Feeling stuffed

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Amer Khreino, Emitac Distribution.

Like most regions, instances of channel stuffing in the Middle East is more common with products that are susceptible to price and technological volatility or have certain storage requirements that influence their shelf life.

PC components stand out as one category where excessive quantities of stock frequently appear to exist in the market, along with volume PC and systems lines - particularly towards quarter-end when vendors are desperate to meet targets. Channel sources say goods which typically have a differentiating quality, such as digital lifestyle devices, tend to be less vulnerable.

Nizar Nairoukh, managing director at memory vendor Goodram, believes the Middle East suffers more from surplus stock in the channel than any other territory.

"It is mainly to do with the absence of effective forecasts and planning by channel players," he explained.

"They follow a day-to-day mentality and don't have any quarterly or half-year plans, while vendors in Europe and the more mature markets insist that channel partners submit prior forecasts of their business for every month."

Although Nairoukh's assessment of channel reporting procedures would suggest that the market lacks an element of sophistication, most distributors and resellers are patently aware of the turmoil that overstuffing brings in a price-aggressive market. Any product in the IT and consumer electronics segment that endures sharp downward price effects can very quickly stain a distributor's balance sheet if proper controls are not put in place.

Channel players claim the reluctance of vendors to acknowledge kinks in their inventory planning means channel stuffing is still widely regarded as a delicate subject to broach publicly, even though all parties know when too much product has been forced into the channel.

"Talking about channel overstuffing is as sensitive as addressing the profitability of a company because it is linked to the way you control stock, whether you are a distributor or reseller," admitted Nairoukh.

Amer Khreino, general manager at HP and Acer distributor Emitac Distribution, agrees. He suggests that because vendors generally prefer to overlook their inventory wrongs, it falls on the channel to take responsibility when market capacity is surpassed.

"It is the distributor's obligations to find out and report back depending on the severity of the issue and the position of the product sell-out," he argued. "Having said that, vendors do back the distributors towards coming out of such difficulties to maintain the mutual business - but many times it comes at the expense of profitability."

There are multiple explanations for the presence of surplus stock in the Middle East supply chain, not least the local go-to-market strategies that vendors adopt in the wake of ferocious competition and the broad geographic area they typically address.

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