distribution Council (GTDC) was published this week. It walked through where it sees the role of Distribution in an increasingly challenging IT Supply Chain, and came up with some interesting conclusions.

Distribution is much maligned by the broader IT Supply Chain. Customers don’t know it exists, resellers and service providers look down their nose at them, and Vendors abuse their services at every possible opportunity. However, Distribution could hold the key to some stability in a turbulent world, and IT Europa have defined how this could work.

The broader market place is going through an existential shift. With too many resellers / service providers in the market, the channel is fragmented and trying to redefine itself. Some players are looking to get out (Gartner are predicting 60% of the current channel will either retire or be acquired in 3-5 years), some players are looking to specialise and some players are looking to carry on as they are and hope for the best. With this much change, Distribution – sitting between the rest of the channel and vendors – need to adapt to survive. For a long time it has struggled with its value, and now is the time for it to work it out.

The report explains that delivery of services is a key driver. This was always counter-intuitive to the legacy channel construct, as the reseller would be the one delivering services to its client, but as the channel struggles to survive the Distie can step in and offer a series of aggregated / packaged resources to help resellers / service providers avoid carrying unnecessary overhead. And this is where it gets interesting.

If you look at a traditional reseller or service provider, they all have very similar roles and resources. Technical resources (Presales / Engineering) are obvious, but other more back office functions are also duplicated. From billing, licensing advisory, to telesales and vendor management, Distribution could and should easily step in and provide aggregated “virtual” resources to complement the reseller / service provider model and help a progressive partner avoid holding their own resources to fulfil this role. Fundamentally, the headline business processes of a reseller / service provider are pretty similar to the next reseller / service provider, so its non-core – outsource it.

To achieve this however Distribution needs to build on its brand. The 1980’s “stock and credit” limit to value added services has not really been shaken off, and with everyone looking down their nose at the key players, its going to be tough to drive the relationships and engagement with the channel to adopt these truly value added services.

That said, if Distribution achieve this, it both assists the security of the channel and finally boosts Distie’s out of the low margin territory they currently generally reside in into a true Service Provider model of their own. Aggregated services delivered to a skinny layer of partner, where the partner focusses purely on the client relationship, and trusts the Distie to deliver all other back office functions on its behalf could be an interesting model for all. Margins are more even-spread within the channel business model, improving quality of Distie services and giving the reseller / service provider the ability to specialise / focus on where it wants to play.

Vendor relationships would also improve, as Disties with good solid service wraps could start to hold some influence over the Vendors that they don’t currently have. Vendors will pick Distribution partners based on their true value and skills, rather than their breadth, which would make the channel more effective.

It's just fascinating to be part of this industry at the moment, we’ve gone through a lot of technology shift, but now we’re truly into business model and process shift which holds a lot more potential. Embedded work with all layers of the supply chain so it will be interesting to see where we end up!

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