Easy to digest?

The ability of vendors and distributors to get their inventory forecasts right over the coming weeks is looking as though it will have a massive impact on the way channel dynamics pan out during the rest of the year

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By  Andrew Seymour Published  August 31, 2008

The ability of vendors and distributors to get their inventory forecasts right over the coming weeks is looking as though it will have a massive impact on the way channel dynamics pan out during the rest of the year.

Each tier of the supply chain will need to be on top of its game to successfully manage the coming months in a way that results in maximum output and minimum disruption.

I am constantly reminded by vendors that the Middle East is a hugely seasonal market, with certain events and periods of the year dictating consumption levels. This year, the proximity of the back-to-school season, which always adds a spark to regional IT demand, and the beginning of Ramadan, when sales tend to tail off, has created some uncertainty in the channel over how overall third quarter numbers will turn out.

This will then be preceded by the kick-off of the Middle East’s largest IT exhibition, and more significantly for revenue reasons, its consumer spin-off GITEX Shopper, which is a date that every major PC hardware and electronics supplier has pencilled in their diaries.

Taking all that into account, effective inventory management and forecasting is going to massively influence the market’s performance. Vendors will be eager to push as much stock into the channel as possible, buoyed by the continued growth of the market and, crucially, with their own aggressive sales targets very much in mind.

The inventory game is a delicate one at the best of times. Only this week components distributor Asbis admitted product procurement issues with Dell and Toshiba had hampered its inventory management capabilities. Asbis has been selling notebooks at a rate which any half-decent broadline distributor would be proud of, but so-called supply chain ‘inefficiencies’ involving the two vendors mentioned has contributed to longer receivables and inventory days. In the cashflow-driven world of distribution, Asbis’ urgency to get the problem fixed is hardly surprising.

For their part, both vendors point to the constraint of recent industry-wide components shortages, but make it clear that they endorse a policy of ‘open communication’ when it comes to informing partners of potential supply chain dilemmas.

The substance of such vendor policies will be more than a little interesting to monitor in the days ahead. Last year’s GITEX Shopper culminated in record sales and that will almost certainly prompt vendors to raise their forecasts again this time around. Expect a frenzy of aggressive pricing on certain product lines as vendors attempt to stimulate sales-out volumes.

It remains a fine balancing act, of course. On one hand, manufacturers are petrified of being caught short in terms of market inventory, as there will always be a competitor primed to take advantage. But on the other, over-estimating the channel’s capacity to digest stock can have disastrous consequences further down the line.

Vendors will always put pressure on the channel to accept stock, but how far distributors and traders are prepared to be pushed in the current environment remains to be seen. There is an inclination in this part of the world for vendors to assume that excess stock will always be absorbed one way or another, such is the veracious tide of re-export activity.

Look at the display sector, for instance. Lower than expected panel demand since the second quarter, coupled with higher inventory in the supply chain, recently created a surplus that several TV and monitor vendors could ideally have done without. Market watchers say some manufacturers have been transferring goods from European stocking hubs to Jebel Ali in an effort to iron out the situation.

While the region’s undoubted ability to facilitate product movement is well-reputed, it isn’t an excuse for vendors to act recklessly when it comes to inventory management. Traders and sub-distributors are becoming increasingly reluctant to accept consignments of products synonymous with dramatic price volatility if they are not convinced they can move them. Traders I have spoken to recently insist that, where some hardware lines are concerned, they are holding less stock because there is too much risk of sharp price erosion and they have no margin protection.

It will be intriguing to observe whether vendors adopt a measured and responsible approach towards their forecasting between now and GITEX Shopper, or whether their gluttonous tendencies get the better of them. If it’s the latter, then I’m convinced that November and December will be a very challenging time for the channel as the indigestion pains begin.

Ericsson 1 Cisco 0

It appears Ericsson has defied the odds to emerge victorious from the latest IT developments concerning the massive economic city initiatives taking place in Saudi Arabia.

Following ongoing channel speculation over who will benefit from the array of networking and communication projects up for grabs, Emaar EC — the developer of the King Abdullah Economic City (KAEC) — confirmed this week that it has selected Ericsson to implement the smart city infrastructure and multi-purpose network in a deal worth a cool $85m.

As the chosen party for a project of that stature, the agreement naturally represents something of a publicity coup for Ericsson, but it is also significant for the fact that it remains one of the foremost infrastructure implementation contracts handed out so far, and one of the most eagerly awaited.

That’s not such good news for networking rival Cisco, which was widely regarded as the frontrunner for the project, especially after its track record with KAEC. It was only back in January that Cisco published a press release celebrating its appointment to design the network infrastructure and provide consulting and advisory services for KAEC.

I’m pretty sure Cisco’s consultants haven’t spent the past seven months telling KAEC that Ericsson equipment is a better choice, but given the company’s well-documented ambitions for Saudi Arabia there are certain to be some serious questions asked internally about how a $85m contract it was so heavily tipped to win got away.

And, no doubt, there will be equally impassioned conversations about what needs to be done to ensure it doesn’t happen again.

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