E&HT supply chain model needs to be adapted to the market needs

Filed in archive Point of view on December 4, 2008

The direct model of sales pioneered by companies like Dell was being admired for many years but with the recent difficulties associated with this supply chain model, especially in emerging markets, there is a need for rethinking E&HT supply chain.

One recent study by McKinsey & Co. titled "Rethinking high-tech distribution" suggests that Electronic manufacturers need to go for a collaborative model with two tier distributors in order to win; while having the direct model available only for certain market segments.

The authors of the report for the study believe that going for direct model works only for big clients and in developed world, therefore they suggest the following reasons to create a hybrid supply chain model; also focusing on distribution channel collaboration:

- In emerging markets, deals are smaller, so the cost of a manufacturer's direct sales force is prohibitive in comparison with the cost of using a distributor. Such distributors sell multiple brands of hardware and software so they can gain scale and serve these markets more effectively.

- The distributors also have well-established and integrated networks of value-added resellers (VARs) focusing on specific customer segments, geographies, and industries. Small and midsize enterprises prefer to buy from these small resellers, which understand their needs and are often located nearby.

- Further, local resellers are better at assessing credit risk in emerging markets and are more likely than large manufacturers to finance smaller deals.

- Finally, manufacturers sometimes have considerable difficulty forecasting sales in developing economies and building the necessary expertise to address them. A distributor with a network of resellers can mitigate credit risk for manufacturers by taking some of that risk on its own books and tap the local market knowledge of its resellers.

Do you agree?