Distributors grow inventory to win new business

Some distributors have increased inventory levels of new and old components as well as components that are in short supply.

Some electronics distributors have been aggressive about increasing inventory levels over the last two years as a way of attracting new business and increasing business with existing OEM and electronics manufacturing services customers.

In some cases, distributors are increasing their breadth of inventory by adding products from new suppliers. In other cases, distributors are stocking new part numbers from existing suppliers as well as older components that they previously listed on their websites but did not stock. Distributors are also making a point to increase inventory levels of semiconductors and other components when lead times for parts stretch and are at a risk of going on allocation.

Frank Cantwell, vice president of product management and inventory at Allied Electronics, said the distributor has increased its breadth and depth of inventory over last 12 to 18 months in part because of supply tightness for certain components. “We try to maintain a buffer for customers so they don’t have supply chain interruption,” said Cantwell. “We have to maintain the appropriate fixed stock levels during those shortages or allocations. We work with our manufacturers as best we can to manage that so our customers don’t see a disruption in the supply chain,” he said.

But Allied has also added new products involving technology segments. For instance, it has added products to support IoT applications. Allied is also increasing its breadth of inventory to strengthen the position it has in the industrial market, said Cantwell.

Some distributors view inventory as the lifeblood of their operations. “Stocking a broad and deep inventory of components has always been a cornerstone of our business and it always will be,” said Don Akery, president TTI Americas. “We have been strategically increasing the breadth of part numbers we carry throughout the last several years,” he said.

Last year, TTI increased the part numbers it carried by 11 percent and “that is a trend we expect to continue as our suppliers introduce new products, ”Akery said.

TTI also increases its inventory when demand increases and “we begin to see extended lead times. Our algorithms drive an increased level of inventory,” he said. The idea is to build its depth of inventory to make sure its customers can buy the parts it needs during shortages.

For instance, “our product team saw the signs of that the multilayer ceramic capacitor market (MLCCs) was tightening and started increasing our inventory in 2016. When the MLCC shortage came, we adjusted our stocking strategy to make sure we protected our customers,” said Akery.

Increasing its breadth of inventory and increasing stock of parts in short supply helps TTI maximize customer service and to expand its customer base almost 40 per cent since 2015, said Akery.

Key to success
Expanding breadth of inventory is key to the business models of small volume distributors that supply parts for new product introduction. “We are always looking to expand our breadth of inventory. It’s one of the things that is a tenet of our business,” said Jeff Newell, vice president, products for Mouser Electronics. He said Mouser wants to provide its customers “the broadest offering of products to design into their next project. We constantly look to expand. We did that last year and we are continuing to look at that this year,” said Newell.

He said Mouser will also add to its depth of inventory depending on the market environment. “In 2018, we were adding a lot of depth because business was very strong. In 2019, when business slackened, we reduced some of it,” said Newell.

Mouser’s “job one” is to add new products from the suppliers that it already carries, he said. “We put a pretty good percentage of all new products on the shelves and promote those products with customers,” he said. But it also adds new suppliers to beef up its product offerings to customers. In recent years, Mouser added Micron, Xilinx and a number of sensor suppliers among others.

The biggest category of products that Mouser has targeted over the last several years has been memory, said Newell. “We never really had a big memory offering,” said Newell. With memory, Mouser was concerned that its inventory would be overvalued because of “wild price fluctuations that occur with memory,” he said. The company then decided that because memory was “a large percentage of the overall semiconductor market and a product that customers needed for design,” it needed to add more memory products, said Newell. This distributor increased its memory offerings to include DRAM, SRAM, NOR and flash solid-state drives.

Because of the growth of IoT applications, Mouser has also increased its inventory of sensors. “Sensors have become a really hot product group. There are not really any big sensor companies left. Sensor companies seem to be the shiny new object because everyone wants to buy them,”
said Newell.

Building stockpiles
Another distributor that has boosted its inventory levels in recent years is Digi-Key. “We have approximately 3X the stock keeping unit (SKU) count that we had in 2011,” said Dave Doherty, president and chief operating officer. “We have more than two times the amount of inventory that we had since 2011 and our sales have grown a little less than 2x.”

Many of the components that Digi-Key has added are new products that its current suppliers have introduced. “Our primary mission is new product introduction and supporting engineering customers and the innovation that is occurring,” said Doherty. Often that means stocking the latest and greatest products from component manufacturers. However, Digi-Key also adds older parts to its inventory that had been listed on its website, but it did not stock.

In some cases, Digi-Key will talk to its component manufacturers and tell them “we’ve listed this part as a non-stock product for five years and it hasn’t gotten any traction. Why don’t we actually stock some of them” so a customer can see the attributes of the part compared to other similar parts, he said. It gives users more choice.

When parts are in stock “our statistics show there are very few parts that have zero movement. They are finding a home somewhere,” said Doherty.

Digi-Key and other distributors have increased their breadth of inventory because of Internet of Things. IoT has resulted in greater demand for certain components such as sensors, microcontrollers, power management ICs among others.

“There are clearly more sensor applications,” said Doherty. Such applications also need other components for computational power and connectivity, he said.

Digi-Key also adds inventory when lead times stretch. “When we see signs that lead times are going to stretch, we buy up parts and we make sure we have enough to satisfy our customer base,” said Doherty. “We did that in the second half of 2016 in advance of the two-year up cycle” During that time there were shortages of MLCCs, chip resistors and discretes.

With the outbreak of coronavirus, Digi-Key has added inventory in anticipation of tight supply as some component manufacturers have had to cut back production. (See related story on page 12).

While Digi-Key adds inventory when supply is tight, it does not allow “a single customer to come in” and buy all of inventory of a scarce part, said Doherty. “ We will inject additional inventory to hedge and protect our customers,” said Doherty.

He said Digi-Key has also added inventory of less common parts. In some cases, a component manufacturer will develop a part for a specific customer application, but there may be more applications for the part.

Building inventory has been key to WPG Americas’ growth over the last five years, said Ian Basey, vice president, supplier marketing and asset for the distributor.

WPGA is not a broad line distributor, but focuses on storage, memory, solid-state lighting and power, said Basey. “We have a small line card of about 75 suppliers,” he said. The distributor has focused its inventory efforts with those suppliers.

He said that the distributor has been increasing its inventory for LEDs and memory. With memory, WPGA added inventory “across the board for flash, DRAM and solid-state drives.”

With solid-state lighting, WPGA has increased inventory in part because horticulture is a big market for the distributor. Vegetable and other plant growers need lighting systems to grow plants indoors.

Much of the WPGA inventory building for LEDs has been with suppliers that it has used for years. “We have added some suppliers, but we’ve really stayed with the suppliers that we have on that side of the business,” said Basey. “Cree is a longtime partner of ours and on the power side we have a company called ERP Power. They are a very big power company in the lighting space. Those are two big lines when it comes the horticulture market. We are buying more from the suppliers we have.”