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Designers need more from their distribution partner

Jed Pecchioli, president of APAC & EMEA Operations, America II

Today’s design landscape is crowded and competitive. The pressures heaped on Electronics Designers to get their products to market faster, more efficiently and more cost-effectively are higher than ever. However engineers are continuing to face significant hurdles in sourcing the key components they need to realise their designs.

Many of the issues in the distribution chain are felt most commonly amongst the ‘mid-tier’ OEMs/ODMs. It is these companies whose needs, in my experience, are too frequently overlooked by existing distribution models. More often than not, ‘mid-tier’ OEMs/ODMs are simply not a priority for ‘tier one’ distributors, who favour the high volume and high profit business that keeps their shareholders content. Similarly, typical ‘independent’ distributors cannot guarantee the volume or reliability that long-term business requires. The mid-tier companies are left with a choice of two distribution models, neither of which perfectly meets their requirements.

The global semiconductor market is forecast to hit $370 billion by 2017 and this growth can be attributed to various industry trends - one of the most popular being the Internet of Things (IoT). Of course, it is opportunities like this that the mid-tier OEMs are keen to capitalise on, but to do so they need a distribution partner with a very particular mix of capabilities.

The majority of IoT devices are not demanding in terms of their processing or power requirements. In fact, despite the huge number of IoT devices forecast to be in the world, the general needs of IoT device manufacturing can currently generally be summed up as ‘lower-cost components developed in small to medium batches’. This immediately changes the focus of what mid-tier companies are looking for from their distribution partner. Competitiveness on price and the option to purchase within a High Mix Low Volume (HMLV) model are particularly important to mid-tier OEMs/ODMs and OEMs/ODMs looking to exploit IoT opportunities. But, at present, the number of distributors meeting this demand remains low.

Generally these ‘mid-tiers’ also need access to both high-volume, guaranteed franchise lines alongside boutique lines. However, the true value for them comes from a distributor that can also offer open-market buying capabilities and access to components that are typically harder to source.

What’s more, most mid-sized companies cannot afford to engage in stockholding on their premises. This means another value-added service much-prized at the moment is inventory management, which allows for components to be sold back to the market as and when necessary.

Ultimately, industry trends are transforming the way electronic components distributors are doing business. Nevertheless, in my view, there still remains a misalignment between what the mid-tiers need from their distribution partner and what’s currently on offer. To cater for these companies, distributors will need to diversify their offering and provide a unique blend of capabilities if they are to meet the needs of this growing market.

Jed Pecchioli

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This 'Internet of things' is just a trend. It’s a hype bubble, and these manufacturers will find that by the time they have got their product to market the hype would have moved on, hence you find the curve in public exposure peaks and then falls right back, and you do not want to invest a ton of money to find your product is ready just at the trough of the curve. I think the old school strategies were much better. The obvious one is to design something which has a real need, and not a want, because want can be generated artificially. Utilitarian need is really first and foremost in a productive economy. I think invention counts pretty high as well. If you have a genuinely good idea for a product and no one else has then do that. Don’t base your strategy on what is trendy since you can create your own trend if the product is a good one. There is this issue with rushing. You do not want to rush a design to be first to market. The design won’t live up to the hype and will give you a bad reputation. Well-built products used to be the mark of British design. I mean just in considering software to run these gadget, it never ceases to amaze me how you can play about with a system and keep on finding improvements in the performance. A good bit of software might only need 1/10th of the power, and so that solves many problems, such as battery life, your cost in terns of hardware and so on. I’d also stick to bog standard components where at all possible. If you use a chip which subsequently goes out of production then you have a right problem on your hands. It’s the way you use them which counts.

Posted by: Andrew Cranston, 09/10/2015

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