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Distributors Hone ‘Traffic’ Control Skills

Component distributors occupy a central position in the electronics supply chain, acting like traffic officers to move parts and services swiftly and efficiently from suppliers to contract manufacturers and OEMs. Their role is increasingly significant, yet distributors sometimes are still treated as bit players.

Just ask the leading companies that struggled for years to get suppliers and OEM customers to pay for value-added services. Eventually, companies such as {complink 453|Arrow Electronics Inc.} and {complink 577|Avnet Inc.} concluded they would rather give up on lower-margin businesses than continue sucking up the extra costs.

Many of the industry's biggest and most intractable problems end up on distribution’s plate. Too many times, distributors get blamed for the “lack of visibility” into actual demand, the presence of counterfeit parts in the channel, and the supply/demand imbalances that have ravaged the industry in past boom and bust cycles. To combat those problems, distributors have invested in productivity enhancement solutions, counterfeit detection equipment, and product lifecycle management software. In fact, many of them are better positioned to solve supply chain problems than the OEMs and electronics manufacturing service (EMS) providers that buy from them and contract for their services.

But where, exactly, is the distribution market headed on a global basis? Is there even a global distribution market, or is the sector still overwhelmingly dependent on regional patronage? As the latest EBN/EE Times Top 25 Global Distributors ranking shows, the answer is a mixed bag: The distribution market has matured in North America and Europe but remains highly fragmented and uncertain elsewhere.

The North American market has been whittled down through an intense campaign of mergers and acquisitions to a few major players that dominate the sector, leaving their smaller counterparts to scramble for crumbs. In Japan, the components distribution market is still beholden to the country's kereitsu system, under which the nation's leading electronics OEMs decide which distributors thrive and which never rise above mom-and-pop status.

In China, the market is even more chaotic, with distributors numbering in the thousands, all struggling to establish a clear leadership position. Even here, however, the leading Western distributors and Taiwan-based WPG Holdings have emerged as top players by leveraging relationships with foreign equipment vendors and contractors. Obviously, China’s market is ripe for consolidation, and the movement of the major distribution players into the country over the past 10 years will eventually accelerate this push.

In our report, we focus on many of the issues facing the industry and chronicle how the market's leading players are quietly but resolutely inserting themselves deeper into the supply chain to enhance their value propositions. Rather than resent this, suppliers and equipment makers welcome the additional services that distributors now provide. Slowly, too, customers are showing some willingness to pay for the extra offerings — as long as the distributor can clearly demonstrate the benefit to the customer in a tangible, easily quantifiable way.

Click here to read the report and download a PDF of the Top 25 Global Distributors.

2 comments on “Distributors Hone ‘Traffic’ Control Skills

  1. FLYINGSCOT
    May 8, 2012

    I see lower volume customers more willing to pay extra for the services offered by the distis.  However the if the cost is too high then larger customers will always try to avoid them.

  2. syedzunair
    May 8, 2012

    @FlyingScot:

    I agree with you that the low volume customers will be willing to pay extra for the services but only if they can see quanitifable results soon like the author says. Smaller customers will only pay premiums to ensure that their merchandise gets delivered with no insertion of counterfeit items in the legit supply. 

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