How authorized distribution provides value at both ends of the supply chain
By Guy Lussier, manager, TTI Montreal branchElectronics Supply Chain supply Chain
A wise man once said that available-to-sell inventory was core to distribution’s value proposition. That man was Paul Andrews, founder of TTI, and one of the earliest proponents of authorized electronic component distribution as a means to protect the supply chain.
Andrews began his career as a buyer at U.S. defense contractor General Dynamics, working on the F-111 fighter-bomber program. When that aircraft program reached end of life, Andrews founded TTI, basing the company on sourcing and stocking the components that he knew from his professional experience were the most difficult to obtain. By stocking that very specialized inventory, TTI created value – providing a go-to resource for device manufacturers who needed components. Soon word got around that TTI had stock when no one else did.
Today, electronic components are a commodity product in many cases and having available to sell inventory is still key, but now there are even more areas where distribution adds value. Authorized distributors serve as the conduit between component suppliers and electronic device manufacturing customers, allowing both to concentrate on what makes them the most efficient and profitable.
Advantages for the supplier
Component suppliers are experts in design, engineering and manufacturing, they’d rather not be heavily involved in warehousing logistics, maintaining inventory, developing supply chain programs, or handling quick turn orders at less than lead time or less than minimum order quantities (MOQs).
Authorized distribution helps solve these issues and lets both supplier and device manufacturer meet in the middle. Because a distributor sells to a large number of manufacturing customers, they combine the purchases of many into a single order, enabling the supplier to manufacture in bulk. The distributor gains shipping discounts for the bulk purchase and the customer benefits from quantity price breaks and lower unit prices, while ensuring supplies of critical production stocks.
The component supplier achieves larger production runs that maximize production and can reduce their overhead costs on raw materials. Because these components will be going directly to the authorized distributor’s secure inventory, there is no need for the supplier to invest in warehouse space, management or stocking personnel. It becomes easy to see the benefits throughout the supply chain.
These features only begin to scratch the surface of the advantages distribution brings to the supply chain. By working to integrate the customer’s forecast data into the inventory management and purchasing, the distributor can begin to build a more complete picture of the overall market. With this data, the distributor and the supplier can work to improve production pipelines over the short- and near-term as well as plan for future growth and expansion needs. This in turn improves overall efficiencies and reduces lead times for components. These steps make the supply chain more of a partnership – supplier, distribution and the end customer.
Benefitting the customer
Customers purchasing components to manufacture 21st century electronic devices are looking for increased flexibility and value-added services from their suppliers. Today, it is the norm that customers want to buy the exact quantity for their production schedule without being limited by MOQs and packaging constraints. They need the security of available inventory, responsiveness to their ever changing demands, and a wide range of supply chain programs that get them what they need when they need it.
Distributors have inventory on the shelf and in most cases require no minimum order quantities – so, when a customer designing a new product needs a dozen components for prototyping and engineering, it’s a mouse click or phone call away.
Benefits of authorized distribution
This is where the important distinction between an authorized distributor and independent distributor comes into play. Authorized distributors work directly with the original component manufacturer, never the black market or the fringe grey areas where counterfeit components can enter the supply chain. Working with an authorized distributor means customers can be certain the components in their end products are first quality and exactly what are specified. Rather than potentially remarked or even counterfeited components that can jeopardize quality and reputation, or even open the door to potential liability. This is a particularly important consideration for those in defense or medical device manufacturing where the risk of an unauthorized component failure can be a matter of life or death.
One major advantage for the end customer that comes from the strong relationship between an authorized distributor and the component supplier is the availability of design and engineering resources. In the case of TTI, the branch office product managers provide expertise at the local level for more than 30 North American branch offices. These specialists work directly with premier suppliers to bring design engineers the newest products and most up-to-date information about the thousands of new components available for tomorrow’s electronics. Ongoing training and constant communication between the suppliers and these product managers mean that these individuals are a great resource for specifications, cross matching available off-the-shelf components, or custom designing specific components for unique applications. All of these advantages come from the tremendous long-term relationships forged between authorized distributors and their supplier partners.
Focusing on IP&E
Once a customer and the distributor have identified the perfect component for the application and the project moves from the design stage to full-up production, a quality distribution partner can make a strong impact on the profitability of the device. Typically, over 85 percent of the circuit board is populated with what are known as IP&E components, the interconnect, passive and electromechanical components, that enable the expensive and often custom-made semiconductors. Though IP&E typically serves as only a fraction of the cost involved in the board – around 7 percent of the total spend, the sheer number of components can put a strain on the supply chain during production. No one wants their production line to shut down because of a shortage of a ten-cent part.
The supply-chain expertise of an authorized distributor can make or break a product line with tight margins. Spend too much on production inventory and the customer is suddenly backed-up warehousing expensive component inventories they may not use until well into the mature production run. Too few and the line can grind to a painful, costly stop.
An effective and flexible supply chain program must be tailored to partner the distributor with the customer’s production forecasts and allow the program to manage lead times, floor inventory and production timing so that the right components are at the right place, at the right time.
Electronic component distribution has come a long way from Paul Andrews working alone in his garage – today some of the world’s largest companies depend on TTI to provide them with fully authorized components that pipeline seamlessly into their production line. It’s an industry that has filled a great need and continues to add value to the electronics supply chain every day.