Networking vendor, Cisco Systems, is to cull one of its three distributors at the completion of a review process in October.
One of Express Data, LAN Systems or Tech Pacific will no longer be selling Cisco gear before the end of the year.
“We have started looking at consolidating the distribution program down to two,” director of commercial business for Cisco, Kip Cole, said. “We have asked each of the distributors to respond to Cisco with their interests and motivations and how they can contribute to our objectives.”
“It is not that we are unhappy with the performance of any of our partners,” he said. “It is an issue of volumes being a lot lower than they used to. The volume does not exist to support partner profitability. We would have hoped that the market would decide, but it hasn’t.”
Cole said the market had not forced a distributor out of the game by natural causes because even if volumes were falling, Cisco’s distributors were not keen to lose the agency.
"Cisco is a significant part of each of their businesses,” he said.
Cisco is making a concerted effort to ensure that it has a solid base of profitable partners – both in the distribution and reseller ranks – and is not timid about making hard decisions in order to achieve its goal.
“Unless our partners are profitable, they do not have the capacity to invest and grow our business,” he said.
“Historically, we would have said that partner profitability is not our problem,” Cole said. “We would have been satisfied that we have a good channel model - that the program had an even playing field without any distortions, and therefore the market would ultimately determine all. But without a profitable channel we cannot survive. We recognise that there is a need to help the industry.”
To ensure such profitability, Cole’s team is engaging in a lot more planning sessions with channel partners – either one on one with key partners or as geographical, vertical or solution-based groups.
Cole said Cisco was also recognising that it needs to align its channel programs with the new areas of technology it is focusing on.
The vendor has named IP telephony, storage networking, wireless, optical and security as its areas of focus. Cole said Cisco is introducing specific incentives to enhance the profitability of those partners selling more advanced technology.
These changes are an extension on Cisco’s move some three years ago to move its channel incentive programs from being based on volume to instead be based on value, he said.