As technology products mature and become commoditised and competition intensifies, manufacturers are increasingly looking to electronic channels to bypass elements of the supply chain and thereby retain a higher proportion of their margins. More than often, it is the distributor's role within the channel that is most open to challenge from these new electronic channels. After all, products need to be made by the manufacturer and resellers have the relationships with the end-user. Yet, replacing existing distributor partners with an Internet-based system may seem attractive from a short-term financial perspective but in the long run this underestimates the role of distributors and the value they bring to the supply chain.

Firstly, distributors play a vital role as intermediaries between globalised manufacturers and localised resellers and end users. The fact is that distributors typically serve regions that are more widespread than any reseller and yet have a strong understanding of local circumstances. The sheer scale of logistical support required for effective management of a global distribution process is beyond the scope of most manufacturers. Distributors are therefore able to provide a 'buffering' function enabling global manufacturers to more effectively meet demand on a regional basis.

Combined with this is the ability of distributors to provide manufacturers with valuable market sizing information. The fact that resellers operate on a local level with small product volumes means that they cannot serve as statistically valid indicators of future demand. Furthermore, manufacturers deal with products across large geographies and thus don't have the detailed insight into local market conditions that can yield accurate forecasts.

Distributors can aggregate resellers' sales into meaningful volumes and are therefore ideally placed to provide market-sizing information which enables manufacturers to effectively balance their product portfolios.

After all, manufacturers are geared to producing goods on a large scale consistently over the year while customers only buy sporadically. To avoid large stock piles of products taking up valuable warehouse space, distributors provide not only essential sales forecasting information but also the logistical support necessary to keep goods flowing to where they are needed.

In addition to manufacturers, distributors are also well placed to provide this sales analysis to resellers. Through examining sales patterns and product life cycles, distributors can deliver a crucial component of the reseller's information needs, which is essential if they are to eliminate the prospect of 'fire sales' of obsolete equipment at the end of the working life of the products they stock.

Distributors also play a valuable role in facilitating such tasks as returns management. Inevitably products purchased by end users will be returned, which can often lead to a variety of complex processes including testing, refurbishment, disposal or returning to the manufacturer. Traditionally, the distributor will act as an intermediary between the manufacturer and reseller or customer to ensure that the goods are received by the manufacturer and any rebates due are passed on to the end user. Electronic channels simply cannot provide a replacement for the complex processes distributors have set in place to handle returns.

Take for instance the recent European Union legislation compelling manufacturers to adopt responsibility for recycling electronic goods. This means manufacturers are going to have to implement processes for collecting these goods and then recycling them or alternatively paying a reseller or distributor to undertake this. While electronic channels may be used by resellers to procure goods from the manufacturers, they cannot effectively replace the role of the distributor in the reverse supply channel.

Finally, distributors are increasingly providing a great deal of pre- and post-sales support, particularly as a first line response to technical enquiries. Resellers typically don't sell products in the kind of volume that would justify having product specialists on staff and they therefore look further up the supply chain for that service. Manufacturers that argue in favour of the removal of distributors from the supply chain have clearly given little thought to the costs and resources that this level of technical support - on a 24/7 basis - would entail.

There can be little doubt that distributors have a great deal of value to offer the supply chain. It is essential therefore that distributors threatened with removal from the supply chain stress these and other benefits they can bring to both manufacturers and resellers. The ability to provide sophisticated sales analysis and forecasting information, returns processes and technical support should be at the heart of any dialogue a distributor has with a manufacturer. However, to be in a position to provide these higher value services, distributors must invest in the necessary technology solutions.

Unfortunately, it is too often the case that distributors are reluctant to make the necessary investment. Sales forecasting, for instance, requires business information systems to provide hard, statistical evidence while schemes such as returns management require sophisticated back-end systems to automate processes within the supply chain. If distributors do not take the necessary steps and invest in the required technology then they run the risk of becoming irrelevant to the supply chain.

The temptation for manufacturers to replace elements of the supply chain with electronic channels is perfectly understandable, especially in current economic conditions. Yet, while cost savings may be forthcoming in the short term, the effect of so called disintermediation (the removal of links from the supply chain) will certainly be more harmful in the long term. To remove the role of the distributor from the supply chain is to ignore the inherent value their role adds to both manufacturers and resellers.