Some distributors service big OEMs, EMS providers
Jim Carbone -- Purchasing, 4/21/2005 2:00:00 AM
The bread and butter business of most electronics distributors are small- to medium-sized OEMs and electronics manufacturing services (EMS) providers. After all, those companies lack the buying clout to purchase directly from component manufacturers.
However, many OEMs and EMS providers, which buy several billion dollars of components and production materials, also purchase through distribution for up to 10% of their production requirements. In some cases, buyers at these large companies use distributors for value added services such as IC programming. In other cases, large electronics companies purchase parts from distributors to support new product introduction programs. EMS providers also like to use distributors for low-volume, high-mix production.
In some instances, large OEMs buy from distributors because they have no choice. Some semiconductor suppliers require OEMs and EMS providers to buy through distribution because distributors serve as their fulfillment arm.
An example of this is Lucent Technologies. Lucent buys field programmable gate arrays (FPGAs) from Xilinx and Altera through distributors who have hubs for the suppliers, says Michael Massetti, senior director supplier management for Lucent.
He adds that Lucent also uses distributors to program parts. For instance Lucent will use Arrow to program certain semiconductors even though Lucent does not buy the parts from Arrow, but rather from another distributor.
Lucent also uses distributors in Asia. "In China or Thailand we may have to go through a local distributor to buy the same parts that we buy direct in the U.S.," says Massetti.
He adds Lucent also purchases from distributors for site installation materials for things like cable assemblies and other piece parts. These parts are needed when Lucent equipment is installed at a customer site.
Lucent also buys from independent distributors for obsolete parts or components that are in short supply.
Large EMS providers often use distributors. Dan Pleshko, vice present of global procurement for Flextronics, says his company buys parts from distributors for new product and for low-volume, high-mix production. He says distributors will sell in small quantities and will break up reels.
"We are winning a fair amount of business that is high-mix, low-volume" says Pleshko. "It is an attractive business amounting to a half billion dollars but it is not a high velocity consumer goods type of business. Distributors are a great fit there. They can do hubbing programs and manage the inflow of materials, providing us with the least liability and high flexibility levels."
He says Flextronics' sites appreciate this. "They don't have to worry about inventory or excess and obsolescence, all those things that go with a challenging high-volume, low-mix business."
Distributors support Flextronics' plants with supplier managed inventory, auto replenishment and pull programs. "It allows the factories to run at their normal modes. They don't have to do anything special," says Pleshko.
He says in some cases, Flextronics prefers to use distributors rather than purchasing direct and will recommend that a supplier use a distributor.
"As new technology emerges, different suppliers may have some intellectual property and a good product, but may not have the maturity to do business with a company the size of Flextronics, says Pleshko.
"If the supplier's product isn't being carried by a distributor, we push that supplier to one of our strategic distributors. We suggest they work out a relationship. The distributor can carry the supplier's line card, and then we have all those services and an interface we are used to dealing with," he says.
Another major EMS provider that uses distributors is Solectron, also in San Jose.
"We use distributors in a plethora of solutions today," says Perry Mulligan, senior vice president of materials and chief procurement officer of Solectron. Like Flextronics, Solectron uses distributors to support NPI and low-volume, high-mix business.
"A lot of our distribution spend is for complex programmable logic devices (PLDs)." He says less than 10% of Solectron's spend is with distributors and about 60-70% of that is for complex PLDs. Solectron purchases those parts from distributors and uses their programming services as well.
"We use eight to 10 distributors, but two to three distributors dominate the spend," he says.
Mulligan says while he is generally pleased with the service of distributors, there is room for improvement especially from large distributors doing business in Asia.
"Not all top distributors offer the same level of support or the same line card globally," he says. He says as business has transitioned to Asia, "distributors have been challenged to make their product and services offering more robust and consistent worldwide.
"If we're looking for support with shortages, NPI support or a flexibility in a region, not all distributors can provide that globally," he says.
Mulligan adds that Solectron buys from independent distributors when it needs to and qualifies nonfranchised distributors the same way it qualifies other suppliers.
"We maintain a list of nonfranchised distributors, who are the only ones buyers are allowed to use. They have been audited by our team to make sure they are ISO compliant and that they have the appropriate safeguards and capabilities to manage and detect counterfeit parts."
Counterfeiting continues to be a problem as more manufacturing has moved to China where a lot of the bogus parts originate. Often those parts are sold on the open market.
How big guys use distributors
04/14/2004
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