Security Systems Integration

Distributors Push Past Margins

The wholesale distribution channel essentially serves as a frontline in the dynamic electronic security industry. Executives from leading distributors discuss market conditions and their role in providing value-add services to their integrator partners.

By Rodney Bosch | March 16, 2011

Photo courtesy ScanSource Security

Talk about tradition. The connection between the installing security contractor and the wholesale distributor is steeped in the things that foster long-standing, mutually beneficial business partnerships.

To curry an integrator's loyal business, many distributors offer a familiar banquet of value-add services such as product and solutions training, systems design support, flexible credit terms, Web-based ordering and account management, marketing collateral, purchasing rewards, and the list goes on.

More than a convenient products depot, installing security contractors can leverage a wholesale distributor partnership to gain a competitive edge in a fast-evolving marketplace. Long a venue for training on legacy equipment and related systems, many dealers and integrators can thank their distributor for helping them transition to IP-based solutions.

Yet to paint a picture of nothing but happy campers would be more than misleading. Installing contractors must select among local, regional and national distributers to find a partner that meets their select needs and expectations. Moreover, on the national level especially, some distributors are drawing strong rebukes from the integrator community because of increasing efforts to sell directly to end users.

To gain an updated view on current market conditions, SSI interviewed executives from four providers of wholesale distribution services. Learn which product categories are selling briskly, tips on how you can achieve a fulfilling partnership, upcoming training opportunities and more.

Top Product Sellers and Laggards

Ask wholesale distributors about which product and technology categories are pacing sales - or are lagging - and a bird's-eye view of the marketplace comes into focus.

For example, IP-based video surveillance products and solutions have become a growth leader for distributors across the board to varying degrees. An increased focus on safety and security, lower total cost of ownership (TCO), along with the need for central control and management are making networked surveillance systems a more sought-after option, according to Michael Flink, vice president and general manager, ADI North America.

"Users are getting a better understanding of the benefits of this technology and it's really driving the transition from analog to digital," he says. "The IP infrastructure solutions that build networked environments are also doing very well, including routers, switches, PoE products, Cat-6 wire and more."

PSA Security Network, which operates a wholesale distribution arm with more than 200 vendor partners, lately is experiencing increased sales in megapixel cameras, video management system (VMS) software and even video analytics, says Bill Bozeman, president and CEO of the physical security systems integrator cooperative.

While many installing contractors can be rightly accused for not jumping on the IP bandwagon sooner, Bozeman says, networked solutions and the various software products that operate on them are becoming more accessible to a greater number of integrators.

"The kinks are out, the prices have dropped, the demand is there and deployment is easier and achievable by the traditional integrator," he says.

That's not to say distributors are banging an analog is dead drumbeat. Not by a long shot. For example, the vast installed base of legacy systems across a range of market niches remain ripe for integrators to help end-user customers migrate to IP with hybrid solutions.

"Retrofit solutions continue to do well because they offer the flexibility of updating legacy systems without having to make a major investment," says Flink.

While some analog peripherals and coaxial cable has a place in modifying a legacy solution, one time-honored device in particular is indeed suffering from IP envy: "Traditional standalone DVRs are cooling off," Bozeman says.

Distributors also cited access control as a product category that continues to post sustained growth as end users are increasingly mindful of security needs in a post-9/11 world. And thanks to technological advances, projects that call for integrating video surveillance and access control are becoming more accessible to smaller installing contractors.

"Video surveillance and access control products are growing segments due to the increased need for security solutions in government, education, retail and other verticals," says Tony Sorrentino, vice president of sales, ScanSource Security.

In the residential space, home networks and home control solutions are being looked to as a future growth category as users increasingly want an integrated solution that can perform multiple functions, Flink says.

ADIs expansive warehouse hub in Feura Bush, N.Y., supports branch locations throughout the Northeast region. It features an advanced radio frequency (RF) picking and packing process intended to reduce order times. Photo courtesy ADI

"Dealers are offering complete solutions for security, temperature controls, lighting controls, home automation, whole-house audio and more," he says. "Remote control and access from smartphones or mobile devices are making this technology more desirable."

Although installed A/V product sales have been flat, Flink reports, rising consumer confidence is expected to fuel new growth. "New media and technology, such as streaming video and music, will open up opportunity for dealers to call on their previous customers to offer these solutions," he says.

A Recipe for Partnership

Educational offerings and value-add services comprise the foundation on which distributors build and maintain a relationship with reseller clients. The underpinnings an integrator can expect from a distribution partnership can include prompt delivery, same-day or next-day shipping, systems design consultation, warehousing, flexible credit financing, affinity programs and more.

"Installers and resellers can get the most out of their relationship by leveraging all of the value-added services provided through their distributor partner," says James Rothstein, executive vice president of sales and marketing, Tri-Ed/Northern Video Distribution. Training offerings that help keep integrators ahead of the technology curve are key, he says.

To help its clientele keep pace with networking applications, for example, Tri-Ed/Northern Video Distribution is once again hosting its North American IP Video Technology Tour. This year the series will feature a Level II, Electronic Security Association [ESA]-certified training class. Here, dealers and integrators can learn about the Open System Interconnect (OSI) reference model, IP naming structure, network design best practices and switch basics. Level I classes, which focus more on networking basics, are being offered upon request.

ADI also offers numerous educational opportunities at its branches across North America with a focus on helping its clients discover new growth opportunities. The company's Expo Training Series and other education initiatives at the branch level trained more than 16,000 dealers in 2010, Flink says.

"As a free event, the ADI Expo provides dealers with the opportunity to see and test the latest products, participate in interactive displays and training seminars, receive hands-on experience and spend time with leading manufacturers," he says.

ADI also teams up with vendors and industry associations to host a variety of educational opportunities each week at its more than 100 branch locations, all of which include a dedicated training room.

Among its assorted value-added services, ADI provides a Systems Sales & Support Team to help design installations and quote projects. A project registration program allows dealers to gain exclusive discounts from more than 50 industry-leading suppliers.

A noteworthy benefit dealers can receive through a distributor is improved cash flow. Because some dealers often operate from project to project, a distributor may allow dealers same-day pick-up or next-day shipping.

"If you couple that with credit terms, partnering with a distributor can help dealers better invest in their long-term growth strategy," Flink says.

The assumption may be that most dealers and integrators take full advantage of what all training and other value-add service opportunities exist through their distribution partner. Not so, according to Bozeman.

"In many cases, for instance, the integrator does not take the time or make the effort to get properly trained. This is a huge mistake that the good integrators do not make," he says.

PSA supports its more than 200 systems integrator members with assorted educational opportunities, including occasional Webinars and other online coursework, vendor product training, and its annual PSA-TEC weeklong conference. All of these offerings are open to nonmember systems integrators as well and cover everything from manufacturer certifications and general IT to managed services and financials.

Further emphasizing a team-minded philosophy, Sorrentino suggests integrators should look to foster a distributor relationship in areas of their business they may have not considered prior.

"Resellers should allow their distributor to handle the back-office functions so they can focus on what makes them money, which is finding new business," he says. "By sharing as much information upfront about their business, a value-added distributor is able to fully understand the reseller's unique needs and provide the value-added services and support that are the best fit, such as custom configuration, design support, networks assessments, marketing assistance and training, among others."

As an example of its touring educational curriculum, ScanSource's training workshops and events focus on the benefits of selling IP and the technology in general. The company continues to bring new custom configuration and network assessment offerings to its customers based on end-user customer needs, including services such as configuration, labeling, video assessment, site surveys and more.

Online ordering and account management is rising in popularity with dealers and integrators. However, doing business at a local wholesale distributor branch will continue to provide installing contractors traditional one-on-one customer service benefits. Photo courtesy Security Equipment Supply (SES)

The Web, Beneficial but Disruptive

When asked about the use of the Web as a convenient tool for ordering products, sources interviewed for this story shared a common viewpoint. While the channel can certainly expect surging growth in online sales activity, the types of products will largely be for those that require limited support and training. Hence, distributors will continue to stress their role in providing intensive training, education and design support for networked and more sophisticated solutions.

"Online product ordering becomes more and more important every day, but we feel that human interaction through our branches in concert with e-commerce is a winning combination," Rothstein says.

Maintaining a close connection to the integrator is a clear objective; however, Web-based ordering is forcing distributors to meet integrator expectations for doing business at the counter and online on their terms.

"Our goal is to do business with our customers in the way they want to do business, whether it's making purchases online and seeing real-time inventory or working with a knowledgeable sales rep," Sorrentino says.

"Overall, the centralized distribution model on which we have based our business is changing the channel, as resellers see the benefits of that model versus having to drive to a branch for their products."

As online ordering and account management becomes essential across the channel, many distributors have been ramping up the infrastructure necessary to support new online e-commerce capabilities. For example, PSA Security, which only offers online purchasing, recently deployed a database powered by a custom Web-based business software suite. And ADI has formed a dedicated e-commerce team that is working to launch a new and more robust customer Web site. The platform will offer a user interface that addresses customer needs and enhances the company's online shopping experience.

Can a mobile app to make product purchases be far off? It's in the works at ADI and Tri-Ed/Northern Video. Other organizations continue to evaluate client expectations for on-the-go ordering and other functionality with mobile devices.

"There has been little demand for that service; however, we are continuously adding new ways of doing business based on the needs of our customers," Sorrentino says.

Convenience is only one way the Internet has altered the distribution sales channel. The proliferation of online product resellers during the past several years has proven to be highly disruptive for distributors, integrators and end users alike.

"On certain commodity products the margin is so low we cannot make a profit after overhead is allocated," Bozeman says. "It is that tough out there. The non-commodity space is the place to be for integrators and distributors."

The Internet is credited for helping end users become more much more tech savvy and learned about marketplace dynamics (i.e., increased access to product information, specs and pricing). The result is users are expecting a higher return on their investment.

However, the Internet can also provide end users with uneducated and misleading information, as it is opinion driven, and anyone can post information even if they are not an industry expert.

"The Internet has also opened up the door for unauthorized dealers. Users who are purchasing through them lose out because they are only getting a product and not the support and benefits that go along with the full solution," Flink says.

Moreover, the Internet has caused manufacturers to evaluate their channel programs to ensure they are protecting the dealers who are adding value to the solution sale, Sorrentino says. Likewise, it has caused dealers to focus on selling everything that surrounds the product, including design services, installation, training, support, monitoring and more.

"It's our job to help maintain the integrity of the manufacturer's channel program, as well as provide the needed education and training to the dealer as they sell their value-added offerings," Sorrentino says.

Infringing on Integrator Turf

The din caused by the encroachment of distributors and manufacturers into the traditional dealer/integrator channel seems only to be increasing in magnitude.

Suppliers maintain working directly with end users is necessary to gain a keen understanding of customer needs and expectations, which ultimately can only help drive product development and sales. What is more, suppliers suggest, an increasingly price-competitive and crowded marketplace affords end users more choices for products and solutions, oftentimes creating bid challenges for traditional dealers and integrators. The gist: razor-thin margins on a project for a large end user don't pose a competitive threat for dealers and integrators anyhow.

PSA Security Network training and education offerings, including online curriculum, are open to all systems integrators. Above, installing contractors participate in a product certification course held at PSA-TEC. Photo courtesy PSA Security Network

Installing security contractors are loathe to concede that a hyper-competitive market has created an environment in which they are no longer able to fulfill all the needs and expectations of today's savvy end user. Hence, a proverbial line is drawn in the sand.

"We see more and more distributors going direct to the end user. They claim they do not but the integrators always find out. I have no idea why they deny it," Bozeman says. "It's becoming more common and it is obviously not good for the integrator community. One of the reasons the large distributors get by with this is they claim they create the business; this makes the integrators no more than a hired installer who gets the crumbs."

Flink says selling to residential and commercial end users is certainly not ADI's standard business model. In the residential market, for instance, he says the company sees no benefit to selling directly to consumers since it would require a great deal of support and offer a lower return on investment (ROI).

"In the commercial space, users typically need a complete solution that requires design, installation and support. They usually don't have the qualified staff to execute this," Flink says. "Occasionally, some of the larger commercial end users do have licensed and qualified staff to perform these functions."

Dealers and integrators that are creative and focus on marketing a complete solution rather than specific products will continue to have numerous growth opportunities, Flink says.

"If a dealer can sell themselves as a service and provide their customers with peace of mind they should have no problem winning new jobs," he says. "Dealers, manufacturers and distributors all need to focus on identifying market opportunities and end user needs, and create solutions to meet those needs."

To make it clear, Rothstein and Sorrentino say their companies are not among the distributors selling to end users but that the practice is becoming more widespread.

"Dealers should not have to compete with distributors for end-user business," Sorrentino says. "Ultimately, the manufacturers need to stop it from happening. They can do this through their channel programs."

Rodney Bosch is Managing Editor for SECURITY SALES & INTEGRATION. He can be reached at (310) 533-2426.

Training Coursework on Tap

A staple offering of value-add services from wholesale distributors is a range of training sessions and educational curriculum. Following is an example of approaching opportunities across North America.

ADI's Expo series offers a full roster of training courses dedicated to electronic security, IP, A/V and more. Dealers can participate in CEU accredited courses, among other opportunities. Upcoming:

April 19: Nashville, Tenn.
April 21: Phoenix
April 26: Cleveland
April 28: Baltimore
May 3: New Orleans

ScanSource Security offers a one-day IP Workshop & Expo that features the basics of IP networking. Participants can up to 6 BICSI credits for attending all training sessions. Upcoming:

April 19: Philadelphia
May 3: Jersey City, N.J.
May 18: Boston
June 8: Salt Lake City
August 10: Minneapolis

PSA Security Network's PSA Education makes available educational offerings for all systems integrators in business, service, system design, installation and deployment. Included are Webinars and other online curriculum. Upcoming:

May 16-20: PSA-TEC in Westminster, Colo.; an intensive conference focusing on business optimization, physical security, IT and managed services.

Tri-Ed/Northern Video Distribution's IP Video Technology Tour offers a Level II training class, focusing on the OSI reference model, IP naming structure, network design best practices and more. Upcoming:

April 5: Las Vegas
April 19: Winnipeg, Manitoba, Canada
April 20: Plainview, N.Y.
April 21: Westchester, N.Y., and Calgary, Alberta, Canada
April 26: Minneapolis
Select Wholesale Distributor Directory

ADI

263 Old Country Road

Melville, NY 11747

(800) 233-6261

Akron Hardware

1100 Killian Road

Akron, OH 44312

(800) 321-9602

Anixter Inc.

2301 Patriot Blvd.

Glenview, IL 60026

(800) 264-9837