Smart Vendors Are The Ones That Focus On Channel Partner Profitability

Should vendors worry about solution provider profitability? You bet they should. But they also have to think things through and not just throw programs and paperwork at the issue believing they will solve the problem. Oftentimes programs devised with good intentions merely end up costing the channel more money.

In today's environment, there is a hell of a lot more attention being paid to driving costs out of the profit equation as opposed to increasing the top-line portion of the math problem. This is understandable given the lack of innovation in the market and the feeling on the part of many that incremental sales will be hard to come by for the time being. Some think there is always another cost-cutting rock to turn over.

At the second annual Global Technology Distribution Summit earlier this month, Bob Moffat, senior vice president of Integrated Supply Chain at IBM, spoke extensively about how IBM is finding redundancies throughout its supply chain and is moving to eliminate them,and, in so doing, is making the entire chain more profitable.

One key element to Moffat's role is that his team isn't trying merely to discern how to drive costs out of IBM but rather how to drive them out of the supply chain entirely. There is a major distinction here, one of which we should all be aware.

Consider the following: After Moffat's presentation, I moderated a panel of distributors and solution providers about selling into the small-business market. One of the bigger topics of discussion surrounded the costs that solution providers incur in filling out the forms that vendors require in order for them to get reimbursed for back-end rebates and other incentives.

This issue, of course, has been around longer than I have been covering this market. And from the looks of it, it will be around for many years after I'm gone.

It's understandable that vendors need proof that certain activities took place if they are to pay out program discounts. What doesn't make sense, however, is why every vendor has to have different requirements and forms that solicit the same information over and over again.

There may be an opportunity for the distribution channel, via the Global Technology Distribution Council (GTDC), to step in and standardize the procedure and cut costs for their solution provider customers as well as for their product suppliers. A driving force such as GTDC is needed to get multiple vendors to agree upon standards.

While IBM's efforts through Bob Moffat are noteworthy,

it is not the only vendor making strides. Cisco has been very vocal about its focus on partner profitability, especially over the past few weeks. One recent change to the Cisco program is already winning accolades from solution providers: The networking company said it will drop a 1 percent fee it was charging partners to administer its eAgent program, under which Cisco handles financing, billing and delivery for its partners' customers.

And, in another attempt to ease financing issues, Cisco also recently announced a 24-month lease program that should allow partners to acquire demo equipment more easily.

A profitable channel keeps a vendor's sales and service costs down and allows it to capture the widest customer base possible. Solution providers would prefer to sell products from suppliers that require minimal paperwork and are the most profitable for them.

IBM and Cisco seem to understand this better than most. Maybe it's one of the reasons both vendors are doing better than much of their competition.