Best Procurement Practices for Managing Relationships With VARS
A Value-Added Reseller (VAR) is defined as an organization that buys equipment and supplies from an Original Equipment Manufacturer (OEM) at a discount, adds value and re-markets the product or service before selling it to its clients. VARs are also sometimes referred to as channel partners. Some VARs combine components sourced from multiple vendors to build a new system as per customer requirements, bundling third-party hardware and software to create an integrated product for reselling.
Suitability of VARs
Value-added resellers have grown their delivery of products and services over the years to further enhance their position in the marketplace between other suppliers and customers. They sell everything from computer parts to whole PC or laptop to enterprises with whom they have delivery contracts. They have further expanded into selling software and services.
VARs offer flexible pricing, customizable contracts and after-sale services. They can extend the life of existing IT infrastructure by looking after updates and maintenance contracts. However, engaging with VARs only makes sense when the spend is considerably higher and the customers need different niche products from a varied set of OEMs. In those cases, engaging with multiple OEMs can be effort- intensive and supplier relationship management can become a mammoth task. Therefore, VARs have become a viable option for procurement managers of large enterprises to derive cost savings and to streamline supplier relationships.
Changing Landscape of VAR Ecosystem
Recently there has been a significant change in the way VARs offer their services, as they compete with online marketplaces that have started providing more competitive rates and discounts to their business customers. As VARs compete to stay relevant, they are changing their operations by incorporating managed services, consulting, cloud computing, security and virtualization.
VARs are also ramping up their partner ecosystem by introducing programs that foster strong relationships with OEMs and vendors. However, as resellers move away from the traditional reselling model to providing managed services and cloud migration, there has been an increase in mergers and acquisitions in the technology VARs industry.
Managing VAR Engagement
In addition to contemplating the unique and varying requirements that exist across the various product categories that VARs cover, enterprises need to consider multiple factors when deciding on partnering with value-added resellers. Some value-added resellers can be skilled in a particular product line while others excel in engineering solutions and services. Enterprises must classify VARs based on their value rather than comparing them monolithically. Furthermore, enterprises need to develop a strategy that includes negotiating with OEMs directly for certain categories. Within the VAR space, there is always a spend category where it makes more sense to negotiate directly with OEMs.
Buyers, be they consumers or enterprises, must ensure that there is transparency on the incentives that are being offered to the VAR from the OEM. This helps buyers better understand and justify margins, particularly if a gain-share model has been agreed upon with the VAR. In this time of changing customer dynamics, how VARs remodel their operations and strategy to stay relevant, maximize revenue and cater to the new-age customers, is something to watch out for closely.
Frequently Asked Questions
An OEM or original equipment manufacturer (OEM) is an organization that provides small components used in the manufacturing of another company's products. They often work closely with the seller of the end product.
An organization can get the best out of VAR vendors through best practices like:
- Engaging with VAR vendors only when the spend is considerably higher and the customers need different niche products.
- Organizations must identify their spend strategy and classify VARs based on their value.
A Value-Added Reseller (VAR) is defined as an organization that buys equipment and supplies from an Original Equipment Manufacturer (OEM) at discounted rates, adds value and, re-markets the product or service. VARs are also sometimes referred to as channel partners.