Distributor Prion has been left with a "$12 million" revenue hole following the development of a direct relationship between its ex-sub distributor Dynamic Supplies and HP.
The Siltek Asia Pacific division's loss is the specialist consumables wholesaler's gain. Dynamic Supplies' managing director, Alex Piccinini was delighted with the shortened route to market for his "single most important" line of business.
Piccinini said his computer supplies-focused organisation spent "upward of $15 million on HP" last financial year - almost exclusively through Prion. The product is then distributed to small and medium sized resellers and dealers throughout Australia.
It was a run rate deserving of the step out of a sub-distribution status and into a direct relationship, he said.
"We were bending over backwards to work directly with HP and they needed service for their supplies in the SMB channel space," Piccinini said. "There is no future in sub-distribution and if we were to continue selling HP supplies in the long term, this was the only way to go."
Prion's consumer sales manager, Rick Phelps was not devastated by the news and placed the damage to cash flow "closer to $10 million than 15". He was happy to settle at $12 million as a fair approximation of the relationship's value.
While conceding the change of status for Dynamic "put a dint" in the $55 million consumables contribution to Prion's business, he insisted margin was slim on HP supplies and the damage minimal.
Phelps also called HP's channel expansion logic into question in a climate of consolidation, claiming its model to be already "crowded".
"I don't think they have opened any new markets by adding Dynamic," Phelps said. "We are happy the company has grown to the size where it can have a direct relationship, but we didn't think they would put another distributor into what is already a crowded marketplace."
Piccinini saw things differently. "We fill a very valuable role for HP in servicing the small and medium size retail and dealer channels," he said. "We bring a unique service-based distribution proposition to HP's SMB supply chain."
Founded in 1994, Dynamic Supplies turned over $57 million during FY00 and is setting a pace to attain $75M in annual supplies-only revenues up to the next fiscal rollover, according to Piccinini. That is approaching Daisytek's realm in terms of market value for pure supplies players.
Meanwhile, Piccinini also revealed Dynamic would be opening a Perth warehouse "early in the new year". Currently with a satellite warehouse and sales operation in Melbourne as well as the Brisbane head office, he is convinced Sydney is not the most viable next growth platform for the company.
Instead, the sights have been pointed westward for the third office. "Sydney is a crowded market," Piccinini said. "All the big [supplies distributors] ignore Western Australia and that is why we want to service that market."