Dealing with Dealer Station

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Dealing with Dealer Station

A Master’s thesis on the implementation of a strategic concept at Despec and its customers

End -

Manufacturer End -

Manufacturer Jeroen Kloosterman

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Dealing with Dealer Station

A Master’s thesis on the implementation of a strategic concept at Despec and its customers

Author

Jeroen Kloosterman

Groningen, May 2006

Under Authority of

Despec Group BV Master’s thesis for

Rijksuniversiteit Groningen

Faculty of Management and Organization

Specialization Business Development

Supervisors

Dr. M.P. Mobach (RuG)

Drs. J. Berger (RuG)

Drs. J. Issen (Despec Group)

P. Andringa (Despec Group)

The author is responsible for the content of this thesis; copyright rests with the author

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Preface

About three years ago I started my internship at Despec Head Office. It ended November 2003 and the Master’s Thesis was planned to be finished in the beginning of 2004. Ironically, the finishing of the Master’s Thesis is much like the researched project Dealer Station, both were significantly delayed. It may be superfluous to mention that the writing process of this Master’s Thesis was an enormous struggle. As Jack Issen (my supervisor at Despec) mentioned during the internship, sometimes one has to abandon its straight course in order in order to understand a course and to get back on track. I can say that the process has been more “lively” than the straight line, though I prefer to take the fast route next time. With the experience of this project I am confident that the next project I enter will be met with the same enthusiasm but with better equipment for avoiding the pitfalls.

Apart from the inconveniences along the way, I am proud to present you the final version of this project. During the past year I got increasingly enthusiastic on reaching the end product. Though the research dates from 2003, it is probable that the issues are still relevant to the current situation of Despec. The subject of the Master’s Thesis, the concept Dealer Station, has been a gradual process up to the point of finishing the research. In my opinion the analysis and interventions presented in this report can still help to create more awareness on the situation, both internally as to the situation with the customers of Despec.

Finally, I would like to express my gratitude to the people closest involved to getting this Master’s Thesis finished. It is fair to say that my first thanks go out to my greatest supporter Linda, for keeping up my spirit in the difficult times of last few years. Also my closest family, mum and dad, I would like to thank for their ever lasting moral support. I thank my brother and friends for all the pleasant diversion to the writing process and especially Freek for the great reflection he offered. I would like to thank the Despec members who were involved in making the internship fascinating from the beginning to the end. In particular, my thanks go out to Paul Andringa and Jack Issen for the support during this time.

The elaborate discussions with Jack still remain within my memories as he offered me a refreshing view on Business. My final thanks go out to my patient supervisors Mark Mobach and Hans Berger of the University of Groningen, delivering their contribution to the Master’s Thesis in both content and reflection.

To you as a reader I would like to remark that the interesting parts of the report depend on your purpose. To academics I advise to read chapter 2 and 3 carefully, as these decide on the choices of approach to the research. More practical oriented readers can take into account what Dealer Station means (chapter 1) and consider the empirical part of the Master’s Thesis, chapter 4. I am confident that the report will give you a sound explanation on the situation of Despec and Dealer Station.

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Summary

The senior management of Despec Head Office (HO) developed a strategic concept called Dealer Station (DS) in the beginning of this millennium in order to adapt to the development of the market. As a distributor for (Electronic) Office Supplies (EOS) in the Business-to-Business market, Despec has an intermediating position between manufacturers and retailers/dealers. Despec aims to strengthen its position in the fierce market by taking over some activities of its ‘primary’ customers, so called traditional dealers. In its most simple form DS provides the possibility to deliver directly from the distributor to the end-user, without logistical interventions of the dealer. Through the use of E-business solutions it is possible for the end-user to place an internet order at the dealer with the assortment of Despec. As a result, the concept helps to reduce superfluous activities and provides enriched possibilities to traditional dealers for reselling (E)OS. For defining the meaning of the concept, one should understand that is a combination of technology (e-business solutions) and a co-operation between several parties (primary Despec and its dealers):

Dealer Station is the partnership between Despec and the dealer, in which Despec forms an e- business solution to the dealer, providing the opportunity to resell the Despec assortment on its front- end.

The Master’s thesis focuses on three different issues that are related to the implementation of the concept DS. The first two are internally oriented. The first issue identified is the project management.

The project DS took place in 2001 and was significantly delayed. There were difficulties in the control of the project; the management of the project is therefore a field of attention to the research. This study analyzes what went wrong during the planning and execution of the project, in order to present interventions for improvement which can be applied in future situations. The second issue is the friction in the organizational design of Despec, related to strategy implementation. The organization is traditionally organized decentralized. As the strategy is generated centrally at Despec HO but the organization is traditionally governed by the subsidiaries, there is a field of tension on the approach to strategy implementation (centralized vs. decentralized) which can hamper a project like DS. The third subject is the relationship between Despec NL and its traditional dealers. Through conversations it became clear that managers of Despec and some of the interviewed dealers are not satisfied with the result of DS so far. The partnership between the two parties (core of the concept) is therefore the third issue to be dealt with. A central theme to the issues is effectiveness. The issues (in)directly influence the effectiveness of the implemented concept DS. The research aims to present interventions to deal with the issues in order to eventually increase the effectiveness of DS in the market and the implementation process in the organization.

The research objective is:

Advising the management of Despec Head Office about implementation in the form of a report, to increase effectiveness of the Dealer Station concept and to improve the process of

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The research question to which the Masters Thesis answers is:

Which interventions can Despec take to implement Dealer Station more effective?

Dealing with the theory on effectiveness and on the three elements of the research, it has appeared that:

• The so-called purpose model is most suited for judging the effectiveness of DS. The purpose model is used by measuring the gaps between the desired situation and the current situation.

• On the matter of project management, principles by Rodney Turner are used to judge the control on the project functions and the project phases.

• The organizational design is judged on the basic structure and the parameter (de)centralization, in the context of strategic implementation. The ‘fit’ with the contingency factors is used as criterion for judging the organizational design of Despec.

• The DS partnership is judged on the components value and trust from a mutual perspective.

In determining the effectiveness of DS, the gaps between the current situation and the desired situation were appointed. It is determined that the absolute sales on DS, the development of the contribution and the use of the DS ordering channel are not up to the demand. It is also assumed that the improvement on the strategic position has hardly been realized.

By analyzing the project it appeared that the operational management and the project management failed in structural control of the DS project. The management has failed on the planning (no formal negotiations on the scope and failing to create favourable conditions), the execution (no cost accounting, poor Marketing and Sales plans), control (no balance between project- and operational structure) and close-out (missing closing activities and evaluation). Interventions which help to improve the project management are the implementation of a Milestone plan in the beginning of the project, balancing the project organization by separating the ownership from the operational management and by accounting the costs and contribution of individual members.

In relation to the organizational design it is determined that the basic structure misses the desirable dynamics and that the local centralized design fails to connect the ‘thinking’ and ‘acting’ on strategic activities. A way to make the organizational design fit to the situation is by providing the Despec HO management the authority to make decisions on the strategic outline. Subsidiaries can operate and take initiatives within the given borders of the strategic outline. For dealing with the dynamics of the environment it would be advisable to install a (permanent) Project manager. By providing the Project manager the responsibility on resources and on assigning the work, it is likely that the strategic process will be positively influenced.

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The analysis on the partnership made clear that the dealers are likely to regard Despec as a valuable partner for the concept as dealers are largely positive on the performance of primary distributor functions. On the other hand, the value of Despec is negatively influenced by the limited personalization on products and services and the limited use of the network position. Besides, the ordering process is insufficiently customer friendly and Despec and does not systematically approach knowledge accumulation for developing the concept DS. Relating to trust, Despec fails to offer a gradual built-up of the concept and to communicate clearly on its support efforts to dealers. On the side of the dealers, the value is limited as some dealers do not seem to fit the core of the concept.

Despec can increase its value through developing and offering customer specific products and services, by employing its network position for product and service offering, by creating a top-of- market and user friendly digital catalogue and by systematically assembling market knowledge on the competition and end users. Despec can increase trust of the dealers by communicating unambiguous on support efforts, by applying step-by-step improvements, by making agreements with dealers on service improvements and by creating periodic contracts with dealers. Despec can increase the value of dealers by improving the selection process (deploying the presented selection instrument and involving people capable on the field of e-business and finance) and segmentation (awarding valuable dealers and positive behaviour of dealers).

On the organizational side, the effectiveness of the strategy implementation process is likely to improve by the interventions on the project management and the organizational design, under the condition that the Despec Board of Directors manages to shift some power on decision making to Despec HO.

After the given interventions on the partnership, the effectiveness of DS in the market is likely to improve on the sales (mainly the share-of-wallet with current dealers) and the strategic position.

Through realizing more internet sales by an improved digital catalogue, the cost reduction can also be improved. The contribution is unlikely to improve because of the fierce market circumstances and the attraction of new dealers to the concept will be limited due to the maturity in the market. Concluding, it is likely that the effectiveness of DS will be improved by the given interventions, though the expectations on DS will need to be lowered.

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Contents

1. Description ... 1

1.1. Introduction ... 1

1.2. Despec... 1

1.2.1. History... 1

1.2.2. Environment ... 2

1.2.3. Organizational structure ... 4

1.2.4. Strategy... 5

1.3. Dealer Station ... 7

1.3.1. Why Dealer Station? ... 7

1.3.2. Business Model of Dealer Station ... 8

1.3.3. Dealer Station partners ... 10

1.3.4. Dealer Station perspectives... 12

1.3.5. DS Definition... 14

1.3.6. Strategy vs. Dealer Station ... 14

2. Design of the study ... 15

2.1. Problem situation... 15

2.2. Problem definition... 15

2.2.1. Objective of the research... 15

2.2.2. Research question ... 16

2.2.3. The conceptual model ... 16

2.2.4. Modelling decisions... 17

2.2.5. Sub questions... 19

2.3. Data collecting and analysis ... 19

2.3.1. Collecting data... 19

2.3.2. Analysis... 20

2.4. Limiting conditions of the research ... 21

3. Theory ... 22

3.1. Effectiveness... 22

3.1.1. General models ... 23

3.1.2. Choosing a model ... 24

3.1.3. Discussion... 24

3.1.4. Use of the theory... 25

3.2. Project management... 25

3.2.1. Project Management - Rodney Turner ... 26

3.3. Organizational theory... 32

3.3.1. (De)centralization... 32

3.3.2. Contingency factors ... 33

3.3.3. (De)centralization and implementation ... 36

3.3.4. Connections... 37

3.4. Theory on partnerships ... 38

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3.4.1. Partnership theory... 38

3.4.2. Industrial distributors in the internet era... 39

3.5. Measuring the effectiveness of DS ... 41

3.6. Conclusion on theory ... 42

4. Empiricism... 44

4.1. DS effectiveness... 44

4.1.1. Preferred situation... 44

4.1.2. Current situation... 48

4.1.3. Gaps ... 49

4.2. The DS project ... 50

4.2.1. Analysis... 50

4.2.2. Interventions... 58

4.2.3. Conclusion... 60

4.3. Organizational Design... 60

4.3.1. Analysis... 60

4.4. The partnership ... 66

4.4.1. Aspects of value and trust ... 66

4.4.2. Analysis... 69

4.5. Interventions vs. Gaps ... 80

4.5.1. Sales ... 80

4.5.2. Contribution ... 81

4.5.3. Cost... 81

4.5.4. Strategic position ... 81

4.5.5. Conclusion on DS effectiveness ... 81

4.5.6. Discussion on DS effectiveness... 82

5. Conclusion and recommendations... 83

5.1. Conclusion ... 83

5.1.2. Organization ... 83

5.1.2. Market ... 84

5.2. Recommendations... 84

5.2.1. Organization ... 84

5.2.2. Market ... 85

References ... 87

Abbreviations ... 89

Appendix A A.I Financial results A.II Criteria for judging value of dealers A.III Judgements on value of dealers A.IV Resultaten onderzoek DS klanten Appendix B B.I Interviewopzet DS dealers B.II Interviews met dealers

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1. Description

1.1. Introduction

This Master’s thesis is based on the implementation of a strategic concept called Dealer Station (DS).

The senior management of Despec Head Office (HO) developed this concept in the beginning of this millennium in order to adapt to the development of the market. Despec is a distributor for (Electronic) Office Supplies in the Business-to-Business market, meaning an intermediating position between manufacturers and retailers/dealers. The concept aims to strengthen the position of Despec within the chain, by intensifying the relationship with its customers (dealers). Despec HO wanted the concept to be implemented in a number of subsidiaries, starting with Despec Netherlands (NL). Despec NL launched a project in 2001. The project greatly exceeded its planned timeline but was finished in the beginning of 2002. To understand DS within the context of both Despec and its environment, there will first be a general description on both Despec and DS. By reading this chapter, it should be clear what the essence of DS is.

1.2. Despec

This paragraph gives a view on the organization of Despec, describing its organizational features and its environment. After a short introduction on the company through its history, the organizational structure will be elaborated. As DS is largely the result of the company’s strategy and the developments of the environment, the strategy and the direct environment of Despec will be described.

1.2.1. History

Despec Group is the result of a merger between two companies, the Jonkers Holding BV and the AEX listed Van Dorp Group NV. Originally Jonkers started as an importer and distributor of ribbons and carbon paper in 1961. In the 1980’s it started distributing computer supplies. Van Dorp Group NV on the other hand started as producer and distributor of office supplies. The companies were combined and have revised their activities. Under the flag of Despec Group the company has become a trade only company of IT consumables (Electronic Office Supplies) and Office Supplies (for the Benelux countries only). This means that traditional production activities (including familiar brands like Succes agenda’s and Multo paper storage systems) have been discarded and the core business is focused around distribution of office products, mainly consisting of Electronic Office Supplies (EOS). Under the flag of the Van Dorp Despec Group NV the company was listed on the Midcap index, lasting only a short while. Just before the crash on the stock exchange (2001) there was a management buy-out and the NV-structure has changed into a BV. Despec saved its family business, with the Van Barneveld family forming the central positions in the board of the organization. Despec has developed into other geographical markets very quickly. Mainly by acquiring other companies Despec created what they call a multi-local organization existing of over 20 subsidiaries, selling to a range of approximately 50 countries. The word multi-local refers to the local character which all of the subs have remained. One of the consequences of the growth strategy was the structural change. As Despec Group is a Dutch

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company the central management was based at the subsidiary of Despec Netherlands. In 1997 the board and management were separated from the sub of the Netherlands and Despec Head Office was a fact. In 2001 Despec HO moved to a separate location.

1.2.2. Environment

Its expansion strategy brought Despec to emerging markets in Eastern Europe and parts of the Middle East and Africa. The main focus of business is still North Western Europe (NWE). In explaining the environment, the emerging markets will not be regarded. Extra focus will be on the Dutch market, since it is the regarded area for the research. The industry in which Despec operates will be described, introducing the players in the market and showing the power balance between them.

1.2.2.1. Manufacturers

At the Original Equipment Manufacturers (OEM) level there are a few dominant players, of which Hewlett-Packard (HP) is the most powerful player. Intermediary parties in the sector of EOS are mainly depending on HP when it comes to purchasing goods. They create a pull on their hardware products, thereby creating a base for the sales of the supplies connected to it. The manufacturers use a push strategy for their supplies towards the market. They tend to push the intermediates to market their products to the end-user. Manufacturers have great power in the chain. Because of their brand names and due to their power in size, they play an important role in the selection of the distribution channel.

Because of the low margins on the products that the intermediates get, it is important to realize maximum discounts on purchasing at manufacturers. These OEM’s on the other hand show interest in added value distribution of their products. That is why they check the quality of the intermediates and decide whether or not the party is of interest to them. HP has made attempts to cut of the intermediates and start its own distribution, with mixed results. Direct supply of large accounts has proven more and more successful but in the middle segment of the market the traditional chain still is of added value to the end-user.

Despec Despec Corporate

Account Corporate

Account Small and Mid Enterprise Small and Mid

Enterprise Small Office Home Office Small Office

Home Office PrivatePrivate End User

Reseller

Wholesaler

Manufacturer

Contract Stationer Contract

Stationer Office

Supplier Office

Supplier Superstores

Mail Order Superstores

Mail Order Retail

Outlets Retail Outlets

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1.2.2.2. Wholesalers/Distributors

There is some difference between the several wholesalers in the industry of Office Supplies and Electronic Office Supplies. The so called ‘traditionals’ are wholesalers which mainly trade office products, for example pens, paper and desktop products. Companies in the traditional sector are Timmermans (Bel) and Spicers (UK). These parties do not limit their product range to traditional office supplies, they also trade some computer supplies. There are also wholesalers that have their roots in the computer business. The most influential companies in this part of the wholesale market are Tech Data (USA) and Ingram Micro (USA). These organizations are also called ‘broadliners’ because they distribute hardware, software and computer supplies. Ingram Micro (IM) and Tech Data (TD) are powerful in size, product range and geographical spreading. The third main group that is relevant to mention in this context are distributors of computer supplies. These can be called the Despec-likes because of their specialization in this specific product range. Apart from Despec examples are Copaco (NL), ACI Adam BV (NL) and ISA (UK, Germany, France, Scandinavia). Compared to the other parties this category has a broader assortment on product groups like cartridges and data-storage.

Wholesalers are relatively less powerful when compared with the large OEM’s and resellers. In the Netherlands, Despec has a combined assortment of Office Supplies and Electronic Office Supplies.

Therefore, the direct competition in the Netherlands is broader than in other NWE countries. For the middle segment of the market, the main competitors are Intercambio (Buhrman daughter company) and buying organization Quantore. These companies have a comparable product portfolio and both mainly target the middle segment. Corporate Reseller (next paragraph) Ahrend also acts as a wholesaler in this sector.

1.2.2.3. Resellers

Compared to the wholesalers there is an even broader range of categories at reseller level.

Department Stores, Retail Supply Stores, Computer Product Superstores, Office Product Superstores, Customer Electronic Superstores, Mass Merchandise Stores and Small Independent Retailers focus mainly on a large group of smaller customers like consumers and small office/home office end-users.

There is also a large middle-group end-users formed by small and midsized companies. These are mainly approached by the traditional dealers, Office Product Superstores (Office Centre) and Mail Order companies (Viking). The traditional dealers currently form the main group of Despecs customers. The largest and most powerful resellers are the Contract Stationers (Lyreco, Guilbert and Ahrend) and value-added Resellers (Pink Roccade) who mainly supply Large Accounts. The change in the last few years is that the large resellers, superstores and mail order companies gain more market share in the middle segment, thus expanding their power at cost of traditional resellers.

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1.2.2.4. End-user

In order to create value for the end-user one must realize important principles in the market. The sector of industry can be identified as part of a larger group of products and services which are called Maintenance Repair and Operation (MRO) products. These products are demanded by companies and institutions. Also cleaning goods/services, catering services and security services are typified as MRO products. The most important feature to these kinds of products is that buyers in the business sector consider them as low-interest goods. This means that compared to other purchased products, the buyer pays less time and effort to it. Comfort of buying is (certainly in B-to-B situations) most critical to these goods. Over the last few years there is a tendency to integrate more of these products and services for delivery to the customers. This means that so called one-stop-shopping is becoming increasingly important to end-users.

1.2.3. Organizational structure

Despec’s subsidiaries are mainly stationed in Europe. Besides the mature markets in North-western Europe, Despec is also active in many emerging markets. The company established a number of subsidiaries in Eastern Europe, the Middle-East and Africa as well. Its growth strategy of the last five years has developed Despec towards a PAN-European¹ player. Despec enlarges its terrain by joint venturing with existing companies. Generally, the management of a subsidiary stays in place after a takeover. The subsidiaries are managed separately from each other. This means they run the day-today business and also decide on the policy on marketing, sales and purchasing. The function of Despec Head Office (HO), besides corporate strategy and the control on the subs, is to facilitate the subsidiaries and to take care of the corporate identity of the Group. This facilitating means that HO helps countries to realize certain projects or to strengthen the policy/execution on the disciplines of ICT, Marketing/Sales and Purchasing. Besides the supporting activities Despec HO also centrally organizes the ICT network and applications.

Figure 1.2 shows the corporate structure of the organization, meaning that details on subsidiaries are missing. What the picture doe not show is the structure of the subsidiaries. Each sub is structured functionally. The subsidiary Despec NL has a management of three persons (general/financial manager, sales manager, purchasing/marketing manager) and has its own Purchasing, Marketing-, Sales-, HRM-, Administration- and Datamanagement department. Figure 1.2 shows that in the Benelux and Scandinavian countries the subsidiaries share Distribution Center’s (DC’s). Some subsidiaries have outsourced their logistics (like Despec UK). The DC’s have a functional structure as well; some are shared by more than one subsidiary, as shown in the figure (none-shared DC’s are not shown). The subsidiaries and DC’s are financially separated, meaning that the subs pay the service of the DC’s.

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Figure 1.2: Organizational structure at corporate level

1.2.4. Strategy

The strong changes in the industry of Office Consumables were critical issues for Despec to rethink their strategy. It was obvious that margins were eroding and competition became fiercer in the late 1990’s. That was the reason why the Board of Directors (BoD) of Despec started the so called E- commerce Task Force (ETF) in 1999. The senior management of Despec started a strategic re- evaluation. Up to the point of the ETF, the strategy process had an ad hoc character. With the changes in the market and the company development (growth and creation of HO), the need for a corporate strategy became eminent. The ETF report is one of the main sources for understanding the choice for the DS concept. Later strategic projects were also mainly based on the ETF.

1.2.4.1. SWOT analysis

The management of Despec created a SWOT analysis in 1999 of which most points are still relevant at the present time. The main strengths of the organization are the international character (purchase power) in combination with the ability to deliver products conform the market (on price level and logistically). Another advantage of Despec Benelux compared to competitors is the effort of the after

Netherlands (OS/EOS) Van Dorp

Brands

Belgium (OS/EOS)

Austria Rauch Austria ITEM 2000

Germany

United Kingdom

Iceland Sweden

Denmark

Norway South-Africa

Gulf Greece

Russia Romania

Turkey

Levant America

Canada

Fr. Africa Eng. Africa

Board

CEO CCO

Legal CFO

ICT

Marketing&

Sales Business

Development

Finance &

Administration

Vendor Management

DC

Formerly Yugoslavia

DC

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sales (Integron report, 2003). The weakness of the multi-local character is the lack of a shared management structure/culture and the limitation to disclose international contracts. Other weaknesses are the lack of control on processes and the limited development of the ICT abilities.

The main opportunities identified by the management are related to the existing market and customer groups. It focuses on cross- and up-selling of products, thereby increasing revenues. Examples are office furniture, (low end) hardware and Janatory & Sanatory products. Another opportunity is creating stronger ties with co-competitors, suppliers and customers through e-business solutions. The threats are serious in this market. There is fierce competition, causing increasing pressure on margins. The traditional chain in this market is broken: parties within different levels of the chain are competing with each other, causing greater pressure on margins of wholesalers and distributors. Apart from competition within the chain there is an outside threat for wholesalers and retailers; E-tailers and E- procurement companies have low barrier cost for entering the market (except technological and marketing costs). These new entrants form a threat to the distribution function in the chain, as they can offer a large or “smart” (special procurement offers) assortment directly to the end-user.

1.2.4.2. Strategy

This is the intended strategy of an organization (Mintzberg, 1987: 11-24). Its can be defined as the formalized strategy which a company has, at a certain level, agreed to work out. For describing the strategy of an organization it will first need to be placed in a greater perspective. Each corporation has its own Business mission which can be translated as the core that drives an organization.

Mission

Looking at the formalized statements on the mission of Despec, several statements are identified:

• Despec wants to be the indispensable link between the OEM’s and resellers at high service levels and at lowest cost possible. (Intouch, Despec Magazine)

• To fulfil every need for office consumables (ETF)

• To be the preferred consumable products channel partner for our customers, adding value to their business, our shareholders and employees. (DS toolkit)

The different mission statements used in the organization are in my opinion typical for Despec as it does not have a culture for formalized strategy making and subsidiaries of Despec all have their own agenda. The fact that the statements differ can not be used as fact for ambiguity because mission statements do not necessarily drive the people in the organization.

Strategic targets

• Geographical expanding, towards PAN-European spreading and into emerging markets

• Increasing revenue form product opportunities (new business, related business)

• Increasing revenue by market fulfillment (share of wallet and increased services)

• Increasing efficiency of processes

•

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• More focus on the end-user

• Creating more efficiency and/or revenues by extending the network of Despec (increasing number and/or value of partnerships)

• Cost saving through leveraging procurement between subs

• Strengthen corporate identity by tighter collaboration (multi-local to multinational)

The strategic reconnaissance was followed by the creation of strategic programs at Despec HO. One of the programs (DIO²) resulted in an implemented project (DS) and several points of attention (international structure and adjustment of product portfolio).

1.3. Dealer Station

At first, the DS concept can be explained in a fairly simple manner. But as the word concept clarifies, it has a holistic nature; it is multi-interpretable and its content depends on the implementation. Because of this nature, this paragraph will show the sides to the concept and will come with a definition which I regard most suitable.

1.3.1. Why Dealer Station?

Before explaining the main principles of the DS concept, one should be able to identify the need for such a concept. DS is a mix of critical trends in the industry, as well as the evolving use of internet.

1.3.1.1. Trends

General trends related to the rising of e-business are defined by Tiggelaar (2001: 46-52): markets are getting more transparent due to intermediaries and end-users demands are continuously increasing, for instance they demand timelines (for MRO products: next-day-delivery), high availability of goods and a wide assortment to support one-stop-shopping.

The so called aftermarket (maintenance and repair) in the automobile industry resembles the MRO market when regarding the end-user’s demands on delivery time and product availability. Supply chain efficiencies play an important role in today’s automobile industry. In the aftermarket of the industry, car components are being traded more efficient then ever before, due to the internet. The automobile industry is entrepreneurial on the front of e-business and integrating effective management principles (like Just-in-Time and Supply Chain Management) within its supply chain. The need for components is nowadays strongly managed from component manufacturers to the end-users. The procurement systems behind the industry create an efficient ordering process of components. As a result, transaction costs, stocks within in the chain and the delivery time are all reduced.

In the office consumables industry, two factors are critical for the existence of DS. First there is an increased threat of vertical integration in the market, especially by manufacturers. This threat causes more pressure on efficiency in the chain, in order to maintain positions for both dealer and distributor.

Secondly, the traditional dealers are increasingly under pressure by the corporate resellers and mail order companies on their primary market, the SME business. These two factors cause a greater need for co-operation between distributor and the traditional dealer. Comparing the industry to the

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aftermarket of the automobile industry, the activities in the industry should be optimized. Optimizing the supply chain means focusing on the core competences of the involved parties, thereby reducing or eliminating overlapping activities in the chain.

1.3.1.2. Despec

For a distributor, the trends mentioned above create some problems. Consequences for Despec are that margins on sales are eroding and that their primary customer group (in terms of profitability), the traditional dealers, are under pressure. Therefore the concept DS has been developed. The concept is the result of ideas crossed from the E-commerce Task Force (ETF) knowledge from the office branch in the United States. The development of e-business in the U.S. is at a higher level than in Europe (pioneers in e-business), were concepts like DS are around for some time. The HO management has benchmarked the U.S. market carefully. This is how they found examples suitable for the European market as well. A good example is United Stationers’ Dealer Station concept, a co-operation between wholesaler United Stationers, IOS² (Technology Provider) and dealers. Besides the benchmarking, the concept also requires attention to organizational aspects, in order to implement it successfully. The concept, as Business Model, will be described in detail below.

1.3.2. Business Model of Dealer Station

Dealer Station aims to create and redistribute supply chain efficiencies by facilitating the dealer.

Financial goals related to the concept are to increase revenue, contribution and to reduce transaction costs through electronic ordering processes. Strategically DS is expected to strengthen Despec’s position by creating more supply chain efficiency, extending its network and to increase its focus on the end-user. The management of Despec HO defined different models for concept DS. These are called ‘Drop Shipment’ model, ‘Stockless’ model and ‘Full Service’ model. The way these models work and the relative differences are explained below. First the traditional model will be illustrated.

Dealer station End-user

Dealers

Despec

Manufacturer

2 2 2 1

1

12 3

3

3 4

4

–Purchasing –Logistics –Sales –Transport –Purchasing –Logistics –Sales –Transport

–Administration –Marketing –ICT

34

Functions of Dealer / Despec

Order flow Goods flow Invoice flow Payment flow

Traditional Supply

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In the traditional situation, the product flow starts at the manufacturer, via wholesalers/distributors like Despec, via dealers & resellers to the final consumers/users (end-users). OEM’s, Despec and dealers take care of the logistics, OEM’s to distributors, distributors to dealers and Dealers to end-users.

Despec, on behalf of the dealers, delivers (part of) the goods directly to the end-user.

1.3.2.1. Drop shipment model

The Drop Shipment model is not specifically related to e-business solution DS. Drop shipments are a logistical solution, also available through other ordering channels as phone, fax or e-dolphin (explained in paragraph 1.3.4.1.).

In its basic form, the dealer uses an on-line shop that is linked to the ERP system(s) of one or more distributors (see paragraph 1.3.3.2.). This means that the (complete or a subset of the) assortment of the distributor(s) is available for the dealers customers on the website of the dealer, providing the end- users with a broader and deeper product portfolio (and/or a combined catalogue of several distributors) than an individual dealer is able to offer single-handedly. In case of DS the orders from end users (through the dealer’s website) go to the back-end of Despec. In other words, dealers do not have to interfere with the ordering process. This enables the dealer to outsource the purchasing, logistics and transportation on individual orders. Drop shipments form an effective method to reach customers outside dealers’ original region and/or to supply goods outside the dealers’ standard product assortment.

Figure 1.4: The Drop shipment model

Partly outsourced End-user

Dealers

Despec

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Dealer station –Purchasing

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1.3.2.2. Stockless model

In this model, the dealer becomes a virtual reseller, at least for the office consumer goods. The dealer no longer keeps stock and leaves the purchasing and logistics function to its distributor. In comparison to the former model it means a greater commitment to the distributor and a greater focus on the core business of the reseller, its marketing and sales. Compared to the former model the only change is that purchasing, logistics and transport will be completely outsourced to the distributor.

1.3.2.3. Full service model

More services can be outsourced, up to the point that dealers no longer have to deal with back-end operations. A possible extra is to provide administrative services to dealers. It may be possible to create more services for this model but at this stage it is has not been regarded in the business model.

It is stated that subsidiaries implementing this concept should further investigate these possibilities in order to fit local market circumstances into the concept.

Figure 1.6: Full service model

1.3.3. Dealer Station partners

Besides Despec, two parties are directly involved with the implementation of the concept; the dealers and the Technology Provider. The primary partners for the concept are the dealers. ICEshop is the first selected Technology partner for the implementation of the project in the Netherlands. It is possible to have several Technology partners, giving dealers and Despec the freedom of choice. To illustrate the role of Technology Providers, ICEshop will be regarded. Their part in the concept will be

Payment flow product groups

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1.3.3.1. Dealers

Despec selects dealers which are interested in the concept and which they regard suitable for the concept. The primary target group is the traditional dealers. Reasons for targeting this group are the overlap in activities (reselling office consumable goods) and possibilities to create partnerships with these dealers. Besides these traditional dealers there are IT service providers & resellers to whom this concept forms an opportunity to enlarge their activities by cross selling office consumables. The third targeted group are the virtual resellers or e-tailers. Virtual resellers are stockless dealers, they do not stock products. These identified groups (according to the Dutch market) mostly target the middle segment of the (end-user) market, primary related to the B2B market for small and midsized organizations on end-user level. Other (potential) target groups like Corporate Resellers and Retailers are less interesting for this concept. These organizations create their own e-commerce environment and have less need for additional services by the distributors. An extra disadvantage of Retailers is that they focus on consumers. As a consequence, there is more financial risk on orders (higher potential of payment problems, requesting more transaction costs) and limited buying power (order value is crucial for office consumables).

1.3.3.2. Technology Providers

ICEshop started in 1999, created by the founders of Take It Now that moved towards a mediating position in the market. Nowadays the main distributors of computer products are linked to this ASP (Tech Data, Ingram Micro, Despec, Pluz, Copaco) and the number of dealers is above 100. To increase the opportunities for the dealers, the hosting of the web applications is outsourced to ICEshop. Technology Providers like ICEshop create a service model through which several parties in the market of (E)OS, IT hardware and software can be linked. Resellers and distributors can be linked to a web shop hosted by the Technology Provider. Besides the web shop, they also deliver support applications and support services to the dealers. In the particular case of ICEshop (or direct competitors like Web Architects) the dealer’s web shop is linked to the back end of the distributor. The dealer can choose its own role in ICT, it can outsource (in different degrees) to the technology partner in different degrees (based on own needs, limited by capacity of the Technology Partner).

There are some advantages attached to a network with a Technology Provider. The dealer can switch between multiple distributors without additional cost and the distributor has the opportunity to penetrate customers of competitors. For the distributor it has disadvantages and advantages. The main disadvantage for distributors is that it is non-exclusive, meaning that dealers have the opportunity to switch the distributor. The advantage is that they do not have to include non-core activities such as the design of the webshop. Next to this, it is also more likely that dealers accept the concept when they have the possibility to switch the distributor.

It is also possible to create a direct connection between the front/back-end of the dealers and (through interfaces) the back-end of Despec. This direct connection (the so called DIGIT connection, see paragraph 1.3.4.1.) leaves out the Technology Partner. This group will not be regarded because not all direct connections create a Despec catalogue in the frond-end (the webshop). It should be noted,

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however, that similar principles are of practice to this group. Figure 1.7 shows the relationships between Despec, the dealer and the Technology Provider.

Figure 1.7: Dealer Station relationship model

Despec and ICEshop (the Technology Provider for the concept at the start of DS) are business partners. They share a mutual interest, to generate business through the possibilities of e-commerce towards the dealer. For Despec it means an opportunity to generate more revenue and lower the costs. ICEshop’s core business is to provide IT services. It is in their interests to create as many valuable connections as possible. Despec provides information (data on products), ICEshop connects the web shop to the back-end of Despec and delivers additional tools to the dealer. The other relations in the triangle are purely customer-supplier relationships. Despec delivers products and services (stated above in the models) towards the dealers in exchange for financial rewards.

In the relationship between the dealers and ICEshop, ICEshop provides the dealer a web solution.

The dealer has the possibility to create its own look-and-feel² on the online shop. In exchange, the dealer pays a onetime set-up fee. For the maintenance and services of ICEshop, the dealer pays a monthly fee.

1.3.4. Dealer Station perspectives

As mentioned in the description of the models, DS can be regarded in several ways. Two perspectives will be elaborated in order to eventually create a definition on DS. The first is a ICT/Process view, in

Multiple Dealers

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which DS is regarded as an ordering channel. Secondly, it will be regarded from a Marketing point of view, in which DS is a concept that tightens relationships between dealer and Despec.

1.3.4.1. ICT/Process perspective

Despec has several order channels through which the ordering takes place. First there are two channels for manual ordering, fax and telephone. Besides these channels, Despec has created three e-commerce models to provide resellers multi-channel solutions. These are called ‘e-Dolphin’, ‘Dealer Station’ and ‘Digit’. The aim is to create more efficiency by providing e-ordering solutions that service the resellers. The e-Dolphin channel targets the small and midsized dealers, DS targets the

“promising” dealers and Digit primary targets Corporate Resellers and (large) Retailers. E-Dolphin is an e-business solution which is owned and maintained by Despec and implemented at all North-West- European Despec subsidiaries. This is the basic e-business solution that is available to every Despec customer. The second solution, DS, adds the opportunity to use Despec’s assortment in a webshop, which can directly be used by the end user. Digit is a solution for larger resellers, which effectively provides an interface between the reseller and Despec (EDI/XML formats). Despec charges a monthly fee for the interface. As mentioned above, Digit also provides the possibility to add the assortment (through providing a digital catalogue) to the webshop of a reseller.

From an ICT/Process view on DS, the differences between the concept and other e-business solutions are limited to the connections created in the ICT systems. All three solutions provide the dealer with the possibility to enter (drop shipment) orders electronically. Digit and DS both create possibilities to create a front end at a dealer’s webshop. Through this process view it obvious that it is not necessarily a solution through ICEshop or any other Technology provider.

1.3.4.2. Marketing perspective

From the Marketing perspective DS provides dealers with a proposition. Through this view DS is regarded as a means to create more value to their (sub)top customers. DS in this meaning is a way to create customer segmentation through which Despec can concentrate on a limited group of dealers.

This means a form of customer selection, in which the total amount of attention will be concentrated more to the high-potential loyal customers, consequently increasing the profitability. The assumption that loyal customers are more profitable is diverted from the Relationship Marketing perspective. Peck et al. (1999: 46) refer to famous research by Reichfeld (Bain & Co) which suggests a strong correlation between customer retention and profitability.

The traditional dealers are strongly represented in the customer base of Despec, forming an important group of customers. It is likely, due to fierce competition, that many of the traditional dealers might not be able to adapt timely. This resembles the trend in the ICT market, were the shakeout already took place. The need to select and focus on profitable, strong traditional dealers is therefore becoming increasingly important for Despecs’ survival. It is therefore evident to Despec that these dealers should be supported. This calls for increased co-operation between both parties, so to say a partnership through which both parties strengthen position in the Supply Chain and reach stronger financial

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results. Through this marketing perspective, DS is an opportunity through which Despec can provide extra products and services to the dealers.

1.3.5. DS Definition

DS as used in this report will focus on the broad definition of the concept:

Dealer Station is the partnership between Despec and the dealer, in which Despec forms an e- business solution to the dealer, providing the opportunity to resell the Despec assortment on its front- end.

Note: this means also customers provided with Digit solutions (in combination with the Despec assortment on the webshop) are to be regarded as users of the DS concept. As the solution on which a Technology Provider is connected is dominant, this will be the researched group.

1.3.6. Strategy vs. Dealer Station

Before starting the main part of the research is should be regarded whether the choice on the concept and project DS is conform the ideas of the organization. Several elements from the strategic targets can be linked to the targets of DS: increasing efficiency on ordering, increasing revenue and creation of opportunities through offering additional products and services. Even more important for the long term is the position of Despec within the chain. As the chain-loyalty has greatly diminished, the concept of DS gives an opportunity to regain a stronger position in co-operation with its dealers. The concept can be regarded valuable for two reasons: it corresponds with trends in the environment and is consistent with the overall strategic objectives of Despec. What remains are basically two points; the implementation within the organization and the implementation in the market (dealers). These issues form the base for the problem situation, as will become clear in chapter 2.

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2. Design of the study

This design of the study provides a sound explanation on the problem situation, problem definition and data of the research. The problem situation will give an overview on the main issues involved in the research. The problem definition will be described, containing the objective of the research and the central research question. Then the conceptual model and the related sub questions will be presented to divide the research question into workable pieces. In order to set the borders of the researched area, modelling decisions will be presented. This chapter will end with describing the data collection and analysis and by presenting the limiting conditions to the research.

2.1. Problem situation

This Master’s thesis will focus on three different issues that were identified during the research period.

The first two are internally oriented. The first issue is the project management. The project DS took place in 2001 and was significantly delayed. The management of the project is a field of attention to the research because there were difficulties in the control of the project. This study aims to analyze what went wrong during the planning and execution of the project, in order to present interventions for improvement which can be applied in future situations. The second issue is the organizational design of Despec, related to strategy implementation. As stated in the former chapter, the organization is traditionally organized decentralized. Because the strategy is generated centrally at Despec HO but the organization is traditionally governed by the subsidiaries, there is a field of tension on the approach to strategy implementation (centralized vs. decentralized) which can hamper a project like DS. The third issue is externally oriented; the relationship between Despec NL and its traditional dealers. Through conversations it became clear that the management of Despec HO, Despec NL and some of the interviewed dealers are not satisfied with the result of DS so far. The relationship between the two parties (core of the concept) will therefore be researched, in order to analyze the shortcomings of both parties and to regard the possibilities for improvement.

2.2. Problem definition

The problem description has given a compact view on the issues involved in the regarding DS. In addition, the problem definition gives an understanding on objectives and questions related to the research on Despecs DS³.

2.2.1. Objective of the research

Advising the management of Despec Head Office about implementation in the form of a report, to increase effectiveness of the Dealer Station concept and to improve the process of implementation within the organization.

3 The objective contains information on who wants what knowledge product and why (De Leeuw, 1996: 90)