Moving into the mainstream
Independent distributors are no longer just an option when parts are hard to find.
Jim Carbone, Executive Editor - Electronics -- Purchasing, 12/9/2004 2:00:00 AM
Not too long ago, many electronics buyers were reluctant to buy from nonfranchised independent distributors except during times of component shortages because of their premium prices.
But all that's changed. Nonfranchised distributors are becoming both an outlet for buyers to unload their excess inventories, and a source for opportunistic purchases of readily available commodity parts that, at times, are priced lower than the prices of franchised distributors.
The trends appear to be feeding each other. As buyers sell their excess inventories to independent distributors to free up warehouse space and get parts off their books, it gives many independent distributors the inventory they need to become a mainstream source for parts. The turn of events has given independent distributors a compelling new business model because they can both sell parts to OEMs and electronics manufacturing services providers and buy back excess inventory—something that franchised distributors don't do.
There's also an increasing confidence in major independent distributors because a number of them have launched quality programs to reassure buyers of the integrity of parts, and added programs in order to screen for counterfeit products—a major concern to buyers since many low-cost components are sourced in China, which has a serious, if not growing, counterfeit component problem (see sidebar, page 40.)
These new roles complement the traditional role of the independent distributor as a good source of obsolete products. (Most component manufacturers send end-of-life notices for parts to their customers as early as one to two years before production stops. But many buyers never see—or ignore—the notices and turn to nonfranchised distributors for the parts.)
"We buy excess inventory—which is rife with obsolete semiconductors," says Stan Schiller, chief operating officer for Components International, an independent distributor in New York City. "The profit margins are good."
And, as he explains, the business relationships that independent distributors develop selling obsolete or hard-to-find parts lead to opportunities to supply "a lot of mainstream components."
Like a number of other independent distributors, Components gets a lot of its parts from consignment agreements with OEMs. Sometimes it gives them a fixed amount on the dollar. Other times, says Schiller, it will do a consignment deal with a company. "They hold inventory. We sell it and share the profit with them."
New opportunities
It's also expected that the impending lead-free mandate from the European Union will create opportunities for the independent channel.
As the July 2006 deadline approaches for the Restriction on the Use of Hazardous Substances (RoHS) directive that bans the use of lead in electronics equipment, analysts anticipate that many OEMs selling into Europe will switch to lead-free components and unload their leaded components to independent distributors.
And, because there are exemptions to the law that will allow leaded parts to be sold into other geographies, there likely will be a brisk market for leaded parts through the independent channel.
"Lead-free is an important topic because standards have not been developed," and there is no standard part-numbering system for lead-free parts, says Frank Cavallaro, CEO of independent distributor Converge in Peabody, Mass. Some companies plan to change part numbers while others intend to keep the same part number as the leaded component.
In addition, there are different roadmaps for when different technologies will need to be in compliance with the lead-free initiative, and many OEM and EMS buyers likely will need help in sorting out lead-free components from leaded parts.
"It will create a higher need for independent distributors because you'll be removing assets that can be used in another geographic location or another industry," says Cavallaro. Already, he says, Converge is working with OEM and EMS providers on what products they plan to sell in which geographies to determine what parts they need in the short and long-term.
Top Independent Distributors
| Ranking 2003 | Ranking 2002 | Company | 2003 calendar year ($millions) | % change from 2002 |
| SOURCE: PURCHASING MAGAZINE |
||||
| 1 | 1 | Smith & Associates | $319.2 | 8.2% |
| 2 | 2 | ce Consumer Electronics AG (6) | 195.0 | -7.1% |
| 3 | 7 | Resilien | 183.0 | N/A |
| 4 | 4 | Classic Components | 180.0 | 5.9% |
| 5 | 3 | Converge | 177.0 | -2.7% |
| 6 | 5 | America II Electronics | 175.0 | 15.1% |
| 7 | 6 | Advanced MP Technology (2) | 149.6 | N/A |
| 8 | - | Fusion Trade (7) | 121.6 | 298.7% |
| 9 | 8 | Rand Technology (2) | 99.0 | N/A |
| 10 | 10 | Commodity Components International | 33.0 | -15.4% |
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