Sales Fulfillment Through Indirect Channels Global Technology Distribution Council

Reality Research & ConsultingReality Research & Consulting®

Sales FulfillmentSales FulfillmentThrough Indirect ChannelsThrough Indirect Channels

Global Technology Distribution CouncilGlobal Technology Distribution Council

Sales Fulfillment Through Indirect Channels


MethodologyMethodology

Reality Research Reality Research completed 15 in-depth completed 15 in-depth qualitative interviews with qualitative interviews with executive-level executive-level participants from major participants from major computer hardware and computer hardware and software manufacturers. software manufacturers.

Interviewing took place Interviewing took place from March 1 through from March 1 through March 30, 2001.March 30, 2001.

Respondents were recruited from Respondents were recruited from proprietary Reality sources. The proprietary Reality sources. The screening process confirmed that screening process confirmed that respondents were most respondents were most knowledgeable about sales knowledgeable about sales fulfillment through indirect fulfillment through indirect channels at their organizations.channels at their organizations.

Findings from the research provide Findings from the research provide insight into sales fulfillment insight into sales fulfillment through indirect channels and are through indirect channels and are not intended for statistical not intended for statistical analysis.analysis.



Definition of termsDefinition of terms

Reality Research uses the Reality Research uses the term “direct” in this study term “direct” in this study to refer to vendor direct to refer to vendor direct fulfillment to solution fulfillment to solution providers. providers.

Third party fulfillment Third party fulfillment sources include express sources include express delivery services.delivery services.

Other methods of Other methods of fulfillment include OEM fulfillment include OEM fulfillment, such as Intel’s fulfillment, such as Intel’s traditional distribution of traditional distribution of components to OEMs.components to OEMs.



Key Findings and Market SummaryKey Findings and Market Summary

Most vendors depend on first-tier Most vendors depend on first-tier distributors to fulfill the bulk of distributors to fulfill the bulk of their product sales to solution their product sales to solution providers. providers.

Vendors single out market Vendors single out market coverage as the most critical coverage as the most critical strategic role that first-tier strategic role that first-tier distributors play in vendor sales distributors play in vendor sales strategiesstrategies..

Accountability overshadows solution Accountability overshadows solution

provider purchases from Web sites. provider purchases from Web sites.

Solution providers still view their role as Solution providers still view their role as

the purchaser and installer of products the purchaser and installer of products

for end-customers. Any factor that might for end-customers. Any factor that might

disturb timely flow of product—including disturb timely flow of product—including

Web site service disruptions—puts Web site service disruptions—puts

solution providers at risk. solution providers at risk.

Seven in 15 vendors say it will be very Seven in 15 vendors say it will be very important or extremely important to important or extremely important to outsource product fulfillment logistics to outsource product fulfillment logistics to a distributor or other third party, in the a distributor or other third party, in the event of an economic downturn.event of an economic downturn.

Looking ahead through 2001, vendors Looking ahead through 2001, vendors are evenly split when it comes to are evenly split when it comes to adjusting sales fulfillment tactics, with a adjusting sales fulfillment tactics, with a third each planning to leave tactics third each planning to leave tactics unchanged, or to either increase or unchanged, or to either increase or decrease the percent of sales fulfilled decrease the percent of sales fulfilled via first-tier distributorsvia first-tier distributors..

Two vendors plan to omit fulfillment Two vendors plan to omit fulfillment through other sources such as express through other sources such as express delivery in 2001, indicating that express delivery in 2001, indicating that express delivery is falling short of expectations.delivery is falling short of expectations.



Vendor RespondentsVendor Respondents

CiscoCisco

Computer AssociatesComputer Associates

IBMIBM

IntelIntel

KingstonKingston

SeagateSeagate

SonySony

3Com3Com

ViewSonicViewSonic

Xerox Xerox

LexmarkLexmark

NECNEC

NortelNortel

OracleOracle

Quantum Quantum



Comment from Vendor Declining to RespondComment from Vendor Declining to Respond

““I can tell you that Sun is a I can tell you that Sun is a very channel-friendly very channel-friendly company and we consider company and we consider our partners absolutely our partners absolutely vital to our success.”vital to our success.”

Debbie WaleryDebbie Walery

Sun Channels Media Sun Channels Media ManagerManager



Fulfillment Of Product Sales in 2000, By VendorFulfillment Of Product Sales in 2000, By Vendor

Thinking about your company’s product sales, what percentage of all product Thinking about your company’s product sales, what percentage of all product sales to solution providers in 2000 was fulfilled by: *sales to solution providers in 2000 was fulfilled by: *

First-tierFirst-tier DirectDirect ThirdThirddistributorsdistributors by vendorby vendor partyparty OtherOther

CiscoCisco 74%74% 14%14% 12%12% ——

Computer AssociatesComputer Associates 95%95% 5%5% —— ——

IBM PC DivisionIBM PC Division 60%60% 40%40% —— ——

IntelIntel 25%25% 10%10% —— 65%65%

KingstonKingston 50%50% 45%45% —— 5%5%

LexmarkLexmark NANA NANA NANA NANA

NECNEC 70%70% 10%10% 20%20% ——

NortelNortel 80%80% 20%20% —— ——

*Other methods not specified, except by Kingston, which cited end-customer *Other methods not specified, except by Kingston, which cited end-customer company accountscompany accounts

Source: Reality ResearchSource: Reality Research



Intel’s “Other” Fulfillment MethodsIntel’s “Other” Fulfillment Methods

In 2001, Intel anticipates a 10-In 2001, Intel anticipates a 10-point increase in the percent of point increase in the percent of product sales to solution product sales to solution providers that it fulfills via first-providers that it fulfills via first-tier distributors, to 35 percent. tier distributors, to 35 percent.

Intel’s new generation of Intel’s new generation of products-- including shrink-products-- including shrink-wrapped solutions that bundle wrapped solutions that bundle hardware and software into a hardware and software into a usable product--are one reason usable product--are one reason for its increased reliance on for its increased reliance on first-tier distributors this year, first-tier distributors this year, as Intel turns to the indirect as Intel turns to the indirect channel for account penetration channel for account penetration and end-customer support from and end-customer support from solution providers. solution providers.



Fulfillment Of Product Sales in 2000, By VendorFulfillment Of Product Sales in 2000, By Vendor Continued…Continued…

Thinking about your company’s product sales, what percentage of all Thinking about your company’s product sales, what percentage of all product sales to solution providers in 2000 was fulfilled by: *product sales to solution providers in 2000 was fulfilled by: *


OracleOracle 100%100% —— —— ——

QuantumQuantum 99%99% 1%1% —— ——

SeagateSeagate 100%100% —— —— ——

SonySony 82%82% 10%10% 8%8% ——

3Com3Com 80%80% 10%10% —— 10%10%

ViewSonicViewSonic 80%80% 20%20% — — ——

XeroxXerox 80%80% 10%10% 10%10% — —

*Other methods not specified, except by Kingston, which cited end-customer company accounts*Other methods not specified, except by Kingston, which cited end-customer company accounts




Vendors Vendors Increasing Increasing FulfillmentFulfillmentVia First-Tier Distributors In 2001Via First-Tier Distributors In 2001

For 2001, what percentage of all product sales to solution providers do you For 2001, what percentage of all product sales to solution providers do you estimate will be fulfilled by…..estimate will be fulfilled by…..

First-tierFirst-tier DirectDirect ThirdThirddistributorsdistributors by vendorby vendor partyparty ApproachApproach

CiscoCisco 76% 76% 10%10% 14%14% Trim direct Trim direct (up from 74%)(up from 74%) (down from 14%) (down from 14%) (up from 12 %)(up from 12 %) fulfillmentfulfillment

IntelIntel 35% 35% 5%5% —— Trim directTrim direct(up from 25%)(up from 25%) (down from 10%) (down from 10%) fulfillmentfulfillment

NECNEC 80%80% 20%20% 0%0% EliminateEliminate(up from 70%)(up from 70%) (up from 10%) (up from 10%) (down from 20%)(down from 20%) 3rd parties3rd parties

SonySony 85%85% 15%15% 0%0% Eliminate Eliminate (up from 82%)(up from 82%) (up from 10%)(up from 10%) (down from 8%)(down from 8%) 3rd parties3rd parties

ViewSonicViewSonic 100%100% 0%0% —— Omit directOmit direct(down from 20%)(down from 20%) fulfillment fulfillment

Source: Reality Research Source: Reality Research



How Vendors Will Increase Fulfillment Through How Vendors Will Increase Fulfillment Through First-tier DistributionFirst-tier Distribution

To adjust for the gains To adjust for the gains through first-tier through first-tier distribution, two vendors--distribution, two vendors--NEC and Sony--plan to NEC and Sony--plan to eliminate fulfillment eliminate fulfillment through third parties. through third parties.

Another two vendors--Another two vendors--Cisco and Intel--expect to Cisco and Intel--expect to trim direct fulfillment. trim direct fulfillment.

ViewSonic plans to omit ViewSonic plans to omit direct paths and fulfill direct paths and fulfill entirely through first-tier entirely through first-tier distributors. distributors.



Vendors Vendors DecreasingDecreasing Fulfillment FulfillmentVia First-Tier Distributors In 2001Via First-Tier Distributors In 2001

For 2001, what percentage of all product sales to solution providers do you For 2001, what percentage of all product sales to solution providers do you estimate will be fulfilled by*…..estimate will be fulfilled by*…..

First-tierFirst-tier DirectDirect ThirdThirddistributorsdistributors by vendorby vendor partyparty ApproachApproach

CACA 85%85% 15%15% —— Boost directBoost direct(down from 95%)(down from 95%)15% (up from 5%)15% (up from 5%) fulfillmentfulfillment

QuantumQuantum 84%84% 6%6% 10%10% Boost directBoost direct(down from 99%)(down from 99%) (up from 1%)(up from 1%) (up from 0%)(up from 0%)Add 3rd partyAdd 3rd party

3Com3Com 70%70% 10%10% —— Increase otherIncrease other(down from 80%)(down from 80%) (unchanged)(unchanged) to 20%to 20%

XeroxXerox 65%65% 20%20% 15%15% Increase direct Increase direct (down from 80%)(down from 80%) (up from 10%) (up from 10%)(up from 10%)(up from 10%)& 3rd parties& 3rd parties

*Other sources were not specified by 3Com*Other sources were not specified by 3Com




2001 Overview: Fulfillment of Product Sales, By 2001 Overview: Fulfillment of Product Sales, By VendorVendor

For 2001,what percentage of all product sales to solution providers do For 2001,what percentage of all product sales to solution providers do you estimate will be fulfilled by: *you estimate will be fulfilled by: *


CiscoCisco 76%76% 10%10% 14%14% ——

Computer AssociatesComputer Associates 85%85% 15%15% —— ——

IBM PC DivisionIBM PC Division 60%60% 40%40% —— ——

IntelIntel 35%35% 5%5% —— 60%60%

KingstonKingston 50%50% 45%45% —— 5%5%

LexmarkLexmark NANA NANA NANA NANA

NECNEC 80%80% 20%20% —— ——

NortelNortel NANA NANA NANA NANA

* Kingston’s other sources includes end-customer company accounts under its workstation division or PC * 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 manufacturers that Kingston sells its branded product to for end-customer companies




Nortel’s 2001 Fulfillment CommentNortel’s 2001 Fulfillment Comment

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



2001 Overview: Fulfillment of Product Sales, By 2001 Overview: Fulfillment of Product Sales, By VendorVendor Continued…Continued…

For 2001, what percentage of all product sales to solution providers For 2001, what percentage of all product sales to solution providers do you estimate will be fulfilled by:*do you estimate will be fulfilled by:*


OracleOracle 100%100% —— —— ——

QuantumQuantum 84%84% 6%6% 10%10% ——

SeagateSeagate 100%100% —— —— ——

SonySony 85%85% 15%15% —— ——

3Com3Com 70%70% 10%10% —— 20%20%

ViewSonicViewSonic 100%100% —— —— ——

XeroxXerox 65%65% 15%15% 15%15% 5%5%

* Kingston’s other sources includes end-customer company accounts under its workstation division or PC * 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 manufacturers that Kingston sells its branded product to for end-customer companies




Outlook For Outsourcing Product Fulfillment Outlook For Outsourcing Product Fulfillment LogisticsLogistics

ImportanceImportanceVendorVendor ratingrating

SonySony 5+5+

NortelNortel 55

QuantumQuantum 55

CACA 44

NECNEC 44

3Com3Com 44

ImportanceImportanceVendorVendor ratingrating

ViewSonicViewSonic 44

CiscoCisco 33

IBM PC DivisionIBM PC Division 33

IntelIntel 11

KingstonKingston 11

OracleOracle 11

In the event of an economic downturn and the need arises to strengthen your 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 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?outsource product fulfillment logistics to a distributor or other third party?

5=extremely important: *5=extremely important: *

*Lexmark, Seagate and Xerox declined to respond.*Lexmark, Seagate and Xerox declined to respond.





Importance of Importance of StrategicStrategic Support From First-Tier Support From First-Tier DistributorsDistributorsConsidering the role of your first-tier distributors in your sales strategy, please rate the 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.following functions in terms of how important they are to your company’s sales strategy.

5 =extremely important: *5 =extremely important: *

VendorVendor Market Market Prod. Fulfillment Prod. Fulfillment InventoryInventory Recruits andRecruits and Coverage Coverage & Logistics& Logistics ManagementManagement TrainsTrains SPs SPs

CiscoCisco 55 55 55 55

CACA 44 55 55 33

IBM PC DivisionIBM PC Division 55 44 44 33

IntelIntel 44 44 33 22

KingstonKingston 55 44 33 11

LexmarkLexmark 44 55 55 44

NECNEC 55 33 33 55

NortelNortel 44 55 44 55


Reality Research & ConsultingReality Research & Consulting® Source: Reality Research Source: Reality Research

Importance of Importance of Strategic Strategic Support From First-Tier Support From First-Tier Distributors Distributors continued…continued…

Considering the role of your first-tier distributors in your sales strategy, please rate the 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 following functions in terms of how important they are to your company’s sales strategy.strategy.

5 =extremely important:5 =extremely important: * *

VendorVendor Market Market Prod. Fulfillment Prod. Fulfillment InventoryInventoryRecruits Recruits andand

Coverage Coverage & Logistics& LogisticsManagementManagement TrainsTrains SPsSPs

OracleOracle 55 44 11 55

QuantumQuantum 44 44 22 11

SeagateSeagate 44 44 33 33

SonySony 55 55 55 55

3Com3Com 44 33 33 44

ViewSonicViewSonic 33 55 44 33

XeroxXerox 44 33 33 11


Reality Research & ConsultingReality Research & Consulting® Source: Reality Research Source: Reality Research

Importance of Importance of Tactical Tactical Support From First-Tier Support From First-Tier DistributorsDistributors

Considering the role of your first-tier distributors in your sales strategy, please rate the 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.following functions in terms of how important they are to your company’s sales strategy.

5 = extremely important: *5 = extremely important: *

Vendor Vendor ProductProduct TechnicalTechnical Prod. Config.Prod. Config.Order EntryOrder Entry CreditCredit Support ServicesSupport Services ServicesServices


CACA 55 55 22 33





NECNEC 44 44 44 33





Importance of Importance of Tactical Tactical Support From First-Tier Support From First-Tier DistributorsDistributors continued…continued…

Considering the role of your first-tier distributors in your sales strategy, please 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 rate the following functions in terms of how important they are to your company’s sales strategy.company’s sales strategy.

5 = extremely important: *5 = extremely important: *

Vendor Vendor ProductProduct TechnicalTechnical Prod. Config.Prod. Config.order entryorder entry CreditCredit support servicessupport services servicesservices





3Com3Com 44 44 22 33





Sony’s Emphasis on SupportSony’s Emphasis on Support

Reflecting the fact that Sony leads Reflecting the fact that Sony leads

the group in assigning an importance the group in assigning an importance

rating of more than 5 to outsourcing rating of more than 5 to outsourcing

logistics, Sony also placed the most logistics, Sony also placed the most

importance on both strategic and importance on both strategic and

tactical support provided by first-tier tactical support provided by first-tier

distributors. distributors.

Says Executive Vice President of Says Executive Vice President of

Sales/North America Ken Harden: Sales/North America Ken Harden:

“We leverage our distributors—Tech “We leverage our distributors—Tech

Data, Ingram and the like—in all the Data, Ingram and the like—in all the

ways their services are superior to ways their services are superior to

what we offer. In particular, what we offer. In particular,

inventory, credit, shipping and inventory, credit, shipping and

recruitment.”recruitment.”



*Intel Web process does not allow solution providers to directly book orders with Intel.*Intel Web process does not allow solution providers to directly book orders with Intel.


Importance of Product Information on Web SitesImportance of Product Information on Web Sites*Please rate the importance of the following functions of your company’s *Please rate the importance of the following functions of your company’s solution-provider dedicated Web site in terms of your overall solution solution-provider dedicated Web site in terms of your overall solution provider program.provider program.


VendorVendor Pre-salePre-sale Order andOrder and Post-salePost-sale

Product/TechProduct/Tech Pricing Pricing ShipmentShipment Tech SupportTech Support


CACA 44 22 22 44


IntelIntel 44 22 NA*NA* 55



NECNEC 55 44 44 44





Importance of Product Information on Web Sites Importance of Product Information on Web Sites Continued…Continued…

*Please rate the importance of the following functions of your company’s solution-*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.provider dedicated Web site in terms of your overall solution provider program.


VendorVendor Pre-salePre-sale Order andOrder and Post-sale Post-sale Product/TechProduct/Tech Pricing Pricing ShipmentShipment Tech SupportTech Support





3Com3Com 55 55 55 33






Importance of Marketing Support Importance of Marketing Support On Web SitesOn Web Sites

Please rate the importance of the following functions of your company’s solution-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.provider dedicated Web site in terms of your overall solution provider program.


SPSP DownloadableDownloadable Distributor Distributor Partner Partner

ProgramProgram Mktng InfoMktng Info Lists forLists for Locator/ Locator/ VendorVendor InformationInformation CollateralCollateral PurchasingPurchasing Search EngineSearch Engine


Computer AssociatesComputer Associates 55 55 55 33





NECNEC 55 55 44 33


Reality Research & ConsultingReality Research & Consulting® Source: Reality ResearchSource: Reality Research

Importance of Marketing SupportImportance of Marketing SupportOn Web Sites On Web Sites Continued…Continued…

Please rate the importance of the following functions of your company’s solution-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.provider dedicated Web site in terms of your overall solution provider program.


SPSP DownloadableDownloadable Distributor Distributor Partner Partner

ProgramProgram Mktng InfoMktng Info Lists forLists for Locator/ Locator/ VendorVendor InformationInformation CollateralCollateral PurchasingPurchasing Search EngineSearch Engine






3Com3Com 44 44 33 44



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Sales Fulfillment Through Indirect Channels Global Technology Distribution Council