Ingram Micro CEO discusses channel strategies

Ingram Micro CEO discusses channel strategies

Ingram Micro began to expand globally in 1989 with its acquisition of Softeurop, a software distributor based in Belgium. Today, Ingram provides products, technologies, programs and systems to 100,000- plus reseller customers in 120 countries. Most recently in May, Ingram agreed to buy Tulip Computers' production facilities in the Netherlands - designed to make built- to-order PCs with 48-hour delivery across Europe. IDG's Kalevi Nikulainen recently met with Ingram Micro CEO Jerre Stead to discuss the wholesale distributor's global strategyIDG: There has been recent talk about the possibility that Scribona (a European distributor) is for sale. Would that kind of company interest you?

Stead: We look at all potential acquisitions of regional, local-country distributors. In that case (of Scribona) it would be a very complicated one because they are both a reseller and a distributor. And we feel very good about our Scandinavian position today. In this case we are probably much better to stick to internal growth rather than acquiring a regional company.

IDG: How long does it usually take for you to integrate an acquisition?

Stead: Our objective is never to go more than three quarters without having made all the computer conversions necessary and to add more vendor relations to the acquisitions we make.

IDG: Could you talk a bit about competition. CHS has really found it hard breaking into the US market. How do you value the competition like Tech Data and CHS and other big players?

Stead: I respect all the competition. But Tech Data has no presence in the Asia-Pacific and CHS has no presence in North America - but they are clearly the number-one and number-two competitors to us in size and scale. I look forward to them both becoming truly global competitors of ours, which they're not at this time.

IDG: How do you differentiate yourself from those competitors?

Stead: We do our best to do a better job of providing service to our customers and to be a global distributor for our customers.

IDG: Can local distributors survive today?

Stead: They can, but it will be tough to be profitable and it will be tough over time to provide the technology reach expected by big customers. But the technology market continues to grow, particularly with two-step distribution (meaning direct ordering followed by delivery to the retailer). As long as that kind of environment continues, there is room for local and regional distribution.

The question is: is the return to their share-holders adequate to provide funding to grow? Companies like Computer Associates, which has been 100 per cent direct, is now saying that by the year 2001 they want to be 50 per cent in the channel. That means more SKUs (Stock Keeping Unit numbers) coming through the channel.

The place for a niche player - either geographical or product-wise - will exist for some time. There has already been a lot of integration throughout the world. There are far fewer independent distributors today than there were five years ago.

But we as the leader - about twice the size of our next competitor worldwide - have less than 10 per cent of the total market.

If you think about the entire IT market we have 4 or 5 per cent of the market. So there is lots of room for other players.

What do you think about value-added distribution? And how does Ingram add value?

We do more and more of the "back-office" work for our resellers.

And we do more for our resellers through the Internet. For the vendor side, we're doing more configuration, technical support and logistical outsourcing.

IDG: How strategic is channel-assembly business for you?

Stead: This is the single biggest change that the industry has ever seen. What it is doing is what needs to happen with any industry that becomes more externally focused. It will give the customer what they want when they want it.

One of the fascinating things to me about Dell is the great PR job they are doing. You call them up and they sell you what they have, not what you want.

They've done a great job of it. They'll give you a discount to buy a delivery scale to meet their schedule, not your request.

They've helped to change the whole industry. Channel assembly does something very different - it gives you and I, the customers, what we want exactly as we want it.

IDG: How much business do you foresee for Ingram from channel assembly?

Stead: By the middle of next year, we will have the capacity to assemble over 10 million units. We already carry all the inventory of all the components.

IDG: How often does your inventory change?

Stead: We actually measure our purchasing people on sell rates. That is their single most important job. And as you probably know, our objective is to ship every order we receive by 5 o'clock that day, the same day.

Nobody else in the world does that. Our second objective is to balance our inventory knowledge and our payables so that we operate with zero days of inventory in stock.

We will vary from a negative inventory, to days or weeks where we have up to nine days of inventory.

IDG: So what happens with acquisitions? Are these companies contacting you or are you contacting them?

Stead: It happens both ways. In any given week I get an incredible number of calls.

A lot of those calls are wrong because they are bankers trying to get us to buy a reseller, because they don't understand the business that you and I are talking about. And then we get a lot of calls from companies that would be interested in us acquiring them. And we also get calls from companies who want us to bid on a company they own so that they can drive the price up for someone else.

If we go into serious negotiations or discussions with someone, we do it with the intent of making it work, not to get into some sort of a bidding situation.

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