Network Support

Cisco’s new value added distributor scheme aims to address the expanding support requirements of its evolving product range. Will the region’s distributors measure up to the task?

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By  Mark Sutton Published  January 2, 2002

I|~||~||~|At the end of November, Cisco announced that it was launching its new value added distributor (VAD) scheme, with the aim of pushing better service and support to resellers serving the SME market. From the first quarter of this year, a handful of key Cisco authorised distributors will effectively be providing a level of first line support that has previously only been available from the vendor itself. But putting the expertise and infrastructure in place to meet the VAD model is no small task—as the distributors have been finding out.

“What is going on isn’t an evolution, the VAD concept is a revolution, and distribution is firmly in the middle of it,” said Gary Highton, sales and marketing director of networking distributor OnLine Distribution. OnLine, along with Tech Data, Aptec, Logicom, Mindware and Silicon21, are the Cisco authorised distributors that will be adopting the new VAD contract.

Highton believes that the new contract is going to have a major impact on the channel. “The next six months is going to see a staggering amount of churn. We might see some other players come in because some resellers can’t handle it, you will see some channels who think this is great, some people will grudgingly accept it and get on with it, but you are not going to see the status quo of the current level of support for Cisco networks continue.”

Cisco has put the new scheme in place to build the channel. As solutions become more and more complex, so the box shifting approach has become less appropriate, and Cisco intends to build a channel to reflect that.

“Our aim is to ensure our direct Silver and Gold partners provide high touch service and support, while our equally important reseller base provides small to mid-sized organisations similar levels of service. The VAD initiative fits perfectly into our channel unification plan,” said John Chambers, Cisco’s regional sales manager for partners.

“The new program builds on a number of ongoing training skills initiatives for partners,” continued Chris Khouri, global service manager for Cisco Middle East. “The model is focused more on building local skills. We want to see better support for products in the region, as they get more complex, so we want to empower the distributor and the reseller.”

||**||II|~||~||~|To meet VAD requirements, Cisco has a new contract that specifies that it is now the job of the distributors to provide one-year support warranties on everything they sell. The VAD must also handle all Technical Assistance Centre (TAC) requests, advanced hardware replacements, software updates and provide end user access to Cisco Connection Online (CCO), Cisco’s online knowledge resource. All of this requires serial number tracking by the distributor to identify customers, and VADs will be charged for these services using this serial number tracking. Previously customers only received a 90-day warranty, that most distributors and resellers acknowledge is too short, or had to invest in a SMARTnet scheme, which has really only been applied to high end products.

“We have been selling SMARTnets with all the high end products, but it is expensive—about 10-15% of the product value,” said Pradeep Angeveetil, Cisco business unit manager at Tech Data. “It is not really in the reseller’s interest to sell a product without a SMARTnet, because there are bound to be problems at the high end. 90 days [warranty] is too short a time frame, so what the VAD does is give one year support for all the products that you sell, which is an extremely good buying proposition for the reseller.”

But providing this level of support means one thing for the would-be VADs—investment—and lots of it. “We ship over two thousand individual Cisco units in a month, so all of a sudden, we have 2000 plus units per month that we need to put support in place for,” said Highton. “There is the cost, a management overhead, and a sales efficiency drop. [Cisco] has got a large support infrastructure that is under pressure as their unit sales continue to grow, and they are looking one rung down for distributors to assist.”

In order to replicate the level of support that Cisco has in place, OnLine is rolling out a number of schemes, but it will cost approximately $250,000 in capital expenditure on facilities and infrastructure, plus adding additional technical support manpower and an expected drop in sales efficiency of 5% as sales people are required to sell support services along with products.

The investment will go on a number of different programs. A serial number tracking system, fully integrated with OnLine’s ERM (enterprise relationship management) system, will enable the company to know exactly what it has sold and to whom. Cisco TAC requests will also be handled via the distributor, but the service will now be integrated with the company Web site to automate the process, and speed things up.

To help minimise its own exposure, and to improve the reseller’s ability to deliver, OnLine is also putting in place a range of professional services, which will be available through two different models. The first is a new partner program, called Connectivity Partner Program (CPP). Under this scheme, OnLine partners who meet certain skills requirements will be able to access the whole range of services on offer.

The services include Design Shield, which will provide Cisco authorised configurations and bills of materials—a service that required $40,000 investment in NetMatrix design software; Install Shield pre-shipment testing and configuration of solutions that will reduce DOA, freight time, deployment time and provide onsite installation expertise as necessary; and Support Shield for all support requirements from TAC requests through to four-hour mission critical replacement and site call out. CPPs will be able to chose the appropriate level of services for each customer and pay for them as needed.

||**||III|~||~||~|To make sure that the services reach the rest of the channel, OnLine has also bundled the three areas of service into a package called A-Plus Shield, that offers the basic level of each service to provide all the mandatory elements of the VAD contract. A-Plus will be tagged on to all Cisco products as a line item, and will cost a certain percentage of product value, banded according to the complexity of the product—the less complex products will cost 1%, rising to 3.75% for mid-range and 5% for high end products. Selling these price increases could be problematic.

“We as distributors cannot tell the channel what to do, so Cisco, over the next three months will be driving forward the message that advanced support is available on all products—at a cost—and that it is up to the resellers to deal with the distributors that give them the best deal,” said Nasir Warsi, OnLine’s Cisco business unit manager. “We will be passing on the exact cost of Cisco’s charges to us. The resellers will be passing these costs on [to their customers], but we intend to make it very easy for them.”

Not only will Cisco have to sell resellers on the idea of the VAD model, the resellers will have to sell their customers on it too. “The channel is going to have to develop service models to match the built in support costs and justify the price increases, they are going to have to convince their customers that they are getting a meaningful support package,” said Highton.

Highton admits that OnLine would find it difficult to implement all of the changes it has planned without the financial and technical backing of parent company Westcon, that bought OnLine last year. Even then, OnLine will need to do an extra $5 million of Cisco business to break even, against the planned investment and things could still go wrong.

Distributors face a major task to make the scheme work, and some may step down from the VAD model to a sub-distributor model—Cisco is currently working on a formal contract for a middle tier. Angeveetil agrees that a shake out is likely. “I don’t think there is any choice [but to do this]. If you don’t live up to the expectations, then you will have to face the consequences. This is going to determine the distributors that are going to stay and make a lasting impression with Cisco,” he said.

Regardless of the hurdles, the distributors are welcoming the move. “We looked at something like this six months ago, but with the massive investment involved, we certainly wouldn’t have offered the same level of support that Cisco has forced us to do,” said Highton. “But why should the Middle East channel not be asked to remove the ‘box shifting’ label, and add higher levels of support ability to their portfolios? We need the catalyst, to assist the channel, over time, to embrace the concept of adding more and more value. Networks need to be more reliable, and we need more innovation. Once end users become more confident of the channel abilities to support these increasingly complex networks, there will be a lot more innovation and a lot more deals for resellers to win.”||**||

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