Is value-add the way forward for distribution?

Distributor execs discuss the pros and cons of being a VAD

The movement towards a value-added distribution (VAD) business model has been one of the biggest trends in the IT channel over the last few years.

Distributors see it as an opportunity to expand their profitability and re-assert their role within the channel, but is it worth the endeavour?

CRN spoke with eight of some of the UK's distribution leaders to get their perspective.

Ingram Micro's SVP UK & Ireland, Matthew Sanderson, for example, explains how as the complexity of technology and end-user requirements have grown, the need for distribution to support and simplify solutions has increased.

"Consultative approaches to delivery, lead generation and the option to either skill up or scale up expertise are areas where value-added distribution is supporting reseller growth," he expands.

"With the emergence of cloud technologies, end users have become used to flexible payment options and are looking to resellers to provide ‘as a service' models as an option for purchasing.

"By leveraging scale, distribution can support resellers in providing the best terms for their customers."

Sanderson also points to newly emerging objectives shaping decision-makers' buying behaviours such as environmental, social, and governance (ESG).

ESG business goals are becoming a key factor for organisations. Resellers want to ensure they are partnering with distributors that are consciously engaging and developing policies and processes to meet stringent environmental targets.

"Access to products and services that support the circular economy is now an important part of value-added distribution," Sanderson adds

"The benefits of value-added distribution are clear; it can help accelerate growth and value for our resellers and their end-customers."

Read on to find out what distie execs think about moving to value-add distribution...

Is value-add the way forward for distribution?

Distributor execs discuss the pros and cons of being a VAD

VAD for all?

Lance Williams, chief product officer at Distology ponders the idea of all distributors becoming VADs.

He explains that while adding value is certainly a profitable approach to distribution, it all really comes down to the demand of vendors.

"There's no way Distology could exist without being a value-added distributor, because everything we do is about building momentum, building market, building interest, aggregating, amplifying marketing messages, and all of that requires value-add.

"But if you're a distributor, and you're not delivering on those elements, and you're still making a good business out of it, that's probably because your vendors don't need you to do that."

He explains some vendors will ask for more value-add as they are trying to "keep overheads low, and revenue high".

He says vendors might want to offload the value-added activities, which would cost distributors big overhead, and would rather pay ten per cent of the distributors' margin.

Aaron Watts, VP for EMEA sales at Pax8, however, argues that adding value is a fundamental part of the evolution of distribution.

"Every distributor should be seeking to add value. Otherwise, what is the role of a distributor?

"Of course, we can make this a race to the bottom where all we do is focus on the transaction and being able to offer the cheapest price on any given service, but that's not what partners need.

"Partners need additional support in terms of configuring those services, understanding what services are out there, being able to connect those services with other services, being able to go to spaces where they've not been able to go," he explains.

He adds that from Pax8's point of view the emphasis is on offering ongoing lifetime value.

"We have to consistently be delivering value to our partners, otherwise they have the opportunity to go and get their services from another provider.

"We don't carry any vendors that are so unique that we are the only place in which you can get them from, of course, we've got preferential pricing and deals with some vendors.

"But you can go and procure Microsoft from 19 other providers in this in the UK alone.

"I'm not going to sit here and say we're the cheapest, I'm not ashamed of that because we want to be able to retain an element of margin for Pax8, so we can continue to make those investments that will ultimately provide longer-term value for our partners.

"So for me, if you're not adding value to distribution, you've got to ask yourself the question, ‘what is it that you're going to be in five to ten years' time', because value is everything."

Up next: 'Saying you're a VAD or that you have the capability you've got to be able to back that up...'

Is value-add the way forward for distribution?

Distributor execs discuss the pros and cons of being a VAD

Danger ahead?

Tim Griffin, CEO of Exertis UK weighs in on the dangers of jumping on the VAD bandwagon without actually being prepared to back up your claims.

"You have to pick your battles and look where can you provide value. By saying you are a VAD or that you have the capability you've got to be able to back that up," Griffin states.

"We talk about our operational excellence. So 'If you're going to reference your operational excellence, you'd better be able to prove it and improve that through what are the highest estimates in the industry now.

"The same would apply to our marketing and being able to prove that you're getting great returns on the money that you spend with us.

"And so, you've got to be able to back that up with capability, and sometimes that comes back to the talent in either expertise or capabilities.

"I wouldn't encourage every distributor to be all things to all people, pick your battles."

Justin Griffiths, MD at Infinigate also poses caution, warning that value-add can easily get loosely articulated.

Similarly to Griffin he says distributors need to be able to demonstrate what being a VAD really means.

"I think a lot of customers can see through what people perceive as being value-add and it genuinely isn't. So, if you're going to be a value-add, then have a strategy to underpin it."

On top of that, becoming a value-added distributor is expensive, David Watts, managing director at TD SYNNEX UK&I reminds us.

"You can go through a period where you're investing quite a lot, but you're not necessarily getting the return straightaway," he says.

"So that could be a danger. It's certainly a reason why you need to accelerate that strategy pretty fast. Because your investments are going to be there before your returns is not, untypically in businesses at all.

"But it adds complexity and risk."

'I hate, I deplore people using the value-added distributor term,' on page 4...

Is value-add the way forward for distribution?

Distributor execs discuss the pros and cons of being a VAD

Contrasting views

However, CEO at QBS Software, Dave Stevinson, argues that every distributor is a VAD by default.

"There's different types of VADS. There's what we call a true VAD, and there's an aspirational VAD for a lack of a better word.

"As a distributor, value is commonly misunderstood, every business adds value, or they have no right to survive."

And Alex Tatham, MD at Westcoast, echoes this view and goes one step further.

"I hate, I deplore people using the value-added distributor term.

"The reason I say that is, you could describe yourself as a value added distributor, but what that simply means is you're just an artificial way of keeping your margins high.

"Our job in distribution is to take margin out of the channel for the vendor and for the reseller, our job is to do a more efficient job than they could do themselves. That's our job.

"And I think that Westcoast have this approach to say: ‘how do I help you save money?'

He concludes: "That is great value-added distribution by taking cost out of the channel."

This is the second article in a series exploring distribution in the channel. Read the first article on top vendor frustrations here.