Synnex credits business model for resistance to recession 14 January, 2009 By Paul Weinberg

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He was commenting on the announcement that Synnex had generated $2.1 billion in revenue in its fiscal fourth quarter. This represented an increase of 6.4 per cent compared to $1.97 billion for the fiscal quarter that ended November 30, 2007.

Alsborg denied that these positive financial numbers stemmed from his company's decision last fall to forego freight surcharges on shipments to resellers and end user customers -- in contrast to the actions of major competitors. Tech Data, for instance, charges a handling fee of $2 on all orders, excluding orders exclusively comprised of virtual product such as software licenses, warranties and services.

Still, the freight surcharges established by other distributors have been "significant enough" to warrant some resellers to start doing business with Synnex, Alsborg reported. "I would not say this has been a huge wave by any means. But definitely we are firm [about] the decision."

Alsborg thinks Synnex's long term strategy to establish an efficient, flexible and responsive supply chain operation is a bigger factor in the overall success of the company.

"What we are is a low cost provider and so we provide a better service for customers and our vendors for a lower cost."

Synnex sought to reduce its own costs on shipments rather than force customers to absorb the expense of higher energy, for instance. That included setting up a series of decentralized warehouses across North America to reduce shipping distances for local resellers.

Alsborg also cited Synnex's decision to design its own internal and proprietary enterprise resources planning application rather than buy an off the shelf standard software product and customize it. "It is specifically honed in on the distribution business."

Furthermore, the company more than ten years ago decided to source its back office operations in Beijing, China.

"We have been able to take a business model that we have built over the years to be very lean because of our IT system and also because we have our back office operations overseas," Alsborg explained.

Synnex has expanded into adjacent markets such as consumer electronics with the acquisition of two CE focused distributors, RGC and New Age Electronics.

"The two companies gave us inroads into a particular customer base for consumer electronics that we can then leverage our specific services," he stated.

Alsborg maintained that Synnex has not experienced any pressure on its bottom line from the provision of credit to resellers in these tough economic times.

"We have not taken any significant charges for bad accounts receivables and the reason for that is we have very good credit practices in the company long standing."

Alsborg stated that Synnex "doubled its efforts," starting more than a year ago, to review the financial performance of its reseller customers. "Our strategy is to be pre-emptive rather than reactive."

He declined to go into details about how and in what circumstances Synnex will assist resellers caught financially when end user customers delay payments for outstanding bills for implemented solutions.

At the moment, Alsborg could not name any examples of channel partners associated with Synnex that have gone out of business or become bankrupt.

"We find ways to solve their problems within the constraints of our good credit practices," he added.

Meanwhile, Denise Sangster, industry analyst and president of Global Touch, described Synnex's decision not to follow the path taken by other distributors to charge freight surcharges as "gutsy."

She stated this situation began last summer when some IT manufacturers in the face of rising energy costs placed freight surcharges on shipments to the distributors, which in turn sought to recover their costs on the back of the channel.

She noted that Synnex has managed to achieve good revenues and generate high volumes of sales despite a year over year gross margin of 5.84 per cent.

"That is not a lot of margin. So, that means you have to be an extremely well managed company and that margin that they reported with their results is the highest they have ever had and I think that is a very, very good result.

Synnex has differentiated itself from the competition with unique products and services including consumer electronics for enterprise solutions, document management, contract assembly and outsourcing, as well as make aggressive moves into storage and networking and telephony, Sangster explained.

This IT distributor has announced that it has managed to reduce by one day each quarter its day sales outstanding or the amount of time it takes for customer to pay their bills.

"As companies are reporting their end of year returns one of the big concerns is how fast are the customers paying their bills. The key measurement that we are seeing around the world is that the days outstanding in many companies are increasing dramatically," stated Sangster.

Companies that are well run and focus on their business can be successful even in a bad market, remarked Rob Enderle, principal analyst at the Enderle Group.

"Over the reporting period [Synnex] not only showed strong results but reduced substantially much of their debt, putting them in much better condition to survive the still coming storm."