During a time when the electronics sector is experiencing unprecedented component shortages, the independent electronics distribution channel becomes a critical strategy for many OEMs. The key to real success, though, is building those relationships before the hard times start.
We sat down with two executives from Fusion Worldwide, which sources, stocks and delivers electronic components and finished goods to a variety of customers to talk about the current shortages, as well as how the independent distribution market is evolving and changing. Fusion Worldwide specializes in sourcing obsolete, hard to find and allocated product, but also offers inventory management and other supply chain services. Last fiscal year, the company pulled in $525 million in revenues, making it the largest independent distributor in the EBN/EPSNews 2018 Top Global Distributor Report. The distributor projects that revenues will grow substantially to $750 million in the 2018 fiscal year which ends in September. The company employees 150 people worldwide.
We sat down with Fusion’s Paul Romano, chief operating officer, and Tobey Gonnerman, executive vice president.. Romano joined as the first employee at the company in 2001. He has also held similar roles at Real World Electronics and Converge. Gonnerman is responsible for global sales. He joined Fusion in 2005 and held various leadership positions in purchasing before assuming his current role overseeing the company’s trading operations.
EBN: How does your company differentiate itself from the competition?
Romano: We differentiate ourselves in a variety of ways. The first is technology. Our Scout system helps us stay ahead of what’s happening in the market. We can quickly look and assess what’s happening, keeping everyone in the organization around the world on the same page. Our second differentiation is quality. Customers want to ensure that components are authentic. We’ve taken a leadership role in creating processes to ensure quality. A third differentiator is our people and our ability to communicate globally. Many think it’s important to have many offices around the world, but it’s really about all being on the same page and working with the same information. We have developed the ability to communicate globally and that benefits both our customers and ourselves.
Gonnerman: The globalization piece is the foundation of our success. We understood from the beginning that we are, at heart, a service organization. We make sure that we have seamless real time communication and we realized early on that collaboration around the regions, regardless of how large our customer base grows. We have a belief system and a culture to go along with the technology to make sure that customer communication as a first priority remains consistent. =
EBN: What are your customers looking for in terms of support from your company?
Gonnerman: Open market distribution has evolved a lot from being the necessary evil of twenty or more years ago to becoming an instrumental part of supply chain strategy. Customers, especially large fragmented global OEMs, utilize the open market as part of their total supply chain answer. If they aren’t then they are costing themselves opportunity and exposing themselves to unnecessary risks. In times of shortages and instability, supplemental suppliers are mission critical to keeping lines up and running and also to mitigating against inevitable, unforeseen circumstances. It used to be that OEMs would approach independent distributors cautiously and as a last resort, but over the course of time we’ve been able to show the value we can provide, in finding product they can’t find themselves and offering competitive alternatives in terms of pricing that they might not be able to access. We’ve learned a lot over time and shaped our entire system and methodology to be responsive to our customers. We’ve inserted ourselves into their supply chain process in a way where we are now playing a critical role as a complimentary supplier.
Technology changes continue to accelerate everything, including new product introductions, mergers and acquisitions, and outsourcing of component supply management to contract manufacturing partners. This rapid change has created an increasingly fragmented and complex market and that has made the need to interact with open market suppliers grow exponentially. We are positioned very well to grow the level of support we offer customers.
Romano: Over time, large customers, including OEMs and contract manufacturers, have been smart in reaching out to open market partners and building relationships, rather than just showing up when something happens. We become part of their supply chain.Our customers want people they can rely on.
Quality is critical and our focus on quality enables us to deliver the reliability that our customers demand. The key to ensuring quality starts with the purchasing of components. If you never buy a bad or substandard component, you’ll never ship one.
Next comes selecting and developing people who add value by knowing their sources well, and by having a very defined sourcing process (franchised access, then open market). We have an experienced team of buyers, and they know their parts and where the pitfalls are. Quality depends on process, so we also need a strong inspection team and processes. Our Scout system is a quality database and contains millions of photos, receipts, data sheets, PCNs, and end-of-life notices. We also have destructive and nondestructive labs. We go a long, long way beyond what others do to make sure parts are what they are supposed to be.
EBN: What are you seeing currently in terms of lead times? What products are particularly challenging to source?
Gonnerman: We are seeing a lot more opportunity for customer engagement. More and more customers are coming to us for relief. It’s a very heavy shortage market at the moment. There are extended lead time issues across a number of product families which are creating monumental supply chain gaps. That creates opportunity for us but also creates the need for us to find alternative sources of supply.
Shortages impact our supply as well, because product gets harder to get and more expensive. A shortage market like this provides a good opportunity but is also a good test for us to see how strong our relationships are in tapping into the supply base. We turn over rocks and hunt for supply that others haven’t found. It also exaggerates the focus on quality that we mentioned earlier. As you deal with more suppliers and more products, especially during shortages, you want to be on high alert with a ‘guilty until proven innocent’ stance. We have processes in place that allow us to do that confidently.
Our crystal ball is as fuzzy as the next person’s, but we like to think we have a lot of different data points since information gathering is a primary focus of ours. All arrows are pointing to current shortage issues being in place for some time, even well into 2020. We’re hearing that message from component makers, OEMs, suppliers, distributors and so forth. It’s not going to get better any time soon. The current shortages are largely driven by growth in technology and growth in demand, rather than as a result of catastrophic interruption in supply. Because the shortages are organically grown where demand is outpacing supply, I don’t think there is a quick fix.
EBN: In the current electronics component shortage, which is hitting crisis levels, what advice do you have for OEMs about best practices, work arounds, etc.?
Gonnerman: The stance of coming to the open market with reluctance has evolved to where it is now a strategic, instrumental part of a successful supply chain strategy. If an OEM will only go to open market distribution as a last resort, that’s a huge mistake. OEMs have educated themselves to a point that they are creating an intelligent approach. They focus on quality and develop strategic long-term relationships to protect themselves from gaps in supply. It is driven by their efforts to maintain continuity within the supply chain.
We come across very few OEMs these days that don’t have an intelligent approach to the open market and who don’t have strategic relationships with the open market in some form. The dismissal of the open market is outdated and we don’t come across it any more with larger OEMs. We see it sometimes with customers using very application-specific devices or who don’t have volume demand.
EBN: How has component testing evolved recently? What should OEMs know about current capabilities and technologies?
Romano: There are some new technologies and improvements in older technologies. The challenge is that there is no silver bullet. Counterfeiters have become good at what they do. It requires a holistic approach to vetting out parts. You need to understand the whole transaction, including the vendor, packaging, and labeling; and know whether it scans against the data sheet in terms of dimensions, leads, markings, etc.
One thing we are seeing is an increase in electrical testing of devices. It leans toward more simplistic testing because functional testing is time consuming and expensive. We are seeing a more intelligent use of inspection resources like x-ray and x-ray fluorescence (XRF). We can test using heated chemicals in a destructive trial and we have newer technologies that look at device construction and topography. All of these require a golden sample, though, and there are times when you don’t have that. That’s why you put together a holistic approach where you look at everything from start to finish.
— Hailey Lynne McKeefry, Editor in Chief, EBN