IT distributors: The only people adding value to the world economy

Why distributors? More specifically, why electronics distributors? Why have these intermediaries in the markets at all? Yes, obviously, someone somewhere has to have pieces of kit on a shelf somewhere for when a customer wants to make an order. Someone has to crate it up and ship it off too: but why do we still have …

[Tim Parker]

Middlemen

"This boils down to the fact that someone, somewhere, is willing to pay more for these services than they cost to provide. This is the very definition of adding value."

By that logic, manufacturers are adding value as someone, somewhere is willing to pay more for their services than they cost to provide. They, along with distributors, are not the only ones (e.g. support services) by any stretch of the imagination - however that is sufficient to disprove the assertion

"IT distributors: The only people adding value to the world economy"

----

"Unless you'd all like to tell me why it is that distributors add value to you?"

They don't in general.

[The Boojum]

Interesting article, well written.

Thanks.

[Andraž 'ruskie' Levstik]

Lovely

Enjoyed the article a lot.

[Oninoshiko]

I'm not so sure titles should be optional

Why ofcourse they add value, who else would I have to yell at when they can't get me what is on their page.

What? That's not value?

The only reason I go through any of these as^W nice fellows is because only a few of the Mfgs will talk to me.

[Local Group]

"More than just middlemen."

Middlewomen too.

Paris 'cos she loves being in the middle.

[mark 63]

see high street for evidence

Interesting view on the profit / loss / capital thing.

The writer postulates if the business is making money after not only a profit margin but anopther 8% represented by the capital tied up in the building that the business is adding value to the econmy

It seems like "turning a profit by a stricter definition"

I would question wether the middle men in the first example are making a "adding value to the economy" no matter how much money they make because - They arn't producing anything (just a small 'delivery' service that needs to be a part of the munfacturers operation) - they are middle men, so any extra pennies they squeeze out means the customer is paying more than he would have.

If they spent thier energies better - growing food / producing Motherboards or Teaching our children, just to name a few random fields, then surely the net effect upon the whole economy would be better

Like the author said - its not what they *are* doing , its what they could have been doing.

does that make me an engineer, an economist or an accountant?

or mad?

[Anonymous Coward]

So why aren't Accountants interested in this?

Is it because you can't offset a lost opportunity cost against profits to gain tax relief? Has anyone ever tried to pull that one with HMRC?

[Yet Another Anonymous coward]

A solution for Parcelforce

"...is willing to pay more for these services than they cost to provide. This is the very definition of adding value."

If only they charged 10quid for leaving you the note saying that they rang the bell and ran away - the post office would be profitable.

[Anonymous Coward]

What's with the font?

It makes my eyes hurt.

[Armando 123]

Two values

One thing they do is that they provide a larger space and geographically larger areas for many manufacturers to store their goods. This allows for an economy of scale (cheaper to heat one 1000 square meter building than ten 100 square ones, etc) and lets the risk of "decaying like chocolate" be transfered to someone else.

As a consumer, I can shop at one web site for the three things I want, comparing prices and specs and so on, rather than visiting ten or twelve web sites for the comparisons and placing three different orders. My time is valuable, so that's a value add.

[chainman]

Wrong Industry but Some Outdated IT Experience

Years (well decades) ago I did some programming on an order processing system for a hardware (as in hardware store) distributor. The key element seems to be that they were a stocking distributor for a fairly large number of manufacturers. The salesman would call on a retail outlet and on a custom order form arranged in the order of the displays enter the quantities to be ordered. In many cases, the store manager would simply sign the order trusting the salesman to specify the appropriate quantities.

The salesman would drop the order forms at the warehouse where they were keyed into the system (runnning on a minicomputer btw) and pick lists would be generated, the order picked and loaded into company trucks for delivery.

The whole system from sales call to delivery was designed to offer delivery within 24 to 48 hours within an approximately 100 mile radius.

While I was working for them, they added a capability to maintain retail price data and apply price tags during the order picking process.

Ok, terribly out of date and wrong industry.

Even so I would think that even today being able to order items from a number of manufacturers and have them arrive quickly, in the same shipment and possibly even packaged into appropriate kits might be of some value.

[Doug Glass]

<Yawn>

Adding so much value that when the RIF comes IT personnel are some of the first out the door, right after clerks, interns and admin assistants.

My my, we should have all companies totally run from basements and LAN parties.

[Anonymous Coward]

Excellent

That was jolly interesting.

[Anonymous Coward]

This tells me nothing new.

So you wonder what this bunch of middlemen is there for. So you get out the economist's hat (it's got bells on!) and juggle some numbers and conclude that they're economically viable.

My, isn't that the revelation of the century. Absent legislation mandating they exist and get paid somehow, they'd've gone bust a long time ago, if they weren't. So this juggling of numbers doesn't tell us anything that wasn't already evident. The end result is that the question the article promises to answer is left unanswered. Instead, you go to right pains to reason away the need to answer it. "Oh yeah, economists like to shy away from answering such questions." Useless bunch. As such, I'd really rather have those few minutes back it took to read this.

[Anonymous Coward]

Thank goodness economists don't run the country .. oh wait ..

"So what an economist wants to see is that a company is making a profit over and above that cost of capital." Profit isn't the only measure of value. It's also helpful to include the value of employee salaries, the taxes they pay, the social capital they create, the knock on effect of the goods they buy etc.

[Anonymous Coward]

Cost of Capital

The difference in return between an investment one makes and another that one chose not to make. This may occur in securities trading or in other decisions. For example, if a person has $10,000 to invest and must choose between Stock A and Stock B, the cost of capital is the difference in their returns. If that person invests $10,000 in Stock A and receives a 5% return, while Stock B makes a 7% return, the cost of capital is 2%. One way of conceptualizing the cost of capital is as the amount of money one could have made by making a different investment decision.

Invested Capital

The capital that a company has invested or can invest in itself. It is calculated by adding the company's long-term debt, stock, and retained earnings. It may also apply to an individual by adding his/her net worth and long-term debt.

Ergo it provides value to shareholders and investors...now and then...but does it or will it always add value to the sector?

[P. Lee]

Perfect competition

Doesn't exist.

Most immediately relevant to this discussion is that smaller companies especially are run by people doing what they love. This model ignore the concept of utility derived from work rather than consumption. That means that the 8% monetary ROI is arbitrary and quite possibly does not apply. It is actually quite common that a small business will stay in business as long as it turns a profit (relevant to short or long-term) or the losses can be covered by additional investment.

[IHateWearingATie]

Article should mention oligopoly...

Ah, the dismal science.

Having a bit of degree level economics knowledge (a couple of modules in the first year of my degree) I enjoyed the article, but I think it should have mentioned the potential for market imperfections to make it look as though value is being added where, in fact, it is not. It could be that market barriers and oligopoly behaviour from the companies are allowing returns to be inflated, rather than being driven by the intrinsic value of their activities.

But then I don't really know anything about the reseller market, so I could be talking rubbish...

[WatAWorld]

Some Questions

It doesn't fit with economic theory, but it does fit with sales theory to say:

a) You can get someone to pay a price greater than the value of something.

b) Because you can get a person to pay a price greater than the value of something you know that value and price are disconnected.

1. Talking someone into paying too much for a product might make you valuable to your employer, but does it add value to the economy or to society?

2. Just because a sector makes money, does not mean that the sector adds value to the economy or society?

3. Does organized crime add value to society?

4. Does taxation on its own, which generally raises much more money that it costs to administer, hence huge profits, add value to society? And I mean just taxation imagine the revenue, (i.e. the profits of the taxing agency) being put in a deep pit.

5. Does the theory require that markets be free? Consider monopolies, governments, exclusive deals, patents, copyrights and trade restrictions. Are the markets for electronics really free?

[Adam White]

Good article

It clearly and concisely illustrates in a way intelligable to the target audience why economic theory is a load of tripe.

[Anonymous Coward]

Value Add

I find some of the comments that distributors don't add value quite galling having previously worked at a value add disty for a number of years.

There are a lot of poor resellers in the market who frankly without the levels of value add distribution would not exist. Even some of the bigger more established shops rely on distribution to do a lot of their work for them including:

- doing their technical configs and documentation

- writing their rfp responses

- negotiating pricing with the vendors on their behalf

- creating statements of work

- carrying extended credit and cost of cash

And the thing that really rankles is that lots of the resellers actually get paid rebate by the vendors to do this stuff themselves. Of course the higly competitive nature of the current market means that you still have to provide services to those who should be self sufficient.

Don't get me wrong there are some superb channel partners out there and it would be unfair to tar all with the same brush, its just the "were really big and you need to spoonfeed us" brigade that need sorting out!