High Tech: How Channel Visibility Helps Make Smarter Business Decisions You can t manage what you can t measure W. Edwards Deming

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1 viewpoint High Tech: How Channel Visibility Helps Make Smarter Business Decisions You can t manage what you can t measure W. Edwards Deming Abstract In this globalized economy, high-tech enterprises have a larger, expanding base of increasingly demanding customers to serve. Consumers in emerging markets are powering growth and enterprises that aim to leverage this opportunity are finding innovative ways of reaching out to them. However, cultural diversity, political and economic borders and, most importantly, lack of channel visibility are impediments to building an efficient global supply chain. This paper explores the importance of channel visibility and how it enables effective decision-making for enterprises with significant business benefits.

2 Introduction In today s global and highly competitive marketplace, high-tech manufacturing companies need to contend with shorter product life cycles and rising customer expectations. To drive profitable revenue growth, companies need to ensure customer and partner satisfaction. They need to identify global market opportunities and quickly target customers with the right offerings at the right price, place and time. Achieving this requires them to operate and expand an effective channel sales model by leveraging the right technologies. Several high-tech companies are making significant investments to reach out to their end-customers through their channel partners. The net result of these initiatives is a marketplace serviced by a multichannel approach tailored to the type of customer, partner, product and service. The multi-channel model requires clear visibility into channel data which has been ranked as the top priority for over 60% of high-tech companies across several surveys conducted by leading industry analyst firms. The critical importance of improving channel visibility increases when enterprises want to reach across borders into emerging markets. According to research findings, currently, 97% of USbased high-tech companies tap into the North American market while 80% sell products in China. Such growth is expected to rise by 2017 in Middle East countries from 36% to 58%, in Korea from 69% to 82%, and in China from 80% to 88%. These figures indicate that enterprises in this space need to evaluate their capacity for expansion and reinforce their supply chains if they are to take advantage of emerging markets as the new avenue for increased revenue.

3 The role of high-tech industry in emerging markets The high-tech industry comprises products and services such as electronic components, computer and office equipment, telecommunications, consumer electronics, industrial electronics, packaged software, and semiconductor-based products and services. According to recent estimates, global sales of this segment are approximately US $1 trillion per annum and the sales channel constitutes of 10,000 Tier 1 distributors along with over 1 million resellers. Globalization is fueling the urbanization of emerging markets and increasing the rate of consumption within these markets. In fact, some experts estimate that such growth will generate an annual consumption of US $30 trillion from emerging markets by 2025, or 50% of the global consumption. This becomes highly relevant to high-tech enterprises considering that the highest consumption of white goods and electronics will be driven by emerging market consumers. The rise of emerging markets can be seen in the sales figures for high-tech products in different countries. During , high-tech market sales in North America dropped from approximately 60% to 45% while sales in the Asia-Pacific (APAC) region increased from 20% to 30%. During the same time period, sales in Europe, the Middle East and Africa (EMEA) as well as Latin America remained constant at 20% and 5% respectively. Even in the technology segment, emerging markets are demonstrating increased demand. In India, the growing middle class makes for an attractive market for technology companies with 950 million mobile subscriptions growing every month by 10 million. In 2012, China clocked 1 billion mobile subscriptions. As emerging markets become one of the main revenue drivers for the high-tech industry, the winners will be those that can tap into demand from emerging markets and drive import/export excellence for future growth.

4 Challenges in emerging markets While emerging markets hold enormous potential for growth, enterprises face significant challenges while tapping into this business opportunity. These include: Cultural diversity Cultural differences across markets require increased innovation across products, price points, and promotions, leading to stock keeping unit (SKU) proliferation and cannibalization. Enterprises need to deal with extended lead times owing to differentiated packaging and labeling for different markets as well as a complex route to market through regional distribution hubs. Further, they often lack sufficient visibility into demand drivers to efficiently plan and manage warehousing and distribution. Political and economic borders Emerging markets in non-european countries have different statutory and regulatory controls. This makes it difficult for enterprises to manage risks such as counterfeit products and grey market activity. Further, the route to market models and volumes vary significantly across countries, adding further complexities to driving growth in these regions. Varying physical and technology infrastructure Enterprises use two main retail formats modern and traditional according to the needs in different markets, creating a significant cost factor. For instance, developed markets in the APAC region such as Japan and Singapore use 90% of the modern format; for China and Malaysia it is 40%; and in India and Indonesia modern retail has a 5% share. The complex supply chain model for emerging markets through distributor and sub-distributor routes limits visibility and effective system integration. This has an adverse impact on client-store relationship, store level influence, inventory control, promotion programs, promotion claims, and product return management. Moreover, in most emerging markets, the sales staff commission is based on sales to end customers rather than sales through distribution or Tier 1 retailers. Channel sales: Sell-in versus sell-thru models Previously, high-tech manufacturers focused on sell-in i.e., selling their products into the channel without paying adequate attention to the actual sell-out to the channel s end consumer. This process of sell-in continued to be used by enterprises as distribution contracts protected channel partners from the risk of excess inventory through multiple incentive programs such as price protection, stock rotation and obsolescence protection. Safeguarded from excess inventory losses despite owning the inventory, channel partners took advantage of these programs to increase turnover by enticing the channel to buy more. However, sell-in incentive programs misrepresent actual market demand. During previous boom cycles, many companies made decisions based on positive channel sell-in data, resulting in stockpiling of key products and components. In consumer electronics, this problem became amplified as new products became must-haves overnight making existing products obsolete. Today, companies want to replace the sellin model with the sell-thru model. In the sell-thru model, inventory in the channel is replenished only when a) existing inventory is sold to the end customer, or b) when the channel forecasts sales to the end customer on the back of a marketing activity such as a promotion. However, implementing this model requires clear visibility into the channel sell-out, or what is known as channel visibility.

5 Importance of channel visibility in the high-tech sector High-tech enterprises must contend with two main factors faster risk of obsolescence and the need for a multi-tier channel that necessitate large incentive payments. These payments such as rebates, price protection and marketing promotions amount to around 10% of the total estimated high tech sales of $1 trillion. The need to reduce obsolescence risk becomes critical when one considers that, at any given point of time, an approximate value of 25% of annual sales is held as inventory within the channel, locking up around US $250 billion. Multiple surveys conducted by leading industry analyst firms across high-tech enterprises show that the top priorities for 40% of the companies surveyed are to drive efficiencies and improve overall cost control. Thus, managing obsolescence risk becomes critical to achieving cost savings and higher efficiencies both of which can be managed by channel visibility. Improved channel visibility helps companies address a range of challenges across marketing, supply chain, and governance areas through: Efficient data collection Accurate and timely tracking of sales data across channel partners minimizes the time spent on data validation and auditing, thereby ensuring efficient sales planning, decisionmaking and goal-setting. It also eliminates discrepancies between internal sales data and data collected from channel partners. Performance tracking Better visibility into various channels helps enterprises compare their product performance with that of competitors across markets. It also allows them to apply analytics to accurate data to analyze channel sales, identify top resellers, and ensure inventory optimization during peak seasons across different markets/ nations. Accurate demand forecast - Channel visibility eliminates reliance on channel partners for accurate demand forecasting across channels and markets. Better processes Clear visibility of sellthru / sell-out eliminates the need for and effort spent on manual review of sales transactions to determine claims and ensures that accurate commission and incentive payments are made to sales representatives. Thus, accurate, timely and complete visibility into channel inventory is an important step to managing a successful high tech supply chain. Visibility into downstream channel inventory tells a company what products they are selling through their channel, what products remain in the pipeline and how multifaceted promotions are performing at any given time across any given market. Important decisions around demand planning, collaborative forecasting and replenishment, revenue recognition, promotions and incentives, sales commissioning and product lifecycle management rely on having this clarity.

6 Looking beyond channel visibility Driving insights Now, enterprises need to ask themselves is enabling holistic channel visibility enough to drive business value? By itself, channel visibility cannot do more than help enterprises view their supply chain better. However, seeing better does not necessarily mean doing better. To ensure better results, visibility into channel data must be followed by careful analysis and strategic decisions that achieve desired outcomes such as increased sales, cost reduction and inventory optimization. Stated as one of the critical reasons for implementing visibility solutions, channel visibility can drive growth only when accurate, timely and complete channel information is coupled with analytics to extract insights about the marketplace. The intelligent analysis of channel data can help enterprises track product movement and measure performance and sales. Insights driven from such analysis can also fuel accurate decisions on a variety of factors such as how to address bottlenecks or tailor the business to meet market needs. For instance, a global electronics brand has determined that its consumers in developing markets prefer to pay more for better service compared to consumers in developed markets. Thus, to leverage the power of channel visibility, enterprises need robust tools that drive business intelligence through insightful analytics. These tools can extracts insights and suggest actions to the decision makers. Implementing such tools requires knowledgeable partners who understand business requirements and deliver accurate analytics along with holistic channel visibility to meet business needs.

7 Conclusion As enterprises on-board holistic channel visibility solutions to gain clarity into what happens in the supply chain across emerging markets, they need to look to the next step. While visibility is a key enabler to drive smarter decisions, it needs to be coupled with rigorous analytics. Coupled with the sell-thru model, channel visibility and analytics can help high-tech companies meet compliance norms, optimize reporting requirements, implement a lean replenishment methodology, and enable accurate demand planning, thereby driving higher efficiencies and cost savings.

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