It’s no secret that large OEMs and other electronics manufacturers buy the bulk of the components they need for production directly from component manufacturers. After all, large electronics companies purchase huge volumes of parts which they leverage to get a lower price.
Large OEMs often forge strategic relationships with critical semiconductor suppliers to make sure they not only receive all the parts that they need to build their products, but also get access to suppliers’ latest and greatest technologies that can be used in new products.
However, while buyers at OEMs have developed close relationships with component suppliers, it does not mean that they buy all of the components they need directly from them. Buyers at large OEMs have also developed distribution strategies and have close relationships with distributors, too. Many distributors say their business with large OEMs and electronics manufacturing services (EMS) providers is growing.
Many large OEMs purchase millions of dollars of parts from distributors each year. One head of purchasing at a major electronics manufacturer told me that his company buys about 10% of its production requirements, totaling $2 billion to $3 billion per year, from more than 100 distributors around the world.
While OEMs maintain relationships with suppliers of high-value, high-technology parts such as microprocessors and application-specific integrated circuits (ASICs) and other custom parts, often they rely on distributors for more commodity semiconductors and passives, connectors, and electromechanical devices.
Often, large electronics companies buy parts from distributors when they are designing new products or for small production runs. In other cases, authorized distributors are often the first choice for large OEMs and EMS providers when there is a shortage of parts caused by an expected upsurge in demand due to a natural disaster, labor strike, political unrest in a region, or any other event that may temporarily disrupt component production and shipments.
When such an event happens, distributors say they are deluged with purchase orders from customers, including large electronics manufacturers, because many distributors carry large inventories of parts.
Having large component stockpiles and offering inventory management programs is one way distributors assist large OEMs to manage supply chain risk.
Distributors say they are able to help manage risk because of their unique position in the electronics supply chain. Some large distributors have hundreds of suppliers and hundreds of thousands of customers. Because of relationships with customers and component manufacturers, distributors often learn of a potential risk in the supply chain as soon as it occurs and share that intelligence with customers while providing inventory and other supply chain management programs to help mitigate the risk.
Distributors also help OEMs—big and small—manage component obsolescence. They maintain databases of end-of-life (EOL) notices issued by manufacturers and can advise customers when parts should not be considered for new product designs.
While small OEMs and EMS providers have no choice but to do business with distributors because they purchase small volumes of parts, some large companies choose to buy from distributors to reduce their inventory levels and overall total cost of ownership by using distributor-provided design, value-added, and supply chain services. Such services can also help large OEMs reduce time-to-market for an OEM’s new products.
Another reason distributors are servicing more large OEMs is suppliers. Many component manufacturers are operating leaner and expect distributors to create more demand for their products with customers and to then fulfill that demand.
Because suppliers will continue to operate lean, and large electronics manufacturers will need help managing inventories and supply chain risk, it is a safe bet that distributors will continue to grow business with large OEMs and EMS providers.