A winning secret: distributor dynamics

Squeezed between vendors and integrators, distributors add value<@VM>What's in it for you?

Distributors

Ingram Micro Inc.

Ticker: IM

Overall company revenue: $22.6 billion

Government office: Vienna, Va.

Head of government sales: Bob Laclede

Breadth of product line: 325 vendors in public-sector solutions

Major vendors: Cisco Systems Inc., Hewlett-Packard Co., IBM Corp., Microsoft Corp., Symantec Corp., Veritas Software Corp.

MOCA

a division of Arrow Electronics Inc.

Ticker: ARW

Arrow Electronics revenue: $8.7 billion

Government offices: Los Angeles and Marlborough, Mass.

Head of government sales:Rich Severa

Breadth of product line: 15 core products

Major vendors: Computer Associates International Inc., Hitachi Data Systems, Legato Software, Sun Microsystems Inc.

Comstor

a division of Westcon Group Inc.*

Westcon Group revenue: $1.9 billion

Government office: Chantilly, Va.

Head of government sales: Carol Rivetti

Breadth of product line: 22 networking, wireless and convergence products

Major vendors: Avaya Inc., Cisco, Motorola Inc., Proxim Corp., RSA Security Inc.
*Westcon Group is a subsidiary of South Africa-based Datatec Ltd. (Johannesburg Stock Exchange: DTC).

Tech Data Corp.

Ticker: TECD

Overall company revenue: $17.4 billion

Government office: Clearwater, Fla.

Head of government sales:Joel Davis

Breadth of product line: More than 80,000 IT products

Major vendors: Cisco, Hewlett-Packard, IBM, Microsoft, Sony Corp.


GE Access

a division of General Electric Co.

Ticker: GE

GE Access revenue: $2 billion

Government office: Clifton, Va.

Head of government sales: Mike AtLee

Breadth of product line: 25 vendors in government solutions

Major vendors: Sun Microsystems, Network Associates Inc., StorageTek Corp., Veritas


Ryan Yu (left) said the extensive help Daly Computers received from Bob Laclede and Ingram Micro was key to winning three recent contracts.

Dan Gross

Bob Laclede of distributor Ingram Micro said his company is "more engaged in the ongoing sales process" to help companies such as Daly Computers.

Dan Gross

Rich Severa

Arrow Electronics Inc.

Joel Davis

Tech Data Corp.

Carol Revetti

J. Adam Fenster

Mike Atlee

Rachael Golden

Last fall when Daly Computers Inc. was preparing to bid on Virginia's statewide computer and peripherals contracts, it called one of its distributors, Ingram Micro Inc., for help -- not that it was expecting much.

"When we used to go to our distributors for help, they would usually just throw a list of products at us," said Ryan Yu, president of Daly Computers, a Clarksburg, Md., solutions integrator and value-added reseller with 90 employees.

But this time, Daly Computers received more help than anticipated, including assistance with sales presentations and proposal writing.

"They spent a considerable amount of time working with us," Yu said.

In March, Daly Computers won three Virginia contracts to provide servers, desktops, workstations and notebooks to state agencies. Yu estimated the contracts would bring Daly Computers about $30 million in revenue.

"Having Ingram on our team was key to winning those contracts," he said.

It's an endorsement distributors are hoping to hear more often as they help companies pursue lucrative government IT deals.

In recent years, distributors have found themselves caught between technology vendors such as Dell Inc. and Hewlett-Packard Co., which continue to do most of their business directly with the government, and large integrators and value-added resellers such as CDW Government Inc. and Northrop Grumman Corp., which have built their own logistics arms.

To remain a vital part of the government IT supply chain, distributors have honed their service offerings and beefed up their staffs with people who know how to navigate government procurement.

The result, according to experts, is a distribution channel that plays an important role in winning and servicing contracts.

For some distributors, the recent boom in government IT has meant double-digit government sales growth and a chunk of market share that they plan to hold on to.

[IMGCAP(2)]"A few years ago, we used to talk only to purchasing people, but now we're more engaged in the ongoing sales process," said Bob Laclede, vice president of Santa Ana, Calif.-based Ingram Micro's government and education division. "We're more involved in business development."

Yu said the change has taken place over the past year. "The help we've asked for isn't something new. It's just that distributors are listening now," he said.

Distributors have long provided value-added services such as system configuration, software imaging and help-desk support.

But now they're also helping companies, particularly small and midsize firms, identify leads, sort through requests for proposals and prepare bids.

For smaller companies, their offerings now include sales and marketing services. For larger companies, they provide the usual logistics expertise, plus extensive knowledge of potential partners at the state and local level and engineering know-how in pulling together complex solutions.

"Distributors have changed a lot in the last few years, and they're still very valuable," said Michael Haines, principal analyst for Gartner Inc., a research firm in Stamford, Conn.

Distributors anticipate an expanding role on government contracts. Several said they were preparing solutions for the prime contractors awaiting word on the Air Force's $10 billion Network-Centric Solutions contract, which should be awarded in September.

[IMGCAP(3)] "We're seeing large procurements that normally would have been done between the manufacturer and the integrator, but are instead being done with us in the middle," said Rich Severa, president of Melville, N.Y.-based Arrow Electronics Inc.'s MOCA division, which handles government distribution of enterprise systems.

SMALL-BIZ BOOSTERS

There are several reasons distributors are enjoying what Severa described as a "pendulum swing" in their favor. When the economy soured, many commercial integrators and resellers turned their attention to government opportunities and looked to distributors to help them break into the market.

Many of those companies were small and midsize businesses that distributors can help to better compete for contracts.

Although it's impossible to say which contracts were made possible by partnerships between small businesses and their distributors, it's clear that small businesses are getting plenty of chances to stand out from their competition.

In its first six months of operation, the Homeland Security Department awarded nearly 41 percent of its prime contracts to small businesses, according to the department's Office of Small and Disadvantaged Business Utilization. The annual federal goal for small-business contracting is 23 percent.

"Distributors help us get to know technology vendors at a higher level," said Cameron Gohari, chief executive officer of Managed Solutions Planning Xperts Inc., a 32-person integrator in Arlington, Va., that specializes in wireless, security and convergence solutions. The company recently built a wireless network at Fort Lee, Va., covering the base's 120 buildings.

[IMGCAP(4)]Gohari said his company has worked with Tech Data Corp. of Clearwater, Fla., and other distributors to grow its government business, which accounts for nearly one-third of its $17 million in annual sales.

Tech Data helped the company generate leads and even called potential customers on its behalf.

"They're also like our research department, so we know how the market is shifting," Gohari said.

Distributors provide extensive training in technology solutions and engineering assistance. And perhaps most important to small and mid-size businesses, distributors can make them look bigger, augmenting their sales efforts and extending their reach.

"They allow us to compete for more contracts on a nationwide basis," Yu said. "When you have a billion-dollar company behind you, it means something."

On the other hand, large integrators and resellers don't usually need the marketing services that distributors offer smaller companies. Several don't even need the system configuration services that distributors now offer.

"Some of the value-added services that distributors provide, I have the capability to handle," said Jim White, president of Northrop Grumman IT's computing systems division.

In the early 1990s, Northrop Grumman built up its own internal reseller business through acquisitions. It now sells networking, storage and other technology gear to government customers and integrators such as EDS Corp., Lockheed Martin Corp. and Science Applications International Corp.

White and others said large integrators and resellers still regularly turn to distributors to do what they do best, namely deliver products quickly and efficiently, particularly during peak government buying seasons. But distributors see an opportunity to do even more for big partners.

MAKE ME A MATCH

Just as distributors can help small businesses compete for large contracts by making them look bigger, they can serve larger integrators looking for small-business partners.

Distributors said they've seen a need by large integrators and resellers to identify small businesses that will satisfy set-aside requirements on large government contacts.

For instance, the U.S. Visit contract awarded by DHS to Accenture Ltd. has a goal of awarding 48 percent of the business to small firms. The program to create a system for tracking and monitoring foreign visitors to the United States is worth billions of dollars.

[IMGCAP(6)]As integrators service far-flung contracts that span offices nationwide and worldwide, distributors also have begun to play an important role in finding local resellers and solution providers that can help the integrator serve regional customers. Because distributors have the most direct contact with the largest universe of IT companies, most have built databases that can match integrators with small businesses.

"Our state and local business has also grown significantly," said Scott Friedlander, group vice president at GTSI Corp. in Chantilly, Va. "As you grow a state and local practice, a distributor with a national footprint is important."

One of GTSI's distributor partners is GE Access of Denver, the IT distribution company of General Electric Co. Last year, GE Access launched its government division to help integrators and value-added resellers piece together complete IT solutions.

The company wanted to be more of a channel partner than a distribution partner, said Mike AtLee, director of the GE Access government systems group.

"It's a risky model because we're putting a lot of time and money into it," AtLee said. "But we have to get past the image of distributors as 'pick, pack and ship' operations."

GTSI has two dedicated GE Access representatives working onsite in Chantilly. One is a Six Sigma process expert who helps fuse the two companies' processes to achieve optimal efficiency.

The benefits of working closely with a distributor, according to GTSI's Friedlander, are lower risks and higher profitability.

BRING IN THE SPECIALISTS

GE Access is not what the industry would call a broadline distributor. Unlike companies such as Ingram Micro and Tech Data, GE Access does not carry every product a customer might want.

The company is focused on solutions from Sun Microsystems Inc., StorageTek Corp., Veritas Software Corp. and several others. If an integrator is looking for a Microsoft Windows solution, it will have to look elsewhere.

But by partnering with distributors that specialize in a certain solution area, analysts said, integrators stand a better chance of putting together a successful proposal.

"Segmentation in the distributor market has been a big change," Haines said. "Even broadline distributors are creating divisions that look like niche distributors."

Comstor of Chantilly, Va., a division of Westcon Group North America Inc. of Tarrytown, N.Y., specializes in network convergence and security solutions, particularly around technology from Cisco Systems Inc.

The company has its own GSA schedule, which includes its professional services, and in some situations where an integrator is short on engineers for a particular project, Comstor has provided its own engineers.

[IMGCAP(5)]"Integrators and resellers know we understand our solutions very well. ... Our technical sales people often support their staffs," said Carol Rivetti, general manager of Comstor.

None of this means that the days of vendors selling direct are over.

Analysts said government integrators and resellers would continue to use a two-tiered approach to product sourcing, buying directly from vendors as well as going through distributors.

But distributors are in no danger of being squeezed out of the equation.

"Integrators will keep direct relationships with vendors and use them to buy in bulk," Haines said. "But get beyond that in complexity and manufacturers generally screw things up."

Severa said integrators know what they'll get when they deal with a distributor that has extensive experience in fulfilling large orders, configuring systems and tagging inventory to meet government-required specifications.

"If they deal with the manufacturer, they're going to be at the will of that manufacturer to make them look good to their agency. Many are not comfortable with that," he said.

Ultimately, whether or not an integrator takes advantage of a distributor's value-added services, a distributor can still make the difference in winning a contract.

Arrow's MOCA division has been in situations in which an agency wanted to tour the company's logistics facilities before awarding a contract.

"We're finding that more agencies are curious about who is standing behind the reseller and integrator partners," Severa said.

Brad Grimes can be reached bgrimes@postnewsweektech.com.
These days, distributors strive to offer something extra for everyone. They still serve the vital function of moving products from vendors to customers, but now they also offer marketing services and other resources. To get an idea of what your company stands to gain from distributors, here's a sampling of potential benefits:

If you're a large integrator, distributors can help you

  • Fulfill basic logistics needs, including configuration and tagging,especially at busy times

  • Provide engineering support for complex solutions

  • Identify small businesses to satisfy set-aside requirements

  • Identify local partners to help service contracts at distant locations

  • Grow your state and local business through their extensive reach


If you're a small or midsize integrator, distributors can help you

  • Compete against larger integrators using their resources and reach

  • integratorIdentify requests for proposal and small business set-asides

  • Prepare proposals and marketing materials

  • Train your staff on new technologies and solutions

    If you're a large reseller, distributors can help you

    • Offload configuration, software imaging and product tagging operations

    • Identify local partners to help service contracts at distant locations

    • Train your staff on new technologies and solutions

    • Help fulfill international orders


    • If you're a small or midsize reseller, distributors can help you

      • Make your company look bigger and handle larger deals

      • Keep you abreast of new product developments and technology trends

      • Train your staff on new technologies and solutions

      • Identify requests for proposal and small business set-asides

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