Quite a few rivals, competitors and observers of Ingram Micro I spoke to last week were quick to insist the international distribution giant's consolidation into one Sydney warehouse was symptomatic of serious trouble.
I suspect there was a degree of wishful thinking in this somewhat fuzzy logic. It would appear as though some people would just love to believe Ingram Micro is ripping up large amounts of money month after month with no signs of profit ever showing up in its books.
On the other hand, managing director Steve Rust would prefer to have us all believe the whole restructure is a win-win situation with better service for customers and more efficient operations for the distributor.
I suspect the reality is probably somewhere between the two.
Clearly Ingram Micro needs to trim costs to compete with Tech Pacific in the broad-based distribution stakes. Tech Pac has a distinct volume advantage, which allows it to run on thinner margins. Ingram has to be run with a tight fist if it is to stay in the game. Conditions in the channel are as fierce as they have ever been, with flat demand and competitive pressure forcing all distributors to run leaner operations. Ingram Micro is no different, but what its knockers are forgetting is that the Australian operation is a subsidiary of a company that generated $US25 billion in revenues last year. Companies of this size don't just go away. They have very deep pockets and Ingram Micro is still the only truly global distribution company focused solely on IT.
The Asia-Pacific region is an important part of its global strategy. Australia is the most advanced market in this region. No less than the president and COO of the whole global organisation told me in a recent interview that Ingram Micro is here to stay.
This latest move is simply about rationalising costs so profits can also grow at the same healthy rate as revenues. It is not the beginning of the end of Ingram Micro.
However, I do find it hard to completely swallow the company's positive spin on the benefits such a move will bring to its customers nor its skirting around the fact that many staff will be unemployed as a result.
Clearly there are operational benefits and cost efficiencies from integrating customer-facing sales staff and vendor-facing product staff, but one of Ingram's value propositions to the channel was to have Melbourne warehousing. Ingram will now only stock so-called "will-call" fast-moving items in Brisbane, Melbourne and Perth, which means there is a lot less inventory at hand in these markets. Resellers love to be able to have immediate access to as wide a range of products as possible.
Nor can I believe that offering all the Melbourne staff a position in Sydney will result in all the existing Melbourne staff retaining employment. It is better than not being offered the opportunity at all, but moving from Melbourne to Sydney is probably not an option for many of the call centre staff, who will be most affected.
Aside from the fact that the Harbour City is a more expensive place to live, there are many cultural differences and it is never easy for people to uproot from families, friends and homes to move 1,000 kilometres. It is a pity that those who don't accept the offer of employment in Sydney will have to resign, thereby eliminating Ingram's redundancy payout obligations.
The bottom line is that consolidating head-office functions into one location is a smart thing for Ingram Micro to do in the current channel environment. It is now in a position to better manage costs and better compete with its rivals, which previously had the advantage of larger volumes or smaller overheads.