GTDC Supply Chain Cost Study
September 2008
Study Objectives & Participants
1. Identify relevant mix of indirect and direct sales channels
2. Identify supply chain cost areas relevant to each sales channel
3. Quantify and compare supply chain costs by sales channel
4. Determine channel profitability by comparing total costs of reaching end users
5. Validate current reasons IT suppliers and VARs rely on distributors
Analysis & ConclusionsSeptember 2008
Costs of IT
Distribution
Study Methodology
► Data collected through in-depth interviews and surveys with appropriate supply chain manager at each participating supplier
► Data based on 2007 financial results in relation to U.S. sales channel
► All company data is confidential
► Data is only presented on aggregate basis
Two-Tier Distribution
VAR-Direct
Enterprise Direct
Mail Order / Retail
Web Direct
CHANNELS ANALYZED
Comparing Sales ChannelsDiscount from List
Special Bids / Spot Offers
MDF (Soft Dollars, Co-Op Advertising, Rebates)
Programs, Promotions, Marketing
AR Reserve / Credit Card Fees
Price Protection / Inventory Depreciation
Direct Sales, Advertising
Shipping, Handling, Warehousing
Collections
Warranty / Returns
Inventory / AR Financing Costs
Some 2-Tier Distribution Costs Higher
Market Development Funds 3% - 4% 2% - 3% 0% 2% - 3% 0%
Price Protection 1% - 2% 0% 0% 1 - 2% 0%
2-Tier 1-Tier Mfgr. Mail Order/ Distribution VAR Direct Direct Retail Direct Web
MOST 2-Tier Distribution Costs Lower
Shipping/Handling/Whsing 1% - 2% 4% - 5% 3% - 4% 2% - 3% 5% - 6%
Collections 0.5% - 1.5% 1.5% - 2.5% 1% - 2% 1% - 2% 0%
Warranty/Returns 1% - 2% 2% - 3% 2% - 3% 1.5% - 2.5% 3% - 4%
Inventory Financing 1% - 2% 2% - 3% 1.5% - 2.5% 1.5% - 2.5% 3% - 4%
A/R Financing 1% - 2% 1.5% - 2.5% 2% - 3% 1.5% - 2.5% 1% - 2%
2-Tier 1-Tier Mfgr. Mail Order/ Distribution VAR Direct Direct Retail Direct WebCHANNEL:
Two-Tier Takeaways TWO-TIER
DISTRIBUTIONLowest cost for B2B and solution sales
MANUFACTURER DIRECTHighest cost, focused on select large enterprises
► Expand market reach► Reduce investment in inventory► Lower shipping, handling and
warehousing costs► Optimize channel credit/collections► Provide better overall service to solution
providers
Two-Tier Takeaways
ONE-TIER VAR DIRECT
MAIL ORDER/RETAIL DIRECT
► Higher costs
► Average margins and sales dollars per transaction
► Credit management issues
► Capacity challenges
TWO-TIER DISTRIBUTION
can reduce costs AND
potentially raise margins
Two-Tier Takeaways
“All things equal, pushing more volume
through the Web would likely translate
into higher margins yet with
significantly higher costs in advertising,
promotions, discounts, etc.”
− IT Vendor Finance Manager
Two-Tier Takeaways
“…and distribution can
efficiently provide the
fulfillment.”
Two-Tier Takeaways
Complete B2B Solutions
One Web interface or sales team for all purchases
Consolidated inventory management Product and compatibility testing Configuration on behalf of VARs Bundled solutions shipped direct
to VARs’ customers
Two-Tier Takeaways
Regulatory Compliance
Export and Trade Control RoHS Transparency and accuracy of point
of sale (POS) reporting Sales and value added tax (VAT) Transfer Pricing support &
documentation Import duty reporting US Office of Foreign Assets Control
(OFAC) transaction procedures. US Foreign Corrupt Practices Act
Now is the Time to Capitalize
MCKINSEY&COMPANY Building Better Links in
High-Tech Supply ChainsWinter 2008
Distributors are…Distributors are…“a strategic asset” “a strategic asset” that vendors should that vendors should “invest “invest in to build strong in to build strong and mutually and mutually beneficial beneficial partnerships.”partnerships.”
THANK YOU!