The sudden partnership between Dell (Nasdaq: DELL) and distribution comes down to simple economics.
According to Rick Reid, president of Tech Data Canada, distribution is a business that is unable to charge more margin, while average selling prices continue to plummet.
Therefore, distributors need more products to generate more revenue and with Dell they have another vehicle.
For Dell, who along with other hardware manufacturers are facing the worst decline in PC sales in history (12 per cent for 2009 according to Gartner Research), speed to market is vital and distribution provides next day shipping, which is something Dell is unable to offer in a direct to channel relationship.
According to Reid, it was Dell who wanted to work with distribution.
“They came to the realization from the pressure from mutual reseller customers. The resellers see value in distribution and recommended to Dell that if they wanted to be a serious player in the channel they needed to be a supplier to the distribution channel,” Reid said.
He added that Dell channel partners can utilize distribution credit lines and add complimentary products to the Dell solution two options that were not available to resellers who the in direct relationship.
“You hear a lot about next day shipping and that is a big issue that can’t be done dealing directly with Dell,” Reid said.
While Reid views the Dell deal as a positive sign, he also understands that fences will some mending with his largest vendor partner HP Canada. Reid said that he called HP Canada 20 minutes before the announcement was to be made. HP Canada was disappointed, but not surprised, he added.
“You usually get two extremes whenever you talk about Dell. Many would say it could never happen and many others say it was inevitable.”Reid had to handle a similar situation nearly a decade ago between HP and Compaq. At the time, Compaq Canada was Tech Data Canada’s largest vendor partner and they too did not like, but understood the distributor’s business decision to include HP.
With two configuration centres in Canada, (Mississauga, Ont. and Richmond, B.C.) Tech Data Canada could play a major role in Dell’s build-to-order strategy. Reid thinks that the final touches of a hardware rollout such as asset tagging and software imaging can be done inside these two facilities.