In the complex world of modern distribution and entrepreneurship, “Value Added” is more than just a term; it represents a shift from the traditional concept of product distribution to a more service-oriented approach, in which offering value-added services provides a competitive advantage. But what exactly is value-added distribution (VAD)?
What are value-added distributors?
Value-Added Distributors (VADs) are not merely intermediaries who move products from one place to another. They go far beyond the traditional distributor’s role of logistics and order processing. These distributors manage their own warehouses, purchase products in bulk, and supply them to various sales channels, including Value-Added Resellers (VARs), Managed Service Providers (MSPs), and end customers.
But what really sets them apart is that they also provide services themselves. They are distributors whose added value lies in providing additional services that enhance the products or solutions they offer. This includes crucial functions such as:
- Inventory Management and Logistics: Timely and efficient delivery of products; managing inventory levels to prevent shortages or excess inventory.
- Product Customization and Configuration: Customizing products to meet specific customer requirements and add value.
- Technical Support and Advice: to provide expert advice and support to help customers make informed decisions.
- Marketing and Sales Support: Help manufacturers market their products and provide insight into market trends and customer preferences.
It is important that value-added distributors strive to build long-term relationships with customers, partners, and manufacturers. They have dedicated sales teams that are trained to understand the products they represent. Unlike traditional wholesalers, who are often seen as ‘box-movers,’ value-added distributors bring essential added value to the table, making them partners in success—not just sellers of goods.
The Benefits of a Value-Added Distributor
Value-Added Distribution (VAD) has a direct impact on the entire supply chain. By adopting a VAD model, companies benefit from greater market penetration. Thanks to specialized services that enhance the value of products, customer satisfaction will also increase. This enables companies to build deep, meaningful relationships with customers, resulting in repeat purchases and recurring revenue.
Thanks to their in-depth understanding of the market and their close relationships with suppliers, VADs can quickly find the right products for their customers. In addition, their niche expertise allows them to meet specific customer needs quickly and efficiently, giving them a competitive advantage. In this way, value-added distribution lays a solid foundation for long-term success and growth in a competitive environment.
Manufacturers are increasingly working with value-added distributors
It makes perfect sense that partnering with these value-added distributors offers a wide range of benefits. First and foremost, these distributors can help you improve your product offering by bundling products with complementary or additional services, such as installation and training. With their excellent knowledge of the supply chain, lower go-to-market costs, and the ability to expand your market reach and sales expertise, VADs are an essential part of your strategy for growth and success.
In addition, value-added distributors have an extensive network of resellers and integrators, enabling them to help you reach a wider audience for your products. Choosing the right VAD partner therefore ensures that your product stands out in the market and drives sales thanks to the value they add. Value-added distributors assist resellers with product development and marketing, while value-added resellers, in turn, can help product vendors by offering reseller programs as part of a broader channel strategy.
Organizations also often turn to value-added resellers for complex IT projects that are demanding or time-consuming for internal resources. In these cases, they serve as a central point of contact among multiple IT suppliers or act as consultants with in-depth product knowledge and technical expertise, making it easier to procure and manage various technologies.
The Challenges Facing Wholesalers and Distributors
Wholesalers and distributors face various challenges in a dynamic and competitive market. One of the most significant challenges is pricing, since they have no control over the costs of the products they sell. As a result, the reselling process is sometimes unclear. In addition, VADs and VARs have limited control over the overall quality of the products, since the manufacturer is responsible for quality assurance.
The rapidly changing technological landscape and competitive market require wholesalers to make a constant effort to maintain profitability and market share. In addition, they are also confronted with changing customer needs, which require flexibility and innovation to remain relevant.
Mergers and acquisitions (M&A) are also commonplace, often driven by the need to diversify the customer portfolio and expand product coverage. In this context, wholesalers strive to offer a full spectrum of products to meet customer demand and become a “one-stop shop.” Internationalization is another aspect that is becoming increasingly important, enabling wholesalers to operate across borders while maintaining the same high level of service and delivery reliability.
Finally, scale plays a crucial role in the negotiation process between supplier and customer, which means that increasing scale through acquisitions can be a strategic move to provide certainty and reduce risk.
So what are value-added services (VAS)?
Value-added services include all the additional services and benefits that a wholesaler offers in addition to its standard product lineup. Wholesalers or distributors can enhance their offerings in various ways to provide more value to consumers. These extras make the original product more appealing and help the company generate sales and expand its operations. This can be achieved through, among other things:
- Installation and Assembly: Help customers assemble products, bundle components, or label goods.
- Technical Support and Help Desk: Ensure prompt and expert assistance with technical issues.
- Maintenance and Repair Services: Make sure that maintenance and repairs are included in your product or service to alleviate customers' concerns.
- Training and Education: Organize workshops or webinars to help customers understand and use products.
- Manufacturing and Production: Manufacture custom products in addition to distributing standard products or developing product components.
- Consulting and Advisory Services: Provide expertise in designing solutions that meet customers' needs.
- Peace of Mind and Managed Services: To take over specific business functions or processes, either partially or completely, in order to reduce the burden on customers.
Sectors Offering Value-Added Services
In which sectors do partnerships with value-added distributors take place? For example, you might have a technology company that is developing a new Software as a Service (SaaS) develops a product. A value-added distributor could then create additional value by providing training and technical support, conducting sales demonstrations, and bundling software with complementary products to create a more comprehensive solution.
But other sectors, such as car dealerships and furniture companies, also find value in partnering with VADs. Car dealerships offer similar services, including extended warranties, car rentals, and custom accessories. Furniture companies, in turn, can provide value-added services by offering interior design or professional design and space-planning services.
The applications of value-added distributors are therefore not limited to specific sectors. They extend to technology, healthcare, manufacturing, business supplies, construction, energy, consumer products, transportation, and agriculture. From subscription services to logistics services such as cross-docking and returns processing, and from software support to interior design services, value-added distributors offer a wide range of solutions that add value for various companies across diverse sectors.
What is a Value-Added Reseller (VAR)?
A value-added reseller (VAR), often the channel partner of a value-added distributor (VAD), is an entity that resells products and, at the same time, adds extra value to the original products or services, often through modifications, bundling, or integration.
A value-added distributor (VAD), on the other hand, also adds value to products but offers a wider range of services than just resale, such as inventory management, technical support, marketing support, and other complementary services.
Traditionally, the definition used in the IT world is that a VAR, for example, creates an application for a specific hardware platform and sells the entire package as a turnkey service or tool, usually focused on applications within a specific vertical industry. VARs are experts in the products they sell—often through certification, training, or collaboration with VADs—which allows them to add additional features or services to maximize the overall value for the customer.
Value-Added Reseller (VAR) vs. Managed Service Provider (MSP)
So how does a reseller differ from a managed service provider? A managed service provider (MSP) remotely manages its customers’ IT infrastructure and end-user systems. While VARs focus on the process and adding value, MSPs generate stable revenue through long-term contractual relationships with customers. VARs are increasingly embracing these managed services to secure recurring revenue and improve profitability.
The Future of the value-added reseller
The future of Value-Added Resellers (VARs) is shaped by changes in margins, revenue, and competitive positions. This is primarily due to the rise of cloud computing services, price pressure, and the shift toward one-stop products. Many VARs are evolving into Managed Service Providers (MSPs) or integrating managed services into their operations, which offers benefits such as reduced dependence on product revenue.
Although some VARs maintain a mix of product and service sales, others may evolve into cloud resellers or consulting firms, which presents challenges due to the required expertise and technologies. Current trends—such as digitization, IoT, and AI, which improve effectiveness and efficiency, along with the need for documentation and the growth of private-label sourcing—are ensuring that VARs become an integral part of the supply chain. Value-added reselling is here to stay!
Why choose the VAD model?
In an increasingly saturated market, differentiation is essential for business success. The importance of Value-Added Distributors (VADs) and Value-Added Resellers (VARs) should not be underestimated, given the challenges posed by changing margins, revenue streams, and competitive positions. The constantly changing supply chain requires flexibility and adaptability.
VADs have evolved from mere distributors into entities that offer comprehensive solutions, including product customization, technical support, and consulting services. As a sales channel for manufacturers, VADs help them stand out in a competitive market and be chosen as a preferred partner more quickly. Now more than ever, it is crucial to embrace the shift toward a value-added model to gain a competitive advantage and ensure success in the future business landscape.
The ERP Solution for Value-Added Distribution
With Alistar's Value Added Distribution (VAD) ERP solution, you can Business Centerral Automate your business processes and take them to new heights. From tracking and optimizing your value-added services and digitizing field operations, to streamlining collaborations with partners and efficiently managing your inventory and pricing.
Make your wholesale business future-proof and ‘as a service’-ready. How? Alistar helps you transform from a traditional product distributor into a value-added distributor, thereby increasing your margins!
Find out how to do this with Alistar ERP System for Value-Added Distribution Integrates with Business Central in your wholesale business!
