In Distribution, Different Customers Have Different Needs

Distributors have forged close relationships with many OEM and EMS customers, helping them solve design and supply chain problems By James Carbone

Customer-driven” may be considered by some as a business jargon cliché, but it is a key characteristic of the electronics distribution business model.

Successful distributors carry the products their OEM and electronics manufacturing services customers need, but also listen to customers concerns about supply chain risks, end markets, lead times, inventory levels, time to market and new environmental, social responsibility, export and other governmental regulations. OEMs and EMS providers expect distributors to help them deal with those issues by providing insight, advice and services.

In fact, many distributors over the years have invested heavily to add or enhance their supply chain management and design capabilities. OEM and EMS providers leverage those capabilities using design, value-added, and supply chain services to reduce cost, mitigate risk, speed time-to-market, improve profitability, helping them compete in a global marketplace.

Kevin Hess, senior vice president of marketing for Mouser Electronics

Many OEMs and EMS providers have become dependent on such programs, resulting in close relationships with key suppliers with some forging alliances with their distributor partners.

Besides investing in services, distributors have learned to increase or maintain sales with existing customers and to attract new customers, they need to do business with customers the way customers want. For instance, while many traditional OEM and EMS providers may be comfortable calling distributors with questions about parts and placing orders or buying through a distributor’s website, others are looking for machine-to-machine communications and transactions to operate leaner and more efficiently.

Some customers want close-knit relationships with distributors and view them as supply chain partners. They may require a plethora of design, value-added, and inventory management services. Other distributors may have customers that purchase small volumes of components for new designs, prototype builds or small production runs. They may not require supply chain programs, but still expect a high level of customer service from their distributors.

“What is great about our model is that we have 26 branches and those branches provide customer service,” said Kevin Hess, senior vice president of marketing for Mouser Electronics. Some customers call the branch and want to speak to the same person every time. Others may call looking to buy a part and “talk to a different person every time or they just want to go to our website and order,” he said.

“We have a large number of customers that are loyal that have dedicated customer service reps, dedicated technical support people who they talk to all the time and help them grow their business,” said Hess.

Looking for loyalty

In fact, more customers are becoming loyal to the distributors they do business with, according to Scott Wing, vice president and general manager of Symmetry Electronics, which was acquired in July by TTI Inc.

Scot Wing, vice president of Symmetry Electronics

Symmetry has partnered with some large tier 1 companies as well as smaller OEMs. “The bulk for sure are tier 2 and tier 3. There are tier fours and fives that we have to really do due-diligence to figure out if we are going to go down the road with them,” he said.

“I think customers are looking to partner with a distributor because of the whole digital age and with the kind of mentality out there,” said Wing. When customers find a distributor partner, they will
“pay a little extra” because of the high level of service and expertise they receive from a distributor, he said.

Customers that design and build industrial automation and agricultural equipment and Internet of Thing products tend to have close relationships with Symmetry, he said.

Startup companies also like to have close relationships with distributors because startups frequently lack the technical and supply chain expertise to design, manufacture and bring a new product to market.

Ralf Buehler, senior vice president of sales and marketing for Premier Farnell, said in some cases, a startup customer has developed a board “but doesn’t know how to get manufacturing help. We help them get there,” he said.

He says Premier Farnell enables people with smart business ideas or a product idea to take it to production and to market.

“There’s a lot of handholding, almost business mentoring, training, networking sort of thing,” he said.

Customer needs vary

Dave Doherty, president and chief operating officer for Digi-Key, said customers want different kinds of help from Digi-Key. Many customers just want an official web interface that allows them to place an order at any time while others want a machine-to-machine interface, he said.

“A customer may say ‘we don’t want to go to your website and order. We want our MRP system to be talking to your purchasing system. We want it completely autonomous.’ We are engaged with a growing number of customers from that aspect. It’s all about speed,” said Doherty.

Dave Doherty, president and chief operating officer for Digi-Key

He said with such relationships a distributor needs to have a “recognized service level and IT sophistication and a trust factor that says I’m just going to connect the systems and stand back,”
he said.

Some companies want a machine-to-machine interface because they don’t want to invest capital into a purchasing person “who is looking at a shortage list and calling a distributor trying to source a part,” said Doherty. “Customers say ‘I’d rather reinvest that capital somewhere else to grow my business. And frankly I don’t want you investing with someone to receive the call from the purchasing person. Let’s just go machine to machine.’ That’s probably one of the fastest-growing segments of the business,” said Doherty.

The needs of customers often dictate the type of relationship they have with distributors. Distributors say different customers have different needs, which often dictate the type of relationship a distributor will have with the customer. Some customers have an engineering or supply chain focus. Others may focus on reducing costs, increasing value or reducing waste, said Steve Newland, president of Allied Electronics.

He added a distributor’s relationship with the customer “is always customer driven. You can’t walk up and tell them we want to be your partner. It starts on the customer’s part,” he said.

He said Allied has customers that the distributor considers to be partners.

“We have customers that look at us as the preferred distributor. Sometimes we could be a contract supplier for program but on the other hand we could be the preferred distributor because we support” the entire business of the customer, said Newland.

He said customers that want to partner are looking to reduce their risk or want to create some unique value.

Often customers are looking for help with inventory, but they also want help from a “processing standpoint. The customer may ask ‘how do I shift some of my FTE (full-time equivalent) load and processing transactions and managing materials on to you,” he said.

Some company supply chain organizations are “very aggressive trying to find someone to shoulder most of the risks, labor, materials inventory to distributors,” he said. Most partnerships involve reducing total cost of ownership for the customers.

Newland said some large “upper echelon companies” will say ‘we have to grow your top line as well as reduce our bottom-line.’ But that’s unusual and very uncommon.”