Don’t underestimate the value of efficient distribution says technical director at Toby Electronics, Jim Portlock
The electronics supply chain has undergone dramatic changes in recent years and continues to evolve. In particular, globalisation and e-commerce has brought with it the growth of international, broadline distributors, often at the expense of more specialised, local providers. Fierce price competition has also encouraged some buyers – and component manufacturers – to see if they can circumvent the distribution channel completely.
The appeal is obvious. By cutting out the middleman, manufacturers stand to improve profit margins, while in theory, the customer secures a better purchase price. In some cases, established ‘brand name’ manufacturers have actively sought to increase direct business. In others, end users have headed straight for producers in the Far East.
In such a rapidly changing environment, it is easy to lose sight of the real value provided by an efficient distributor. This is particularly true of the UK electronic manufacturing sector, which is characterised by high quality, short and medium volume production.
Direct business pitfalls
Tight lead times, lean manufacturing and minimal inventory levels are the norm in the UK. As a result, for most OEMs and CEMs, dealing direct with component manufacturers involves additional costs, complexity and risk. Trading with Chinese businesses, for example, is rarely straightforward. Free market economics may have been embraced, but there are still stark differences with European business culture. Identifying credible suppliers is in itself a challenge and even then buyers can expect high MOQs, lengthy lead times and little prospect of credit. Added to these are difficulties in communication and extra logistics costs.
Toby Electronics has first hand experience of the potential pitfalls. Over the past two decades the company has created Valcon, a range of connectors, cables and PCB hardware sourced direct from far eastern manufacturers. In doing so, it has established relationships with quality producers, generated the necessary order quantities and built a secure logistics infrastructure between the Far East and the company’s distribution centre in Banbury.
Of course buyers can also chose to work direct with local, ‘western’ manufacturers, but there will still be hidden costs. Obviously this includes an increase in the number of suppliers that the buyer manages and additional logistics expense as manufacturers clearly will not consolidate different suppliers’ products into a single shipment. Furthermore, supporting customers with relatively small volume orders may not figure high on a manufacturer’s list of priorities.
Distributors deliver value
Compared with the alternatives, the value of distribution becomes clear. An efficient distributor delivers core benefits that include minimising customers’ inventory levels, tailor made shipping arrangements, a reduction in the total number of suppliers, risk mitigation and credit facilities.
In particular, the difficult economic climate has seen many companies run down stock levels, undermining their ability to meet the short lead times and low order volumes required by lean production. Furthermore, while online provision becomes more sophisticated, staff levels have often been reduced or moved overseas. As a result, accessing good quality, experienced support has become harder, particularly for smaller companies.
Ultimately, for all the changes in the wider business environment, the most important questions posed by customers are largely unaffected. Is it in stock? How much does it cost? How soon can I have it? When it comes to winning their business, the suppliers best able to come up with the right answers remain firmly in the driving seat.