Buying From Distribution: It’s Not Just About the Parts

April 7, 2014
Many small and mid-size OEMs and EMS providers could benefit from alliances with a few select distributors.

The term “middle man” is sometimes used to describe distributors, although some in the electronics supply chain view it as an archaic term. Others may say it is a pejorative label because it implies that distributors stand between part manufacturers and customers.

In fact, distributors are not “in the way” of  component manufacturers doing business with customers, but often are extensions of component manufacturers servicing thousands of OEM and electronics manufacturing services (EMS) provider customers that component makers could never reach with their direct sales forces.

Distributors also provide design, inventory management, and other supply chain and value added services that help both customers and component manufacturers reduce cost, operate more efficiently, and bring products to market quicker.

However, in one way “middle man” is an accurate term because distributors are in fact positioned in the middle of the supply chain. They do business with semiconductor and other component manufacturers as well as OEMs and EMS providers, which gives them real-time insight into the electronics supply chain. Often, distributors can identify emerging trends in technology because of their relationships with chipmakers and component suppliers.

Because distributors receive forecasts and purchase orders from OEMs and EMS providers, they also know when demand for certain products is increasing or declining and can gauge what impact that demand may have on supply.

That’s why it behooves buyers to forge strategic partnerships with a few key distributors. Having close relationships with several key distributors can give buyers valuable insight into emerging trends into the supply chain, as well as help buyers maintain continuity of supply when there are parts shortages.

Ed Smith, president of Avnet Electronics Marketing Americas, recently told that me when there are parts shortages, Avnet gives top priority to its strategic supply chain customers. For instance, when the 2011 Japanese earthquake disrupted electronics production resulting in some component shortages, Avnet took care of its strategic supply chain customers, while other customers that rarely did business with Avnet were low priority. Other large distributors have similar policies.

That's why it makes sense for buyers at small or midsize OEMs or EMS providers to borrow a page from the purchasing playbooks of larger OEMs, which have consolidated their purchases with fewer suppliers. Smaller electronics companies can do the same with distributors, focusing more business on fewer distributors, which could result in better pricing and preferential treatment when parts shortages hit.

There are many factors in choosing which distributors to partner with because distributor capabilities vary and there is no one size fits all. If a company’s bill of materials runs the gamut and includes a wide variety of semiconductors, passives, connectors, and electromechanical devices, one or more broad line distributors may make sense. However, if there is a preponderance of specialized semiconductors or certain types of connectors or other devices, a buyer should consider working more closely and doing more business with specialized distributors of those products.

Many midsize OEMs and EMS providers may have one or two broad line distributors and specialists for passives, semiconductors, or connectors and a catalog distributor for small production runs and for samples for engineering.

There are other factors that should be considered, such as if the company needs distributor support at multiple facilities in different regions, whether field application engineers or other design support are needed, how much logistics support is required, if specific value-added work needs to be done by the distributor, or if obsolete or components nearing end-of-life need to be purchased.

About the Author

James Carbone | Freelance Writer

Jim Carbone is a freelance writer covering the electronics supply chain. A veteran journalist, Jim was a writer and editor for Electronics Purchasing and Purchasing magazines for 21 years. He covered electronics distribution, semiconductors, passive components and connectors for the magazines. He also wrote extensively about the strategic purchasing strategies of electronics OEMs and electronics manufacturing services providers. Before covering the electronics industry, Jim worked as a reporter and editor for United Press International for nine years. He started his career as a newspaper reporter and photographer. Jim is a graduate of the State University of New York at Albany.

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