Electronic Distribution – Heinz Variety

Same old story
At Technology Research we have been looking at what has been happening in the world of electronic component distribution over the last few years? In some ways it is the same old story. The big boys continue to get bigger, the small guys smaller and the medium sized are squeezed or bought. Consolidation still seems to be the order of the day. The “double A” of the distribution world, continue to dominate, Arrow is now a $21 billion dollar company and Avnet $26 billion, operating in respectively 53 and 70 countries. They continue to purchase other distributors at a phenomenal rate. Arrow have bought over 12 distributors around the world over the last couple of years, Avnet slightly less. They both continue to add franchises, technologies and geographies to their global portfolio. They appear to be focusing on higher margin products from passive, emech and connectors, whilst also growing geographies, particularly Asia.
 
Although on the surface this may appear to be the same pattern, the truth is a little more complicated, both companies continue to expand their business models in other ways. Computer hardware is now a very large percentage of their turnover. Many of the newly acquired businesses are in the aftermarket, servicing end-of-life products, recycling or offering reverse logistics. Other purchases are offering design capabilities online, the customer services are now across the whole gambit of the product life cycle. More than that, new value added services are being added and business units only servicing the embedded market have been created.
 
The truth is these are no longer just distribution companies, they are electronic service companies with a multitude of varied offerings. The question is whether it is realistic to constantly grow, become more complex, try to be all things to all people and still manage to keep connected to their customers?
 
New Model Army
Are there any alternatives out there? What else is changing in the world of distribution? Firstly there is the growth of internet trading, this is particularly prevalent in the low value, high margin trading, traditionally dominated by the catalogue companies like RS and Farnell. Their online trading is anywhere between 50 and 70% of their business. A cheaper way to trade and now becoming more popular in all levels of purchasing professionals; the level of spend per trade is inevitably creeping up. Then there is Digikey, a distributor growing organically faster than anyone! Using one warehouse in Minnosota, with no field sales people, only selling over the Net, piling the product high and demanding great purchase prices. Gradually these guys are moving up the customer chain to compete with the volume distributors.
 
Then there is the growth of local rep'ing companies. Suppliers always demand focus and understanding on their products, however with broadline distributors offering 100’s of different franchises this focus and ability to offer genuine product knowledge and design support on anything other than the largest franchises is all but impossible. Not every issue can be solved online and customers do still like to meet a human and discuss a product or technology. Independent sales reps with limited line cards are one of the models being used to solve this issue.
 
Non-franchise distributors, especially in the UK, also seem to be changing shape. They can still offer the simplicity and ownership of issues that customers enjoy without having to worry about huge marketing structures and franchise politics. However their model is now also changing with the introduction of genuine value added services, with excellent quality procedures, even crossing over to contract manufacturing and sometimes adding the odd official franchise.

In reality, the distribution model is in a state of flux as it attempts to adjust to the dynamic global business world we live in, with all the added advantages and problems of new technology, whilst still trying to meet the age old demands of service, focus and relationship building. Yes, there is still room in this world for old fashioned human to human customer service!
 
Where to now?
The future will always be driven by the customer and whilst we see the big corporate, global accounts being looked after ever more by the equally large global distributors, we see the small and medium customer looking for more personal service from the likes of local specialists or the new distribution models that are emerging. If there was ever a Distributor that could combine global reach and capability with local service and a focus on design/products they would sweep the board clean. That is, if they could do it competitively!! We look forward to the next distribution model to emerge in the near future.
 
Greg Nicol
Senior Associate Director

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