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How are leading global distributors looking to differentiate?

One of the most pronounced trends of recent years has been the acceleration in the number and scale of mergers and acquisitions in the electronics industry among manufacturers.

Companies like Intel, Infineon and Rambus have been driving that trend and, among more recent acquisitions, Qualcomm has spent $47billion to buy NXP as it looks to exploit opportunities associated with the all-encompassing Internet of Things.

This consolidation is likely to result in manufacturers rationalising their sales and customer service networks to better meet their perceived future needs and this process could have a significant impact on authorised distributors.

“In the short term, the distributor total available market (DTAM) will remain essentially unchanged. I believe it will simply be reassigned between organisations,” suggests Adam Fletcher, chairman of the Electronic Component Supply Network (ECSN).

“Over the medium term, I doubt there will be any big winners or losers, but in the longer term, authorised distributors will have to consider writing off some of the investment they have made in supporting a particular manufacturer and reposition their resources to meet changing requirements.”

For example, On Semiconductor’s recent acquisition of Fairchild means the newly merged entity is working with 48 distributors – the need for consolidation is clear.

“We have seen a big push towards franchised distribution by manufacturers,” says Richard Curtin, pictured below left, senior director of strategic alliance and technology partnerships with Premier Farnell. “Many of them have been cutting back on their own direct sales and marketing staff and franchised distributors are seen as a safer passage for their products and at the right scale"

“The consolidation that we’ve been seeing amongst manufacturers will certainly impact distribution,” Curtin suggests. “I don’t believe it will be possible for smaller distributors to stand alone.”

According to Fletcher, some manufacturers are experiencing problems in appointing a common strategic global distributor to complement their regional, local and specialist distributors.

“As a result, global, regional and local distributors have found themselves representing competing lines.”

This process of rationalisation, however, means many manufacturers are becoming more reliant on distribution to engage with OEMs who are, in turn, looking to reduce the number of companies in their supply chain.

According to Martin Kent, president of Heilind’s Asian and European operations: “Some OEMs are turning to distributors to help them streamline complex supply chains.”

For Fletcher, the idea that OEMs are looking to reduce the size of their supplier base is a ‘fantasy’. “Theoretically, it’s possible. But in practice, it usually fails to reduce procurement costs and can limit the creativity of the engineering design team.”

According to Peter Birks, business president, sales and marketing, Europe Premier Farnell: “Procurement options and technical support are having to evolve in light of the changes and there is more collaboration between customers and distributors. Our customers, primarily design engineers, are looking for help and we are having to provide far more focused technical support.”

“While we are in a digital world,” says Lindsley Ruth, Electrocomponents’ CEO, ”we still need to support design engineers using whatever channels they use. There remains a need for the human touch and there has to be a mix. Service still matters and is what differentiates distributors – especially the high service distributors.”

Lisa Om, director of digital marketing with Arrow Electronics, believes that speed is of the essence. “But when it comes to assessing components or gathering data at the beginning of a project, it can be extremely time consuming. Distributors are well placed to consolidate data from multiple manufacturers in a single place on the web.”

That suggests those distributors able to offer a higher level of service and support have a bright future, but delivering that level of service will be demanding and resource hungry.

There is a wide range of tools and services readily available via the internet: Live Chat, for example, is becoming popular and distributors are looking to embed live chat in their digital presence. Distributors with a global scale can call on hundreds of experts who are available online, around the clock to give advice to customers.

Online design tools conceived to support collaborative working are making it easier to share designs with supplier application engineers, as well as compile the bill of materials for a design automatically.

A significant service element, however, also has an expensive price tag and, for some distributors, providing higher levels of technical assistance can be problematic.

“If you want to deliver an improved level of service, the tools and resources required are there. But manufacturers say volume and demand are decreasing,” says Birk. “It’s a tough circle to square.”

“Even high service distributors like Premier Farnell need to make significant investments,” says Curtin, “and, while technical support is the cornerstone of our proposition, we are aware that as the market evolves we need to train our staff differently. The quality of staff needs to be better and we have to make them comfortable; not only with the latest technologies, but also in providing the level of support for which customers are looking and, increasingly, expecting.”

Arrow has recently developed a relationship with crowd-funding innovator Indiegogo in which it supports start-ups by connecting their proposals with the engineering resources needed to deliver products to the market quickly.

Peter Birks

“It’s about helping entrepreneurs manage their business and gain access to online sales channels after the funding cycle is complete,” explains Matt Anderson, Arrow’s president and chief digital officer.

As the provision of technical support evolves – whether that is supporting traditional design engineers or the growing maker movement – this is seen by some as a possible area of ‘weakness’ for some larger distributors offering multiple lines.

“While many better known distributors are doing an amazing job, their levels of service need to be improved and we are seeing some customers turning away towards specialists as they feel they’re not getting the right levels of support,” suggests Kent.

Ruth, however, suggests the move to digital raises serious issues for specialist suppliers. “It doesn’t take a lot to have ‘experts’ available. I think ‘specialist’ distributors are vulnerable to being ‘managed out’ by the move to online. If they can’t afford to invest in the digital journey, they will lose out as the market changes. It is becoming a social media world and the differentiators of the past will become less important.

“Traditionally, there have been seven ways to make money in this business: buy low; sell high; keep operating expenses down; turn inventory more often; collect sooner, pay later; and keep your customers and suppliers happy. The range of products used to be one of your biggest assets but, in the future, I think data will be the ‘gold dust’ of distribution.”

According to Ruth, while volume distributors should be looking over their shoulders at the likes of Amazon, high service distributors will have to focus on further differentiation.

“While digital will accelerate, I think the key differentiator will be how a broader ecosystem evolves; one that brings together distributors, customers, manufacturers, universities and governments.”

“The consolidation that we’ve been seeing amongst manufacturers will certainly impact distribution.”

Lindsley Ruth

Author
Neil Tyler

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