GTDC Supply Chain Cost Study
September 2008
Study Objectives & Participants
1.
2.
Identify relevant mix of indirect
and direct sales channels
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
Costs of IT
Distribution
Analysis & Conclusions
September 2008
Study Methodology
►
Data collected through in-depth
interviews and surveys with
appropriate supply chain manager
at each participating supplier
CHANNELS ANALYZED
Two-Tier Distribution
VAR-Direct
Data based on 2007 financial results
in relation to U.S. sales channel
Enterprise Direct
►
All company data is confidential
Mail Order / Retail
►
Data is only presented on
aggregate basis
Web Direct
►
Comparing Sales Channels
Discount 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
2-Tier
Distribution
1-Tier
VAR Direct
Mfgr.
Direct
Mail Order/
Retail Direct
Web
Market Development Funds
3% - 4%
2% - 3%
0%
2% - 3%
0%
Price Protection
1% - 2%
0%
0%
1 - 2%
0%
MOST 2-Tier Distribution Costs Lower
CHANNEL:
2-Tier
Distribution
Shipping/Handling/Whsing
1% - 2%
Collections
1-Tier
VAR Direct
Mfgr.
Direct
Mail Order/
Retail Direct
Web
4% - 5%
3% - 4%
2% - 3%
5% - 6%
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%
Two-Tier Takeaways
 TWO-TIER
DISTRIBUTION
Lowest cost for B2B
and solution sales
Expand market reach
► Reduce investment in inventory
► Lower shipping, handling and
warehousing costs
► Optimize channel credit/collections
 MANUFACTURER►DIRECT
Provide better overall service to solution
Highest cost, focused providers
on select
►
large enterprises
Two-Tier Takeaways
MAIL ORDER/
RETAIL DIRECT
ONE-TIER
VAR DIRECT
►
Higher costs
TWO-TIER DISTRIBUTION
Average margins and sales
can
reduce
costs AND
dollars
per transaction
►
potentially
raise margins
Credit management
issues
►
►
Capacity challenges
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 Chains
Winter 2008
Distributors are…
“a strategic asset” that
vendors should “invest
in to build strong and
mutually beneficial
partnerships.”
THANK YOU!