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GTDC Supply Chain Cost Study

GTDC Supply Chain Cost Study. September 2008. Study Objectives & Participants. Identify relevant mix of indirect and direct sales channels Identify supply chain cost areas relevant to each sales channel Quantify and compare supply chain costs by sales channel

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GTDC Supply Chain Cost Study

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  1. GTDC Supply Chain Cost Study September 2008

  2. Study Objectives & Participants • Identify relevant mix of indirect and direct sales channels • Identify supply chain cost areas relevant to each sales channel • Quantify and compare supply chain costs by sales channel • Determine channel profitability by comparing total costs of reaching end users • Validate current reasons IT suppliers and VARs rely on distributors Analysis & ConclusionsSeptember 2008 Costs of IT Distribution

  3. Study Methodology CHANNELS ANALYZED • 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

  4. 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

  5. Some 2-Tier Distribution Costs Higher 2-Tier 1-Tier Mfgr. Mail Order/ Distribution VAR Direct Direct Retail Direct Web Market Development Funds3% - 4% 2% - 3% 0% 2% - 3% 0% Price Protection1% - 2% 0% 0% 1 - 2% 0%

  6. MOST 2-Tier Distribution Costs Lower 2-Tier 1-Tier Mfgr. Mail Order/ Distribution VAR Direct Direct Retail Direct Web CHANNEL: Shipping/Handling/Whsing1% - 2% 4% - 5% 3% - 4%2% - 3% 5% - 6% Collections0.5% - 1.5% 1.5% - 2.5% 1% - 2%1% - 2% 0% Warranty/Returns1% - 2% 2% - 3% 2% - 3%1.5% - 2.5% 3% - 4% Inventory Financing1% - 2% 2% - 3% 1.5% - 2.5%1.5% - 2.5% 3% - 4% A/R Financing1% - 2% 1.5% - 2.5% 2% - 3%1.5% - 2.5% 1% - 2%

  7. Two-Tier Takeaways • TWO-TIER DISTRIBUTIONLowest cost for B2B and solution sales • Expand market reach • Reduce investment in inventory • Lower shipping, handling and warehousing costs • Optimize channel credit/collections • Provide better overall service to solution providers • MANUFACTURER DIRECTHighest cost, focused on select large enterprises

  8. Two-Tier Takeaways • Higher costs • Average margins and sales dollars per transaction • Credit management issues • Capacity challenges Mail Order/Retail Direct TWO-TIER DISTRIBUTIONcan reduce costs AND potentially raise margins One-Tier VAR Direct

  9. 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

  10. Two-Tier Takeaways “…and distribution can efficiently provide the fulfillment.”

  11. Two-Tier Takeaways • 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 Complete B2B Solutions

  12. Two-Tier Takeaways • 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 Regulatory Compliance

  13. Now is the Time to Capitalize MCKINSEY&COMPANY Building Better Links in High-Tech Supply ChainsWinter 2008 Distributors are…“a strategic asset” that vendors should “invest in to build strong and mutually beneficial partnerships.”

  14. THANK YOU!

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