Jeff Yelton - 2010 ScanSource POS & Barcoding Partner Conference

Intellectual Property

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ScanSource, Inc. Confidential

The New NormalJEFF YELTON

Is there a New Normal?

CONSUMPTION APPETITE FOR RISK USE OF LEVERAGE

Don’t be fooled. This is Normal

VAR Sales ProcessProspecting Qualifying Proposal Decision

RepeatBusiness

IdentifyBusiness Needs

DetermineRequirements

EvaluateOptions

Negotiate Implement and Evaluate Success

Outcomes/Goals

InitialSponsor

Identified

ValueDemonstrated

& ProposalSubmitted

SignedContract

Customer

Vision &Access

to DecisionMaker

ScanSource Investmentsin the Core Business

Inventory +82%

Reseller Financial Services

+17%

Personnel +9%

End User Demand Generation

$1.2M

Business Transitions on Three Dimensions

ExistingClients

New Clients

New Markets

Existing Technologies

New Technologies

New CategoriesOf technologies

ProductDriven

ServicesDriven

SolutionsDriven

InstalledBase

Cash Costs of Growth

15¢/$ 30¢/$ 60¢/$

30¢/$ 60¢/$ 120¢/$

60¢/$ 120¢/$ 240¢/$

Existing Clients New Clients New Markets

Existing Products

NewProducts

NewTechnologies

Source: Channel Corp.

Business Transition

Break/Fix Software Consulting HaaS SaaS

BUSI

NES

S M

IX

Hardware

Software/Services

TIME

Business Transition

Break/Fix Software Consulting HaaS SaaS

BUSI

NES

S M

IX

Hardware

Software/Services

TIME

1990’sHardwareBreak/FixHelp Desk

2000-2010SoftwareVerticalSolution

2010 >SaaSHaaS

Consulting Specialization

Partnering to Increase Return on Cash

TIME

SolutionRevenue

SolutionCost

Return on Cash

Profit Gap

Make Your Self

Partner

Partnering to Increase Return on Cash

SolutionRevenue

SolutionCost

Return on Cash

Profit Gap

Make Your Self

Partner

SCANSOURCE INVESTMENTS:SUMOCommunityAppSourceHaaSISV ProgramScanSource Payment Solutions

ScanSource Payment Solutions Suite

End-to-End Encryption

Key Injection

Merchant Services

POS Solution

Mobile Paym

ents

Hardware

Software

Services

ScanSource Merchant Services Powered by First Data

Why First Data

• Trust and Ethics

• Breadth of Product Offering

All major brands of credit cardsDebitGift cards, check verification servicesEmployee pay cards by Money Works

• Lowest Costs

Key Points

· The New Normal is Normal· Refill your pipeline first· Prepare for the future

ScanSource Global Partner ConferenceTHE FULCRUM STRATEGY

Chris RezendesExecutive Vice President

21 – 2009 VDC Research Group, Inc.Auto ID & Transaction Automation Practice

By Way of Introduction

• VDC RESEARCH 1971 Mobile/wireless, AIDC, industrial and retail networks, embedded platforms 1,000 clients annually …90% technology suppliers, tech investors

• Chris Rezendes, Executive Vice President 19 years experience in embedded, industrial, defense and other mission critical

and high available technology industries 14 years experience in senior management and leadership positions at a number

of IT systems and professional services organizations 2 years DARPA contracting Chris has advised many of the largest and most respected technology companies

in a number of technology segments worldwide Chris is a graduate of Harvard University


Post-recession economy drives new realities

• The economic pressures felt in 2008 and 2009, and the accelerations of select customers out of the recession have set in motion a shift to new realities

• Financially stable enterprises are being given a unique opportunity to leverage the current economic climate to catch-up with or establish ‘new’ industry standards for sourcing and installation of automation technology – and they are doing it

• Agile technology suppliers and their integrator partners have that same unique opportunity … if they can develop, deploy and support customers in their new realities

• If they can help customers can pivot and accelerate … with balance … if they have a FULCRUM … if you can become that fulcrum … YOU win

Your customers need to make changes … and they need help to do it

New Reality: Times Remain TURBULENT

Point of Service:Delivery

Point ofDecision

Point of Service:Selection

Point of Sale

Decision / Service and Sale Merging Functionally

Fragmenting Physically


Consumer Demand for Value and Service

Disposable Income and

Consumer Credit

New Reality: OPERATORS Drive Technology Decisions

• High citation rate of top execs might be because our sample is stratified by Tier, but, that does not explain the involvement of Operations executives …

• Market views on AutoID, mobility and retail automation investments are changing: Becoming more strategic than operational

Within the operational domain, more critical

• The Non-IT Directors include a mix of front-end and back-end managers Logistics

Marketing

Merchandising

Promotions



New Reality: Customer STILL cannot afford any imbalance

• In a word, it means the aggressive pursuit of balance in those strategies and tactics that influence customer experience

Inventory management/ cost reduction OR out of stock mitigation?

Enhanced digital OR on-site experiences?

Bolder promotions OR more authentic customer experiences?

Value-based position OR premium branding?

Enhanced training in customer management OR merchandising?


‘Kansas’ may no longer exist …

• The global economy as we knew it no longer exists. Customers are more powerful than ever before, forcing b-to-c and b-to-b operators to realign with a rapidly changing customer base and ever expanding scope of requirements

• For suppliers and integrators prepared for this, these informed customers become better customers. For the unprepared, not so much …

• Your customers need strategies, tactics and technologies to meet their customers where they are, and where they are going, in the post-Ford century/ post-recession economy

• They are going to need to pivot, they are going to balance … they are going to need a fulcrum to pivot with balance … you are going to be that fulcrum


Learn About: What is Driving The New Investment

Greatest Pain Points Operating Without Reliable Connectivity Among Facilities(% of User Respondents Identifying)

Lack of Real-time Visibility into Inventory Levels 38%Lack of Real-time Visibility into Rapidly Changing Demand 29%

Lack of Real-time Visibility into Relative Efficiencies for Different Production Units for Different Products 27%

Lack of Uniformity/Process Sharing between Production Units 27%

Long Lead Times to Develop and Produce New or Custom Products 24%

Excessive Amounts of Raw Materials Wasted 21%

Lack of Real-time Visibility into Rapidly Changing Costs/Commodity Prices 20%

Long Lead Times to Create a Quotation for Custom Orders 19%

Inability to Shift Human Resources between Production Units 17%

Long Lead Times to Change Prices/Cost Structure Based Upon Rapidly Changing Commodity/Input Prices 16%

Inability to Move Raw Materials between Production Units 7%

The need to be more agile, and they need to address a lack of visibility

RFID Market Expansion Broader, Deeper This Time

28 – 2010 VDC Research Group, Inc.AutoID & Transaction Automation Practice

• Meta applications such as supply chain management, asset tracking, etc. will continue to account for significant market spend, largely due to:

Proven ROI

Broad, Fluid Definition / Deployment

• A number of legacy point applications could reach maturation in the next couple of years and offer little or no growth.

Security / Access Control

Tolling

• A new generation of applications – some point, others meta – will account for a growing share of the market.

Sensing / Monitoring

Contactless Payment

Converging Solutions2010 2011 2012 2013 2014 20150%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Meta Apps Legacy Point Apps Nex Gen Apps

Market Share By Application Type

Learn About: Investment Analysis Metrics

• This data was collected in Q2 2010 … during the past 45 days!

• Cost reduction is still the number 1 driver – an indicator that retailers have no visibility to stability?

• Operations improvement – a fuzzy term – continues to rise on these lists of drivers. It is being driven in part by advances in business intelligence (BI) solutions

• Sales uplift, rated #3, and the only other factor with a rating higher than 3.5 on a 5.0 scale, remains the elusive, holy grail of ROI for many of these solutions

• Compliance – both customer and government – received relatively low ratings. This, and a relative absence of reference to PCI, leads us to believe that this is not driving material investment


Scale: 1=Low / 5=High


Learn About: The Need for SW and Integration Support

Most Important Source Selection Criteria(Average Rating. 1=low / 7=high)

(N = 400)

Technical Support 6.06Customer Service/Support 5.69Installation Support 5.50Availability 5.26Integration Services 5.19Application Assistance 5.18Offers On-Site Service/Support 5.14Reputation of Vendor 5.05

• The recession is causing them to lean on their vendors for support and service even more than normal.

• 6 of the 7 most highly rated vendor selection criteria are directly related to vendor support/service.

• Vendors must have strong support services in place to help their customers with the huge challenge of integration.

The highest scoring criteria --- and the only three above 5.5/7.0 – relate to support


There are a few MASTER keys

• The economic pressures felt in 2008 and 2009 have set in motion a shift to new realities

• Intellectual capital is in tight supply in a number of our core and highest growth market segments – technology vendors cannot know all apps in all markets, enterprise staffing remains light …

Commercial: Knowing where and how customers’ strategies, tactics and budgets intersect

Technical: RFID, next-generation retail automation solutions, the mobile software stack

Operational: Proven project schedule and budget performance

• Local, expert integrators and independent software vendors are in a unique position in these markets – technical and commercial issues, forces and trends are pointing toward greater dependence on and opportunities on these channels

You can reinforce your own core strengths to serve as that fulcrum for your customers


You Win: By Digging BELOW the surface with customers

The Primary Drivers Behind Respondents' Latest Technology Investments

(% of Nearly 500 Respondents Identifying)

Reduce Costs 66%

Reduce Waste/Improve Yield 41%

Reduce Inventory Requirement(s) 38%

Become More Agile/Flexible 37%

Reduce Production/Manufacture Times 37%

Tie Together Currently Disparate Divisions or Production Units

26%

Gain Real-Time Visibility into Changing Customer Demand

23%

Reduce Development Times 15%

Reduce Quotation/Bid Time 14%

Gain Real-Time Visibility into Changing Commodity Prices

7%


You Win: By Delivering NO zero-sum gains

• In a word, it means the aggressive pursuit of balance in those strategies and tactics that influence the point of decision experience

Inventory management/ cost reduction AND out of stock mitigation?

Enhanced digital AND in-store experiences?

Bolder promotions AND more authentic customer experiences?

Value-based position AND premium offering?

Enhanced training in customer management AND merchandising?


You Win: By PROFESSIONAL Project Management

• Over the past 8 quarters, your customers have responded to factors though a variety of measures – such as salary freezes/cuts, travel restrictions, staff reductions – placing additional pressure on the engineering teams’ productivity.

• 54.3% of respondents to VDC’s 2009 / 2010 Embedded System Engineering Survey reported that their current projects are behind schedule (more than the 46.9% of projects reported late last year).

Time-to-market pressures are recession proof – 54% of projects are late

Adherence to Schedule for Current project (or Best Estimate Upon Completion)

(Percent of Respondents, N = 493)

More than 6 months ahead of schedule 3.5%

3 to 6 months ahead of schedule 4.0%

1 to 2 months ahead of schedule 3.5%

On schedule 34.7%

1-to 2 months behind schedule 20.3%

3 to 6 months behind schedule 17.0%

More than 6 months behind schedule 9.5%

Don't know 7.5%


Customers are finally starting to invest with more scale

• The performance we have experienced in the first half of 2010 evidences this – not everything that you sold was pent-up demand

• Projects remain mostly smaller than pre-recession levels – this is driven by a number of factors, most of which are repositioning markets in your favor

• Your markets have evolved to a point where the decisions to implement your technologies or not are being made by multi-functional teams – and more of them are being led by operations executives

• More customers are looking for point solutions with ROI to prove that they meet acute NOW-term requirements – and fit longer term operating vision

• You win when you deliver – the specified solution, and the added-benefits of flexible solutions that enable agile enterprises


Summary

• Your markets as we knew them, may no longer exist … big changes were created or accelerated by the recession

• Your customer are under more pressure than ever to perform

• Your customers need safer, sharper solutions

• Your customers need your expertise to specify, qualify, install and support

• You will need to dig ever deeper into: Your experience in your served markets

Your project management capabilities

Your technical and commercial relationships with your technology vendors

• Your customers will win

• You will win

You need to be the fulcrum on which your customers are able to pivot with balance