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The State of Distribution

The State of Distribution. TIM CURRAN Chief Executive Officer / GTDC Sept. 22, 2010. The Industry Crossroads. P O L L. LEA. T O D A. A H E A D . E RS . Y. O U. F. D I T Y. !. R E B O U N D .

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The State of Distribution

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  1. The State of Distribution TIM CURRAN Chief Executive Officer / GTDC Sept. 22, 2010

  2. The Industry Crossroads P O L L LEA T O D A A H E A D E RS Y O U F D I T Y ! R E B O U N D

  3. Who Are You With? • Vendor • Distributor • Other

  4. How Do You View Current Market Conditions? • Excellent, great overall demand • Good, getting better • Soft, but some pockets of growth • With my eyes closed

  5. Distribution Industry Results • Year-over-year sales now show U.S. and Europe getting back on track • Economic slowdown in 2009 broke trend of continuous industry growth Source: GTDC Member Data

  6. How Are Your Gross Margins? • Better than ever • Relatively strong • Stable • Declining

  7. Distribution Industry Results • Maintaining relatively stable gross margins over past five years • Pricing pressure caused decline in 2009 as volume slowed, along with other significant factors • Semiconductor pricing • Lower margins in Asia Source: GTDC Member Data

  8. What’s Your Company’s Stance on Costs • Still in cost-cutting mode • Increasing strategic investments to support growth • No longer cutting costs but not increasing them either • Not really sure

  9. Distribution Industry Results • Strong response to contracting economic conditions • Distributors drove SG&A down from 6.9% of sales in 2002 to 5.7% in 2009 Source: GTDC Member Data

  10. Distribution Industry Results • Distributors maintain superior working capital velocity and high same-day shipping/fill rates • Working Capital =Net Sales or COGS / Net Working Capital (current assets - liabilities) IT Distribution industry has lowest inventory-to-sales ratio of all wholesale industries! ― Pembroke Consulting Source: GTDC Member Data

  11. IT Distribution Excels at Inventory Mgmt. Monthly average inventory-to-sales ratio fluctuates significantly for distributors across ALL industries

  12. IT Distribution Excels at Inventory Mgmt. IT Distribution’s monthly average ratiois more stable and significantly lower than average of all wholesale industries

  13. Return on Human Capital “This sector continues to improve labor productivity more than any other sector of the wholesale distribution industry.”

  14. Do You Know Your Costs by Channel? • Yes, I have a clear understanding of costs by sales channel • No, internal costs by channel are not fully visible • I have no visibility to my channel costs • “Don’t ask / don’t tell” policy

  15. Knowing Actual Costs by Channel is Crucial • Warranty &Returns • Shipping, Handling & Warehousing • Collections • Market Development Funds • Price Protection Costs of IT Distribution • Inventory Financing • Accounts Receivables Financing

  16. The Numbers Reveal the Reality! • Networking • Systems • Peripherals • DISTRIBUTIONPROVEN #1most cost-effective overall route to market! • Storage • Software

  17. Operating Margin Gross margin pressure during the economic downturn caused operating margin decline. Source: GTDC Member Data

  18. “Disty Tax” or “DistyMax” (Value)? Variable, low-cost infrastructure Credit services (risk mitigation) Channel marketing Information delivery Account management Authorizations Technical services Training Program management Solution recommendations Inventory management Fulfillment per dollar = 150 million + items shipped each year 100 million + software licenses managed annually 5 million + inbound calls annually $5 billion+ of credit extended to channel each year 2 million+ line items annually 50,000+ individual customers each month

  19. Making Strategic Investments to Grow with You

  20. The Industry Crossroads LEA D E R S P O L L T O D A A H E A Y O F D I T Y ! R E B O U N D

  21. Monthly U.S. Distribution Sales Source: The NPD Group / Distributor Track

  22. NPD Weekly Data Through September 2010 Source: The NPD Group / Distributor Track / Distributors Weekly : Avnet, Bell Micro, D&H Distributing Company (available for networking categories only), Ingram Micro, Synnex, Tech Data, Westcon

  23. USA Monthly Distribution Units vs ASP Source: The NPD Group / Distributor Track

  24. Total U.S. Quarterly Software Sales Source: The NPD Group / Distributor Track

  25. U.S. Software Revenue by Major Category Index: Q1 2008 = 100 Source: The NPD Group / Distributor Track

  26. Europe Weekly Panel Sales Source: Context: Sales Watch Distribution: The Panel - ‘Overview’

  27. PC Rebound by Sub-Category REVENUE LEADERSNotebook Computers Lenovo Hewlett Packard Panasonic Apple Sony Source: The NPD Group / Distributor Track

  28. Rebound Analysis by Major Category REVENUE LEADERSTotal Printers Hewlett Packard Lexmark Xerox Brother Epson Source: The NPD Group / Distributor Track

  29. Rebound Analysis by Major Category REVENUE LEADERSWiredNetworking Cisco Systems Hewlett Packard F5 Networks Nortel Networks IBM Source: The NPD Group / Distributor Track

  30. Rebound Analysis by Major Category REVENUE LEADERSWirelessNetworking Cisco Systems Linksys Group Sonicwall Inc Hewlett Packard D-Link Source: The NPD Group / Distributor Track

  31. Rebound Analysis by Misc. Category REVENUE LEADERSColor Televisions Sony Samsung Sharp Vizio LG Source: The NPD Group / Distributor Track

  32. U.S. ASP Indexed by Major Product Category Communication/Networking ASP held up best during full time period. ASPs declined the most in Q1 2009 and have risen since then for most product categories. Notebook ASPs continued to drop through Q2 2009 but have improved since then. Source: The NPD Group / Distributor Track

  33. Sources of Growth • Infrastructure • “Prosumer” • Mobility • Cloud • Virtualization • New entrants

  34. “Inside the Upside” GTDC Member Survey • Identifying common traits of fastest-growing vendors in IT distribution • Top 9 vendors in U.S. growth, based on NPD Distributor Track data, across three revenue categories • $20 million - $100 million • $100 million - $300 million • $300 million + • Each participating distributor’s corresponding vendor contacts rated key success factors for their respective partnerships

  35. “Inside the Upside” GTDC Member Survey Top-Rated Success Factors (after Product Innovation and Technical Support): #1 Inventory Management #2 Product Launch Planning #3 HQ Support #4 Distributor Rebate Incentives #5 Channel Program

  36. The Industry Crossroads P O L LOVE LEA D E R T O D A ! A H A YOUR F D I S T Y E B O U N D

  37. Recovery & the New Reality • The worst looks to be over, but economic uncertainty continues • Cost controls remain tighter than ever • Decision-making needs to be sharper, more fully informed • Finding and capitalizing on growth opportunities requires methodical planning and execution

  38. Tighter Partnerships are the Answer Distributors are … • Financially strong, efficient business partners with low, variable-cost infrastructure • Positioned to help you growin targeted market segments now and as demand improves • Delivering the channel value and coverage to maximize success locally, regionally AND globally

  39. Setting a Clear Course Forward “The pessimist complains about the wind.”

  40. Setting a Clear Course Forward “The optimist expects it to change.”

  41. Setting a Clear Course Forward “The realist adjusts the sails.”

  42. THANK YOU!

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