Distribution Outlook

Reality Research & ConsultingReality Research & Consulting

Distribution OutlookDistribution OutlookThe Impact on Sales of Computer The Impact on Sales of Computer

ProductsProductsPrepared for the Global Technology Distribution CouncilPrepared for the Global Technology Distribution Council

Distribution Outlook: Computer Products


Key Findings and Market SummaryKey Findings and Market Summary

• Computer product purchases from Computer product purchases from distributors by North American distributors by North American resellers grew an estimated 11 resellers grew an estimated 11 percent in 2000, compared to 9 percent in 2000, compared to 9 percent overall growthpercent overall growth

• These purchases from distributors These purchases from distributors represent 60 percent of all represent 60 percent of all computer products bought by computer products bought by resellersresellers

• Distributors extended an Distributors extended an estimated $32.7 billion in estimated $32.7 billion in credit to resellers in 2000credit to resellers in 2000

• Forecasts for 2001 show Forecasts for 2001 show little change in product little change in product purchasing sourcespurchasing sources

• E-commerce services E-commerce services provided by distributors are provided by distributors are in demand in demand



Research MethodologyResearch Methodology

• Projections based on purchase source data from phone interviews Projections based on purchase source data from phone interviews with 4,000 North American reseller organizations, July and August with 4,000 North American reseller organizations, July and August 2000. Data reflects +/- 1.6 percent margin of error.2000. Data reflects +/- 1.6 percent margin of error.

• Product purchasing volumes based on phone survey of 300 Product purchasing volumes based on phone survey of 300 reseller organizations and 100 ASP and ISP organizations, August reseller organizations and 100 ASP and ISP organizations, August and September 2000. Combined data reflects +/- 5 percent and September 2000. Combined data reflects +/- 5 percent margin of error.margin of error.

• Qualitative interviews conducted with indirect sales executives at Qualitative interviews conducted with indirect sales executives at major computer product manufacturersmajor computer product manufacturers

• Qualitative interviews conducted with executives at major Qualitative interviews conducted with executives at major computer product distribution firms computer product distribution firms



Purchases by Resellers Made Through Purchases by Resellers Made Through First-Tier DistributorsFirst-Tier Distributors

11% Increase11% Increase

In Billions of Dollars

$69.4

$77.3

20001999



Credit Extended To ResellersCredit Extended To Resellers

In this $77.3 billion market,In this $77.3 billion market,

distributors will extenddistributors will extend

$32.7 billion$32.7 billion

to second-tier resellersto second-tier resellers

in credit in 2000.in credit in 2000.

This represents 42.3 % ofThis represents 42.3 % of

all purchases.all purchases.



Second-Tier Purchasing SourcesSecond-Tier Purchasing SourcesIn the past 12 months, what percent of your company’s purchases In the past 12 months, what percent of your company’s purchases were actually made and ordered from the following sources?were actually made and ordered from the following sources?

Purchasing SourcePurchasing Source ResellersResellers ISPs/ASPsISPs/ASPs

Distributor sales repDistributor sales rep 48.5%48.5% 22.8%22.8%

Distributor Internet siteDistributor Internet site 19.8%19.8% 10.4%10.4%

EDI/XML-based distributor orderEDI/XML-based distributor order 2.3%2.3% 4.8%4.8%

Direct through manufacturer repDirect through manufacturer rep 11.6%11.6% 26.7%26.7%

Manufacturer Internet siteManufacturer Internet site 4.0%4.0% 13.3%13.3%

Online retailerOnline retailer 3.1%3.1% 8.2%8.2%

Local resellerLocal reseller 10.7%10.7% 13.6%13.6%

Reseller base: 300 organizations (September 2000)Reseller base: 300 organizations (September 2000)

ISP/ASP base: 100 organizations (September 2000)ISP/ASP base: 100 organizations (September 2000)


Reality Research & ConsultingReality Research & ConsultingReseller base: 300 organizations (September 2000)Reseller base: 300 organizations (September 2000)


Primary Source ForPrimary Source ForPre-sales Product InformationPre-sales Product InformationConsidering the following sources, which one of these is your primary Considering the following sources, which one of these is your primary source for pre-sales product information in the purchasing process?source for pre-sales product information in the purchasing process?

Information SourceInformation Source ResellersResellers ISPs/ASPs ISPs/ASPs

Distributor telesales repDistributor telesales rep 27.7%27.7% 13.3%13.3%


Product manufacturer sales repProduct manufacturer sales rep16.7%16.7% 31.6%31.6%

Product manufacturer Internet siteProduct manufacturer Internet site 28.3%28.3% 40.8%40.8%

Online retailer/catalog Internet siteOnline retailer/catalog Internet site 6.7%6.7% 9.2%9.2%



Primary Customer BasePrimary Customer BaseFor Resellers and ISPs/ASPsFor Resellers and ISPs/ASPs

Which of the following size businesses reflects your company’s Which of the following size businesses reflects your company’s primary customer base in terms of largest percentage of sales in last primary customer base in terms of largest percentage of sales in last 12 months?12 months?

Number of Employees at CustomerNumber of Employees at Customer ResellersResellersISPs/ASPs ISPs/ASPs

One to 20One to 20 31.4%31.4% 26.5%26.5%

21 to 10021 to 100 27.8%27.8% 25%25%

101 to 500101 to 500 16.1%16.1% 22.1%22.1%

More than 500More than 500 24.7%24.7% 26.5%26.5%





Product Type PurchasesProduct Type PurchasesThrough Distributor TelesalesThrough Distributor TelesalesWhat percent of the total amount your company spends on these products is What percent of the total amount your company spends on these products is spent specifically on purchases transacted through a distributor telesales rep?spent specifically on purchases transacted through a distributor telesales rep?

Product TypeProduct TypeResellersResellers ISPs/ASPsISPs/ASPs

Hardware systems Hardware systems 21.7%21.7% 22.7%22.7%

Network hardwareNetwork hardware 15.0%15.0% 16.6%16.6%

ComponentsComponents 13.5%13.5% 13.0%13.0%

Storage productsStorage products 13.2%13.2% 13.1%13.1%

Printers and monitorsPrinters and monitors 13.5%13.5% 11.7%11.7%

Application softwareApplication software 12.1%12.1% 9.7%9.7%

Systems softwareSystems software 11.1%11.1% 13.2%13.2%

Reseller base: varies (September 2000)Reseller base: varies (September 2000)

ISP/ASP base: varies (September 2000)ISP/ASP base: varies (September 2000)



Percent of Sales ThroughPercent of Sales ThroughPrimary DistributorPrimary Distributor

What percent of your total computer product purchases from all What percent of your total computer product purchases from all distributors was made from your primary distributor . . . In other words, distributors was made from your primary distributor . . . In other words, the distributor that accounted for the most business with your company?the distributor that accounted for the most business with your company?



Average Percent through Primary Distributor

62.8%63.0%

Resellers ISPs/ASPs




Credit Terms UsedCredit Terms UsedBy Second-Tier OrganizationsBy Second-Tier OrganizationsWhat credit terms are used by your company toWhat credit terms are used by your company topurchase computer products from distributors?purchase computer products from distributors?

Type of Credit TermType of Credit Term ResellersResellers ISPs/ASPsISPs/ASPs

Net 30 DaysNet 30 Days 73.1%73.1% 73.6%73.6%

Credit CardCredit Card 34.5%34.5% 36.1%36.1%

Cash on DeliveryCash on Delivery 29.3%29.3% 22.2%22.2%

Net 15 DaysNet 15 Days 14.1%14.1% 9.7%9.7%

Net 45 DaysNet 45 Days 10.3%10.3% 9.7%9.7%

Net 60 Days or MoreNet 60 Days or More 10.3%10.3% 13.9%13.9%

End Customer-Based FinancingEnd Customer-Based Financing 7.9%7.9% 12.5%12.5%

Escrow AccountEscrow Account 3.1%3.1% 1.4%1.4%



Projected Second-TierProjected Second-TierPurchasing SourcesPurchasing SourcesIn the next 12 months, what percent of your company’s purchases will In the next 12 months, what percent of your company’s purchases will be made and ordered from the following sources?be made and ordered from the following sources?

SourceSource ResellersResellers ISPs/ASPsISPs/ASPs

Distributor sales repDistributor sales rep 43.2%43.2% 20%20%


EDI/XML-Based distributor orderEDI/XML-Based distributor order 2.8%2.8% 5.4%5.4%

Direct through manufacturer repDirect through manufacturer rep 12.1%12.1% 26.2%26.2%

Manufacturer Internet siteManufacturer Internet site 5.8%5.8% 14.9%14.9%

Online retailerOnline retailer 4.2%4.2% 8.8%8.8%

Local resellerLocal reseller 9.8%9.8% 12.5%12.5%






Importance Ratings of Pre-Sales Services Importance Ratings of Pre-Sales Services Provided by DistributorsProvided by DistributorsRate the importance of each factor on a scale ofRate the importance of each factor on a scale of1 (not important at all) to 5 (most important).1 (not important at all) to 5 (most important).

Pre-Sales FunctionPre-Sales Function ResellersResellers ISPs/ASPs ISPs/ASPs

Ability for distributor to provideAbility for distributor to providesystems configuration and assemblysystems configuration and assembly 3.33.3 2.92.9

Availability of marketing and/or sales toolsAvailability of marketing and/or sales toolsfrom distributor’s Internet sitefrom distributor’s Internet site 3.23.2 3.03.0

Credit extended by distributorCredit extended by distributor 2.72.7 3.43.4

Pre-sales informationPre-sales information 2.32.3 3.13.1

Lowest pricing availableLowest pricing available 2.12.1 3.13.1

Relationship/trust w/distributor telesales repRelationship/trust w/distributor telesales rep 1.91.9 3.03.0




Importance Ratings of Logistical Support & Importance Ratings of Logistical Support & Services Provided by DistributorsServices Provided by Distributors

Please rate the importance of each factor on a scale ofPlease rate the importance of each factor on a scale of1 (not important at all) to 5 (most important)1 (not important at all) to 5 (most important)

Logistical Support and/or ServiceLogistical Support and/or Service ResellersResellers ISPs/ASPs ISPs/ASPs

Ability of distributor to provide logisticsAbility of distributor to provide logisticsand delivery of products on outsourced basisand delivery of products on outsourced basis2.92.9 2.92.9

Post-sale tech support on multiple productsPost-sale tech support on multiple products2.32.3 2.82.8

One-stop shoppingOne-stop shopping 2.12.1 3.03.0

Post-purchase logistical supportPost-purchase logistical support 2.02.0 2.82.8

Ability to determine availability andAbility to determine availability andshipment location of productsshipment location of products 2.02.0 3.13.1




Importance Ratings of E-Commerce Importance Ratings of E-Commerce Services Provided by DistributorsServices Provided by Distributors

Considering the following reasons as to why your company Considering the following reasons as to why your company purchases computer products from distributors, please rate the purchases computer products from distributors, please rate the importance of each factor on a scale of 1 (not important at all) to 5 importance of each factor on a scale of 1 (not important at all) to 5 (most important).(most important).

e-Commerce Servicee-Commerce Service ResellersResellers ISPs/ASPsISPs/ASPs

Ability for Online InvoicingAbility for Online Invoicing 3.53.5 2.92.9

Ability for Distributor to ProvideAbility for Distributor to Provide

an “Electronic Storefront”an “Electronic Storefront” 3.33.3 2.92.9



Satisfaction LevelsSatisfaction LevelsWith Pre-Sales ServicesWith Pre-Sales ServicesHow would you rate your company’s satisfaction with your primary distributor in How would you rate your company’s satisfaction with your primary distributor in the following areas, where 1 is not satisfied at all and 5 is extremely satisfied? the following areas, where 1 is not satisfied at all and 5 is extremely satisfied?

Pre-Sales ServicePre-Sales Service ResellersResellers ISPs/ASPs ISPs/ASPs

Availability of marketing and/or sales toolsAvailability of marketing and/or sales toolsfrom distributor’s internet sitefrom distributor’s internet site 3.03.0 2.92.9

Ability for distributor to provide systemsAbility for distributor to provide systemsconfiguration & assembly on outsourced basisconfiguration & assembly on outsourced basis 2.82.8 2.92.9

Navigation, information and orderingNavigation, information and orderingfunctionality on internet sitefunctionality on internet site 2.72.7 3.03.0

Provides access to necessary credit termsProvides access to necessary credit terms 2.32.3 3.03.0

Provides necessary pre-sales technical infoProvides necessary pre-sales technical info 2.32.3 3.03.0

Provides access to informed account repProvides access to informed account rep 2.22.2 2.92.9





Satisfaction LevelsSatisfaction LevelsWith Logistics & Post-Sale ServicesWith Logistics & Post-Sale Services

How would you rate your company’s satisfaction with your primary distributor in How would you rate your company’s satisfaction with your primary distributor in the following areas, where 1 is not satisfied at all and 5 is extremely satisfied?the following areas, where 1 is not satisfied at all and 5 is extremely satisfied?

Logistic or Post-Sale ServiceLogistic or Post-Sale Service ResellersResellers ISPs/ASPsISPs/ASPs

Ability of distributor to provide logistics andAbility of distributor to provide logistics anddelivery of products on an outsourced basisdelivery of products on an outsourced basis 2.62.6 3.03.0

Post-sale technical supportPost-sale technical support 2.42.4 2.92.9

Provides aggregation of multiple productsProvides aggregation of multiple productsand brands under single orderand brands under single order 2.12.1 3.13.1

Ability to handle product returnsAbility to handle product returns 2.02.0 2.92.9

Provides timely information on product pricing,Provides timely information on product pricing,availability and warehouse locationavailability and warehouse location 1.91.9 2.92.9

Provides timely order confirmation & tracking infoProvides timely order confirmation & tracking info 1.91.9 2.92.9

Accurate and on-schedule shipmentsAccurate and on-schedule shipments 1.81.8 2.92.9





Value of Primary DistributorValue of Primary DistributorTo Overall BusinessTo Overall Business

Considering such issues as access to product information, credit, and Considering such issues as access to product information, credit, and ordering and shipment of products, please rate the value of your primary ordering and shipment of products, please rate the value of your primary distributor to your company’s overall business on a scale of 1, no value, to 5, distributor to your company’s overall business on a scale of 1, no value, to 5, extremely valuable.extremely valuable.



Average Rating of Primary Distributor

3.84.0

1.0

2.0

3.0

4.0

5.0

Reseller ISPs/ASPs



Core Competencies of DistributorsCore Competencies of Distributors

Computer product manufacturers report that the core Computer product manufacturers report that the core competencies of their distributors are in the following areas:competencies of their distributors are in the following areas:

• Inventory managementInventory management

• Market coverageMarket coverage

• CreditCredit

• Product fulfillmentProduct fulfillmentand delivery logisticsand delivery logistics

• Order entryOrder entry

• MarketingMarketing

• Tech SupportTech Support

• Recruitment and Recruitment and trainingtraining

• Product configurationProduct configuration



Distributor OutlookDistributor Outlookon Market Dynamicson Market Dynamics

Overall Supply Chain Overall Supply Chain IssuesIssues

• Continued efforts by Continued efforts by manufacturers to drivemanufacturers to driveout costs and redundancies out costs and redundancies from indirect sales channelsfrom indirect sales channels

• Unbundling ofUnbundling ofdistributor servicesdistributor services

• Time to market pressure Time to market pressure from manufacturersfrom manufacturers

• Resolving legacy Resolving legacy payment terms for payment terms for manufacturers versus manufacturers versus new payment termsnew payment terms

• Deployment ofDeployment ofe-commerce strategiese-commerce strategies



Dynamics AffectingDynamics AffectingSecond-Tier CustomersSecond-Tier Customers

Regarding all of their second-tier customers, distributors Regarding all of their second-tier customers, distributors frequently cite the following challenges in meeting customer frequently cite the following challenges in meeting customer needs:needs:

• Tech supportTech support

• Inventory supportInventory support

• CreditCredit

• Utilization of distributor’s outsourcing servicesUtilization of distributor’s outsourcing services

• Adoption of e-commerce and supply chain toolsAdoption of e-commerce and supply chain tools



Fee-Based ServiceFee-Based ServiceOutlook by DistributorsOutlook by DistributorsTypes of fee-based services cited by distributors as revenue Types of fee-based services cited by distributors as revenue sourcessources

Demand generationDemand generation

Engineering servicesEngineering services

Configuration servicesConfiguration services

ManufacturingManufacturingand assemblyand assembly

Internet site Internet site development and development and hostinghosting

Financial servicesFinancial services

Technical supportTechnical support

Customer careCustomer care

Order managementOrder managementand accountingand accounting

Contract warehousingContract warehousing

Customized data Customized data reportingreporting

Outsourced tech supportOutsourced tech support

Certification trainingCertification training

Documents

Distribution Outlook