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Sales Fulfillment Through Indirect Channels

Sales Fulfillment Through Indirect Channels. Global Technology Distribution Council. Reality Research completed 15 in-depth qualitative interviews with executive-level participants from major computer hardware and software manufacturers.

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Sales Fulfillment Through Indirect Channels

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  1. Sales FulfillmentThrough Indirect Channels Global Technology Distribution Council

  2. Reality Research completed 15 in-depth qualitative interviews with executive-level participants from major computer hardware and software manufacturers. Interviewing took place from March 1 through March 30, 2001. Respondents were recruited from proprietary Reality sources. The screening process confirmed that respondents were most knowledgeable about sales fulfillment through indirect channels at their organizations. Findings from the research provide insight into sales fulfillment through indirect channels and are not intended for statistical analysis. Methodology

  3. Reality Research uses the term “direct” in this study to refer to vendor direct fulfillment to solution providers. Third party fulfillment sources include express delivery services. Other methods of fulfillment include OEM fulfillment, such as Intel’s traditional distribution of components to OEMs. Definition of terms

  4. Most vendors depend on first-tier distributors to fulfill the bulk of their product sales to solution providers. Vendors single out market coverage as the most critical strategic role that first-tier distributors play in vendor sales strategies. Accountability overshadows solution provider purchases from Web sites. Solution providers still view their role as the purchaser and installer of products for end-customers. Any factor that might disturb timely flow of product—including Web site service disruptions—puts solution providers at risk. Seven in 15 vendors say it will be very important or extremely important to outsource product fulfillment logistics to a distributor or other third party, in the event of an economic downturn. Looking ahead through 2001, vendors are evenly split when it comes to adjusting sales fulfillment tactics, with a third each planning to leave tactics unchanged, or to either increase or decrease the percent of sales fulfilled via first-tier distributors. Two vendors plan to omit fulfillment through other sources such as express delivery in 2001, indicating that express delivery is falling short of expectations. Key Findings and Market Summary

  5. Cisco Computer Associates IBM Intel Kingston Seagate Sony 3Com ViewSonic Xerox Vendor Respondents • Lexmark • NEC • Nortel • Oracle • Quantum

  6. “I can tell you that Sun is a very channel-friendly company and we consider our partners absolutely vital to our success.” Debbie Walery Sun Channels Media Manager Comment from Vendor Declining to Respond

  7. Fulfillment Of Product Sales in 2000, By Vendor • Thinking about your company’s product sales, what percentage of all product sales to solution providers in 2000 was fulfilled by: * • First-tier Direct Third distributors by vendor party Other • Cisco 74% 14% 12% — • Computer Associates 95% 5% — — • IBM PC Division 60% 40% — — • Intel 25% 10% — 65% • Kingston 50% 45% — 5% • Lexmark NA NA NA NA • NEC 70% 10% 20% — • Nortel 80% 20% — — *Other methods not specified, except by Kingston, which cited end-customer company accounts Source: Reality Research

  8. In 2001, Intel anticipates a 10-point increase in the percent of product sales to solution providers that it fulfills via first-tier distributors, to 35 percent. Intel’s new generation of products-- including shrink-wrapped solutions that bundle hardware and software into a usable product--are one reason for its increased reliance on first-tier distributors this year, as Intel turns to the indirect channel for account penetration and end-customer support from solution providers. Intel’s “Other” Fulfillment Methods

  9. Fulfillment Of Product Sales in 2000, By VendorContinued… • Thinking about your company’s product sales, what percentage of all product sales to solution providers in 2000 was fulfilled by: * • First-tier Direct Third distributors by vendor party Other • Oracle 100% — — — • Quantum 99% 1% — — • Seagate 100% — — — • Sony 82% 10% 8% — • 3Com 80% 10% — 10% • ViewSonic 80% 20% — — • Xerox 80% 10% 10% — *Other methods not specified, except by Kingston, which cited end-customer company accounts Source: Reality Research

  10. Vendors Increasing FulfillmentVia First-Tier Distributors In 2001 For 2001, what percentage of all product sales to solution providers do you estimate will be fulfilled by….. First-tier Direct Third distributors by vendor party Approach Cisco 76% 10% 14% Trim direct (up from 74%) (down from 14%) (up from 12 %) fulfillment • Intel 35% 5% — Trim direct (up from 25%) (down from 10%) fulfillment • NEC 80% 20% 0% Eliminate (up from 70%) (up from 10%) (down from 20%) 3rd parties • Sony 85% 15% 0% Eliminate (up from 82%) (up from 10%) (down from 8%) 3rd parties • ViewSonic 100% 0% — Omit direct (down from 20%) fulfillment  Source: Reality Research

  11. To adjust for the gains through first-tier distribution, two vendors--NEC and Sony--plan to eliminate fulfillment through third parties. Another two vendors--Cisco and Intel--expect to trim direct fulfillment. ViewSonic plans to omit direct paths and fulfill entirely through first-tier distributors. How Vendors Will Increase Fulfillment Through First-tier Distribution

  12. Vendors Decreasing FulfillmentVia First-Tier Distributors In 2001 For 2001, what percentage of all product sales to solution providers do you estimate will be fulfilled by*….. First-tier Direct Third distributors by vendor party Approach • CA 85% 15% — Boost direct (down from 95%) 15% (up from 5%) fulfillment • Quantum 84% 6% 10% Boost direct (down from 99%) (up from 1%) (up from 0%) Add 3rd party • 3Com 70% 10% — Increase other (down from 80%) (unchanged) to 20% • Xerox 65% 20% 15% Increase direct (down from 80%) (up from 10%) (up from 10%) & 3rd parties *Other sources were not specified by 3Com Source: Reality Research

  13. 2001 Overview: Fulfillment of Product Sales, By Vendor For 2001,what percentage of all product sales to solution providers do you estimate will be fulfilled by: * • First-tier Direct Third distributors by vendor party Other • Cisco 76% 10% 14% — • Computer Associates 85% 15% — — • IBM PC Division 60% 40% — — • Intel 35% 5% — 60% • Kingston 50% 45% — 5% • Lexmark NA NA NA NA • NEC 80% 20% — — • Nortel NA NA NA NA * Kingston’s other sources includes end-customer company accounts under its workstation division or PC manufacturers that Kingston sells its branded product to for end-customer companies Source: Reality Research

  14. Nortel’s Senior Manager of Channel Programs Kathy Kirby noted the company is making “significant changes to channel and distribution methodology” and that the new program would “rely as much or more on existing partner/distribution outsourcing.” Nortel’s 2001 Fulfillment Comment

  15. 2001 Overview: Fulfillment of Product Sales, By Vendor Continued… • For 2001, what percentage of all product sales to solution providers do you estimate will be fulfilled by:* • First-tier Direct Third distributors by vendor party Other • Oracle 100% — — — • Quantum 84% 6% 10% — • Seagate 100% — — — • Sony 85% 15% — — • 3Com 70% 10% — 20% • ViewSonic 100% — — — • Xerox 65% 15% 15% 5% * Kingston’s other sources includes end-customer company accounts under its workstation division or PC manufacturers that Kingston sells its branded product to for end-customer companies Source: Reality Research

  16. ImportanceVendor rating Sony 5+ Nortel 5 Quantum 5 CA 4 NEC 4 3Com 4 ImportanceVendor rating ViewSonic 4 Cisco 3 IBM PC Division 3 Intel 1 Kingston 1 Oracle 1 Outlook For Outsourcing Product Fulfillment Logistics In the event of an economic downturn and the need arises to strengthen your company’s balance sheet by variabalizing fixed costs, would it be helpful to be able to outsource product fulfillment logistics to a distributor or other third party? 5=extremely important: * • *Lexmark, Seagate and Xerox declined to respond. Source: Reality Research

  17. Importance of Strategic Support From First-Tier Distributors Considering the role of your first-tier distributors in your sales strategy, please rate the following functions in terms of how important they are to your company’s sales strategy. 5 =extremely important: * • Vendor Market Prod. Fulfillment Inventory Recruits and Coverage & Logistics Management Trains SPs • Cisco 5 5 5 5 • CA 4 5 5 3 • IBM PC Division 5 4 4 3 • Intel 4 4 3 2 • Kingston 5 4 3 1 • Lexmark 4 5 5 4 • NEC 5 3 3 5 • Nortel 4 5 4 5 Source: Reality Research

  18. Importance of Strategic Support From First-Tier Distributors continued… Considering the role of your first-tier distributors in your sales strategy, please rate the following functions in terms of how important they are to your company’s sales strategy. 5 =extremely important: * • Vendor Market Prod. Fulfillment Inventory Recruits and Coverage & Logistics Management Trains SPs • Oracle 5 4 1 5 • Quantum 4 4 2 1 • Seagate 4 4 3 3 • Sony 5 5 5 5 • 3Com 4 3 3 4 • ViewSonic 3 5 4 3 • Xerox 4 3 3 1 Source: Reality Research

  19. Importance of Tactical Support From First-Tier Distributors Considering the role of your first-tier distributors in your sales strategy, please rate the following functions in terms of how important they are to your company’s sales strategy. 5 = extremely important: * • Vendor Product Technical Prod. Config. Order Entry Credit Support Services Services • Cisco 3 5 5 5 • CA 5 5 2 3 • IBM PC Division 3 5 3 4 • Intel 5 5 2 4 • Kingston 5 4 1 2 • Lexmark 3 5 2 3 • NEC 4 4 4 3 • Nortel 4 5 3 4 Source: Reality Research

  20. Importance of Tactical Support From First-Tier Distributors continued… Considering the role of your first-tier distributors in your sales strategy, please rate the following functions in terms of how important they are to your company’s sales strategy. 5 = extremely important: * • Vendor Product Technical Prod. Config. order entry Credit support services services • Oracle 4 5 3 5 • Quantum 5 5 1 1 • Seagate 4 4 3 4 • Sony 5 5 5 5 • 3Com 4 4 2 3 • ViewSonic 5 5 2 2 • Xerox 4 4 1 1 Source: Reality Research

  21. Reflecting the fact that Sony leads the group in assigning an importance rating of more than 5 to outsourcing logistics, Sony also placed the most importance on both strategic and tactical support provided by first-tier distributors. Says Executive Vice President of Sales/North America Ken Harden: “We leverage our distributors—Tech Data, Ingram and the like—in all the ways their services are superior to what we offer. In particular, inventory, credit, shipping and recruitment.” Sony’s Emphasis on Support

  22. Importance of Product Information on Web Sites *Please rate the importance of the following functions of your company’s solution-provider dedicated Web site in terms of your overall solution provider program. 5=extremely important: * • Vendor Pre-sale Order and Post-sale • Product/Tech Pricing Shipment Tech Support • Cisco 5 5 5 5 • CA 4 2 2 4 • IBM PC Division 4 5 5 4 • Intel 4 2 NA* 5 • Kingston 4 5 5 5 • Lexmark 5 5 5 5 • NEC 5 4 4 4 • Nortel 3 4 2 4 *Intel Web process does not allow solution providers to directly book orders with Intel. Source: Reality Research

  23. Importance of Product Information on Web Sites Continued… *Please rate the importance of the following functions of your company’s solution-provider dedicated Web site in terms of your overall solution provider program. 5=extremely important: * • Vendor Pre-sale Order and Post-sale • Product/Tech Pricing Shipment Tech Support • Oracle 3 5 1 1 • Quantum 5 5 5 3 • Seagate 5 4 3 5 • Sony 4 2 1 3 • 3Com 5 5 5 3 • ViewSonic 5 5 3 4 • Xerox 5 5 5 4 Source: Reality Research

  24. Importance of Marketing Support On Web Sites Please rate the importance of the following functions of your company’s solution-provider dedicated Web site in terms of your overall solution provider program. 5=extremely important: * • SP Downloadable Distributor Partner • Program Mktng Info Lists for Locator/ Vendor Information Collateral Purchasing Search Engine • Cisco 5 4 5 5 • Computer Associates 5 5 5 3 • IBM PC Division 4 5 4 4 • Intel 5 4 4 4 • Kingston 2 3 2 2 • Lexmark 4 4 3 0 • NEC 5 5 4 3 Source: Reality Research

  25. Importance of Marketing SupportOn Web Sites Continued… Please rate the importance of the following functions of your company’s solution-provider dedicated Web site in terms of your overall solution provider program. 5=extremely important: * • SP Downloadable Distributor Partner • Program Mktng Info Lists for Locator/ Vendor Information Collateral Purchasing Search Engine • Nortel 5 4 3 5 • Oracle 5 3 5 5 • Quantum 5 5 3 4 • Seagate 4 3 4 4 • Sony 3 2 0 4 • 3Com 4 4 3 4 • ViewSonic 5 5 5 4 • Xerox 5 5 5 4 Source: Reality Research

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