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A shift in the distribution sector

Change is something which the distribution sector has dealt with regularly over the last two decades or so – whether it was the move from catalogues to the web or the acquisition of companies stuck in a ‘no man’s land’ between the big broadliners and the smaller specialists.

But the pace of change seems to have accelerated recently and the acquisition by Avnet of Premier Farnell brings a new landscape. Before, broadliners such as Avnet and ‘high service’ companies, such as Premier Farnell, stood on either side of a divide. On one side, high service companies kept modest stocks of a wide range of products; on the other, broadliners held deeper stocks, but of a narrower portfolio.

While that divide was already narrowing – Digi-Key, for example, has been building its presence in the low volume manufacturing sector – Avnet’s acquisition of Farnell has brought the two sectors together and one company now has the ability to address the whole development process – from prototyping to production.

Steve Rawlins, CEO of Anglia, noted: “Industry consolidation is reducing choice. As a result, buyers are turning more to brokers and the grey market, despite the risks this brings. And consolidation is happening at the same time that movements in the currency markets mean customers are shopping round – and this is sharpening competition.”

John Macmichael, managing director of Solid State Supplies (SSS) – rooted solidly in the technical distribution sector – believes the internet has had the biggest effect.

“The internet has made the whole process of finding, and then specifying, components – whether franchised or non franchised – much easier. Not only engineers, but also procurement staff, can now access far more information on a product before they need to make contact with anyone else in their supply chain.

“The Internet has also exposed the market to the threat posed by counterfeiters,” he said. “As a result, distributors now have to be extra vigilant, only buying within franchise or forming well-educated, highly aware sourcing operations.”

But has wider access to knowledge come at a price? “There is a much greater need for deep rooted relationships to be established between distributors and the customers they serve,” Macmichael said.

Rawlins (pictured left) added: “Customers are demanding more value added services. While the industry is responding, companies are not, in general, charging for these additional services. Only strong businesses that are well structured will survive in this environment.”

How does SSS fit into the market? “We are squarely in the technical distribution sector,” according to Macmichael. “If a customer needs in-depth technical assistance, they know they can get it from us. The challenge for distributors,” he continued, “is that free of charge technical support is difficult to sustain if orders don’t follow.”

Macmichael believes changes in the way information is sourced are partly cultural. “There is a fundamental shift in customer expectations,” he noted. “Younger electronics engineers expect to find a much higher degree of support online than their predecessors would have.” And this means distributors have needed to change the profile of their application engineers. “Web based engineering platforms and communities mean distributors can no longer be reliant upon generalists. While this was adequate in the past, the current landscape dictates that generalists are simply not enough; distributors need to be able to add value through more detailed advice that spans the whole project and not just the initial phases. The onus is firmly on the distributor to provide this as part of their remit if they are to keep hold of customers’ business.” And, as he noted, that’s hard to do without orders.

How does SSS address this conundrum? “In many cases,” Macmichael noted, “activities which we have always undertaken are proving to be of even greater importance. For example, we host free seminars and workshops covering a broad spectrum of topics, allowing engineers from our customers to develop skills that will make them better prepared to deal with future design challenges.”

Rather than starting from first principles, a growing number of engineers are using reference designs or commercially available boards, then differentiating their product using software. Anglia is one of the UK’s leading independent authorised distributors of semiconductors and other electronic components, so does Rawlins see this happening with his customers?

“Absolutely,” he said. “The wireless market is a great example; most customers now ask for Bluetooth and GSM modules, rather than the discrete components to create their own designs – and we are seeing particular interest in Bluetooth Low Energy. Anglia has always believed strongly in giving customers what they want and need. While we can work with customers on chip level designs, we have also built strong relationships with module suppliers like Gemalto – which is where the real demand is.”

What does Macmichael (pictured right) see from the SSS perspective? “We definitely see customers being more attracted to the use of subsystems and modules.” Amongst the reasons for this, he suggested, is the lack of volume manufacturers in the UK and therefore a lack of R&D activities. “Engineering teams either lack the time or the diverse skill sets needed to design systems from the ground up.

“With their available resources being stretched and deadline pressures becoming more acute, it is more important than ever for companies like SSS to offer customers the hardware that will facilitate prototyping and reduce design cycles.”

Anglia stocks more than 800million components from more than 700,000 product lines. How are the changes in distribution affecting this stocking profile? “Lead times have moved out very recently,” Rawlins noted. “We believe in supporting our business with inventory and normally hold about six months’ worth. Right now, we are ordering nine months ahead to address lengthening lead times and to give our customers continuity of supply.”

He believes that OEMs serving the automotive market are ‘sucking up’ available component supplies, limiting availability for the industrial market. “At the same time, UK customers are winning significant export orders because Sterling is now at the right level. This is creating a ‘perfect storm’ in the supply chain as increasing demand meets limitations in supply.”

So what does the future hold for the distribution sector? Macmichael believes that, if the sector is to thrive, it will need to add new services. “This will start to blur the lines between the traditional role of a distributor and that of a design service provider. In essence, SSS has followed this path and customers can benefit from services like device programming, module configuration, firmware version control and mini reeling. And our Ginsbury division can take care of specialist activities, like touch screen integration, optical bonding and screen printing – offloading some of the tasks the customer’s engineering team would otherwise have to deal with.”

Rawlins thinks it’s all about customer relationships. “The relationship with the customer will always be important. While we have an extremely strong technical team, in many areas the need for design-in support has been overtaken by the trend for customers to source modules for parts of their design. Power supplies are a great example; more and more customers are buying from a specialist offering best in class efficiency and compliance with the increasingly complex regulations, rather than trying to ‘roll their own’,” he concluded.

Graham Pitcher

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