The electronics distribution industry was hit hard by the economic downturn. Oversupply and high inventory levels crushed prices, leaving many distributors reeling. According to an annual survey by Purchasing magazine ( www.manufacturing.net/pur/</a>), revenue declined 24% in 2001 and 22% in 2002 for the top 75 distributors surveyed by the publication.
In an article entitled 'Expect distributors to add more OEM, EMS customers' in the February issue, James Carbone reports that most distributors said their businesses improved in 2003, especially toward the end of the year. He says distributors are optimistic that a recovery and healthy growth will return in 2004 and the long-term outlook for the industry is bright.
Some distributors, however, are concerned that the industry has matured. The glory days, when distributors enjoyed 20%-plus sales growth annually, are over, he points out. Others are worried about the migration of manufacturing from North America to China and what it will mean to North American distribution.
The plus side to this, according to Carbone, is that buyers can expect distributors to be more customer-focused and to provide more services. Distributors will try to expand their customer bases and forge closer partnerships with existing customers. This is good news for customers, and especially 'prospective' customers as, the article states, "more distributors will provide more supply chain management programs and value-added services even to smaller customers as they compete to be the most efficient product and service providers."
Robin Gray, executive vice president of the National Electronic Distributors Association (NEDA) in the US (www.nedassoc.org), says that authorised distribution has evolved and changed during the past 20 years to the point where it is probably not recognisable to someone from the industry during the '70s and '80s. In the February NEDA newsletter, Gray says the traditional image of distribution as a "warehouse where products from suppliers arrive and shipments to customers leave" is too often simplistically viewed as "picking and packing". The vast majority of people are not aware of - or give little thought or attention to - other traditional distribution functions such as credit and sales efforts. To the public, distribution is little more than order fulfillment and logistics, and few would understand the banking function, he adds.
Distribution in many other industries has changed little and remains largely a pick and pack function. However, authorised electronic distributors have undergone a transformation over the last two decades, states Gray, evolving from order fulfillment operations to value-added and demand-creation operations. In some cases even, distributors resemble contract manufacturers as a result of their value-added manufacturing operations. In other situations, electronic distributors look like design houses or sales representatives or supply chain management companies or customer service operations.
This evolution of the electronic distributor continues, he says, which bodes well for the future of the industry because it reaffirms its value. This change has not gone unrecognised by savvy customers and suppliers who are increasingly relying on the skills of today's authorised distributor, he adds.
With the ongoing development of the Internet, amongst others, a further issue distributors have to deal with is the 'perception' that they add superfluous cost to today's supply chain. To dispel this 'myth', NEDA worked with Texas A&M University ( www.tamu.edu), on a study to quantify the value added by the distributors. According to the partners, there was no previously published study that quantified the dollars and cents value of distribution.
The study 'Quantifying the Value of Authorised Distribution' completed last year, focused on three main areas: Convenience services such as credit, accounting and finance services, price protection, and product availability; Savings via inventory management; and Value-added services, including kitting, vendor managed inventory, special packaging, programming, board assembly, stuffing, and more. Details can be seen at http://etidweb.tamu.edu/lawrence/ppt/NEDA_Oct_28.ppt. Two developments resulted from the value study: a methodology that may be used by customers and suppliers to determine when it is appropriate to use distribution; and a calculator tool that provides hard numbers on an order-by-order basis.
Due to the limited number of customers, suppliers and distributors used in the research, NEDA does not claim that the study conclusively proves that in every case distribution is the answer. However, it says the research does demonstrate that for the customers involved in the study, 'buying' through distribution yielded savings ranging from 15 to 40%, while for suppliers 'selling' products through distribution, it showed savings ranging from 10 to 40%. NEDA says the study uses ranges because each situation is different and must be analysed on an individual basis. It is available from www.nedassoc.org/pub.html
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