Introduce More Products Without Raising Risk

One of the many benefits that components suppliers gain by integrating master distribution into their channel strategy is that new product introduction (NPI) coordinated through an integrated partner reduces risk and cost-to-serve. This coordination also accelerates time-to-market and design-win activity.

Many of the most successful components manufacturers generate 20 to 30 percent of their revenue from NPI. Given the rapid technological advances in materials and processes, getting products in front of the engineering community before the competition can dictate the long-term success (or failure) of a supplier.

In the electronics components supply chain, e-catalogue distributors (the term, borrowed from a friend at Molex, refers to what are also known as catalogue or high-service distributors) are especially adept at reaching design engineers. These distributors typically offer same-day shipment of a wide variety of components in minimum quantities optimized for the needs of the design engineering community. They also tend to have access to hundreds of thousands of customers.

As a result, many suppliers look toward the e-catalogue channel as their design-in resource. So how does master distribution fit into the NPI cycle? Isn't it enough to use the e-catalogue channel to facilitate NPI?

If you've been in this business through the many boom and bust cycles, you know that not all NPI rollouts are successful. There is an inherent risk in promoting three, four, or more NPI packages within the channel. That risk is contained within contractual language allowing authorized distributors to return slow-moving initial inventory packages.

A well thought-out master distribution strategy allows a supplier to introduce a single package to the channel through its master distribution partner, reducing the overall risk by reducing the amount of initial inventory in the channel. The risk is further mitigated when one factors in new product access also afforded to other channel partners, such as the supplier's broadline, regional, and specialized distributors. Once the new items gain traction in the market, the channel partners can invest in the new products with confidence that there are customers ready and able to purchase.

Cost-to-serve is reduced, because the supplier can focus its attention on serving the master distribution partner. A good master distribution partner should have a level of technical competence to provide basic technical support and, when possible, should be able to collaborate on the creation of engineering kits that associate similar product choices based on market or application. As Barb Jorgensen pointed out in a post last week, “The supply chain can't always deliver what engineering needs.” It is much easier for a supplier to develop and maintain a single relationship with a master distribution partner and develop a blueprint for successful NPI, rather than trying to replicate those efforts with multiple channel partners.

A true master distributor does not sell supplier components to OEMs. This neutrality means drop shipments to end customers can be made without hesitation on behalf of the supplier's authorized channel. Master distribution's place is not to replace the e-catalogue channel, but to complement a supplier's effort to present its new products to as many customers as possible with minimal risk and the lowest cost-to-serve model.

2 comments on “Introduce More Products Without Raising Risk

  1. Barbara Jorgensen
    December 20, 2012

    I think the risks associated with NPI isn't well understood throughout the industry. It surprised me when I heard suppliers may develop a family of products with minor tweaks to see which one will stick. If you can afford that, I guess it makes sense, but for distrbutros that have to have the inventory on hand, it does increase risk. I can see the advantage of a master distributor, especially to the catalog/ecatalog folks.

  2. rederringer
    December 20, 2012

    @Barbara – having worked as a channel manager on the supplier side, I can tell you that the “thrill” of booking NPI orders is far outweighed by the “agony” of authorizing an NPI return. One final point – from my experience, manufacturers often mitigate risk by promoting NPI at less than MOQ – but at an inherently higher cost to produce – and ship – less than MOQ. A master distribution strategy allows the manufacturer to produce and ship one NPI lot in economic manufacturing quantity. Hey – there's a new acronym for us – EMQ! Not that we need any more acronyms in our business 🙂

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