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Distribution Picks Up Slack in Design Chain

Design service: Suppliers want it. Customers want it. Distributors say they have it.

As suppliers find themselves strapped for engineering resources, they've encouraged customers to seek design assistance from the Web or from their channel partners. Distributors, in particular, have been happy to pick up the slack, despite the cost of hiring engineers. Customers now have all constituencies vying for their attention, and the result has been a significant shift of engineering resources and talent into the channel.

“One of the big changes we've seen is that customers want more of a [full design] solution,” says Ed Smith, president of Avnet Electronics marketing for the Americas. “If they come to us for an FPGA, they also want the parts that work around the FPGA.”

“Customers are outsourcing more of their design efforts,” echos Lindsley Ruth, corporate vice president at {complink 2164|Future Electronics}. “They are looking for someone that can go beyond a component-level design that can be provided by anyone.”

Distributors benefit from this trend in a number of ways. They embed themselves more deeply within their business customers, expand the number of products they sell, and maintain visibility into end-product production if the project moves offshore. “Solutions have become more prevalent, and customers can use reference designs that we develop here at Avnet, develop product schematics, and then order the bill of material,” Smith notes.

But as distributors embed themselves more deeply with customer designs, are suppliers losing touch with OEM engineering trends? Actually, executives say, supplier-distributor-customer bonds have to be tighter than ever.

Indeed, suppliers are part of the trend that's driving distribution deeper into design. As their engineering resources are cut, component makers are focusing on supporting only their largest customers.

“Many [of our suppliers] do not have the resources to support the broad and growing customer base, and they rely on us to do that for them,” says Peter Kong, president of Arrow Global Components. “In turn, they provide us with product information, application knowledge, training, and access to other resources. The best suppliers with the best distribution programs recognize and leverage our capabilities.”

Broadline suppliers, such as the former Motorola Semiconductor, have split themselves into small specialty companies in recent years and are no longer one-stop shops for a variety of semiconductor products. Customers now can choose among the “best of the best” component technologies but have more suppliers from which to choose. Distributors that are franchised by these chipmakers sift through the various product offerings to help customers make the best selections for their applications.

“Information exists on the Web, but someone has to come in who is unbiased, can cull through that information, and provide the best solution in a cost-effective way,” Future's Ruth will say. “There is so much information available, it can get overwhelming.”

All this engineering assistance, of course, comes at a cost: Distribution is first and foremost a sales-driven business model. High-salaried engineers are a fixed cost in these organizations and have to be deployed toward distributors' most profitable opportunities. Distributors thus are working to scale their design services toward a highly segmented customer base.

“Arrow's goal is to provide services that will satisfy [customer] needs, and we invest accordingly to deliver our value proposition,” says Kong. “Our large customers typically do not require design support but need a complex supply chain solution, which could also include services like programming, end-of-life services, and reverse logistics. Our Arrow Alliance model fits this well.”

Distributors can spread the expense of hiring engineers over a customer base that numbers in the tens of thousands. “The middle 30,000 customers require full service and local support,” says Kong. “These customers are supported by our field engineers and extensive global network. Arrow has a terrific offering for our small and midsize customers that includes a host of Internet capability, access to a large pool of inventory, and tailored support.”

Within distribution companies, engineering resources have shifted from a largely supplier-focused model — a field-applications engineer dedicated to, say, Texas Instruments or Infineon Technologies — to a technology-focused model. FAEs are now experts in a specific area, such as analog or FPGAs, and are trained through the combined efforts of distribution companies and suppliers. Arrow and Avnet, for example, host programs that span several days and include suppliers and customers.

This blog was excerpted from the annual EBN/EE Times Top 25 Distributor ranking. The entire story will be published online later this week.

6 comments on “Distribution Picks Up Slack in Design Chain

  1. Tim Votapka
    May 16, 2011

    Great topic and certainly one that's had an interesting history. Distribution's evolution from being a commodity-driven supply cog to a value-added technical resource is well documented and those who have grown well have been the ones that have listened to what their customers have asked for and responded, regardless of the risk or investment. We've seen successes and we've seen losses, but I don't think anyone would deny distribution's position as a technical resource is light years ahead of where it was not too many years ago.

  2. t.alex
    May 17, 2011

    For most companies, the key factor in choosing a distributor is the level of support. OEMs a facing huge pressure to bring products to market in time so it is a must to have a full solution ready

  3. Kunmi
    May 17, 2011

    I agree with you. The essence of production is to get it marketed. Most important strategy of product marketing is to have a standby distributors that will make the products reach the end users at the right time and as quickly as possible. That is the secret of growth for the companies that are controlling the market today.

  4. SunitaT
    May 17, 2011

    There are lot of advantages of tecchnology-focused model compared to supplier-focused model because in technology-focused model technology is the main constraint rather than the supplier. I am sure this will bring more value to the customers. 

  5. Jay_Bond
    May 17, 2011

    Interesting excerpt, I will be waiting to read the entire article. It seems like a variety of companies throughout the supply chain are choosing to look to others for certain aspects of their company. Many companies are now contracting out engineering, product development, marketing, even manufacturing. With the current global economy the way it is and companies being under strict demands, it makes financial sense to look at all avenues of meeting supply and demand.

  6. Barbara Jorgensen
    May 17, 2011

    One of the things I've found most fascinating about this subject is the business model of supporting enginering talent in a sales-driven (therefore, commission-driven) organization. It has been an interesting challenge for distributors and most will admit privately that the model is far from perfect.

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