Purchasers search for bargains on open market
By Staff -- Purchasing, 9/20/2001 2:00:00 AM EDT
Despite the electronics industry slowdown, buyers are purchasing parts from independent distributors and through online exchanges although at a slower rate than last year, according to a new PURCHASING Magazine survey.
In the past, electronics buyers would use independent distributors only 
when parts were in short supply and rely on franchise distributors and component manufacturers in a buyers' market. However, many buyers are apparently buying from independents during the current buyers' market because they can purchase the parts for less than from franchised distributors and component manufacturers.
The survey finds that 64% of buyers purchase semiconductors, passives and connectors from independent distributors or from online exchanges. Of those, 68% say they buy just from independent distributors and 32% report they buy from both independent distributors and online exchanges. Thirteen percent said they purchased parts daily or weekly from independent distributors, 52% said they bought parts monthly from independents, 21% once in a while and 14% said they bought parts from non-franchised distributors as a last resort.
However, to no great surprise, purchasers are buying less from independents than a year ago because of a slowdown in demand for end equipment. In a similar survey one year ago, 67% of buyers said they purchased from independents, virtually the same as last year. However, in 2000, 34% of buyers said they purchased parts from independents daily or weekly.
Of the buyers who purchased parts from independent distributors, 23% say they have spend $10,000 or less this year, while 53% report they have purchased between $10,000 and $100,000.
Sixty-eight percent said they have spent the same or less with independent distributors this year compared to last year while 42% say 
their spend has increased.
The parts that buyers are purchasing from independent distributors are tantalum and ceramic capacitors logic, microprocessors and memory ICs.
The number of non-franchised distributors that buyers use varies. Forty-four say they used just one or two, but 21% say they use 10 or more indicating that those buyers are shopping around for the best price.
In purchasing from independents, 90% of buyers say they are most concerned about the quality of parts. Price is their second biggest concern, according to 72% of those polled while warranty issues was the third biggest concern at 51%.
However, while buyers say they have concerns about buying from independents, 89% say they have had positive experiences in doing business with them. Some buyers say some independents have very good service.
"They offer delivery and service when we need it, not just when their schedule allows says Robert Kohls, purchasing manager at City Machine Tool and Die, a contract manufacturer in Muncie, Ind. He buys DRAMS, SRAMS, logic and connectors from independent distributors.
John Grow, purchasing manager at Raymond Corp., a manufacturer of electric forklifts in Greene, N.Y. says he sees no difference in the service levels of franchised and non-franchised distributors. He buys a variety of semiconductors and tantalum capacitors from independents.
"We do separate them, franchised and non-franchised, but I have a hard time doing that sometimes. They're all distributors," he says.
"Obviously if you spend more money with somebody, you get better service. With some if we don't give them the proper leadtime, it's hard to get the parts from them. But generally we get good service out of all of them," says Grow.
He purchases from independents because some of the forklifts his company manufactures are based on mature technology, and independent distributors often have the parts when franchised distributors don't.
Bob Kramich, vice president of marketing for Converge which purchased independent distributor NECX last year, says many parts have been sold through online auctions.
"Since May we have conducted 230 online auctions that have moved $16.5 billion of inventory in the channel," he says.
'The folks who are buying at the auctions are looking for an opportunistic purchase," he says. "It's not a line down buy. They are looking to capture an improved margin. The cost benefit is such that they can afford to take on inventory and hold it until they can use the parts," says Kramich.
Andrea Klein, CEO of independent distributor Rand Technologies, says buyers are purchasing from independents during the slowdown because the role of the non-franchised distributor has been recognized in the electronics supply chain. She says buyers would say they didn't want to do business with independent distributors because they didn't want to ruin relationships with their partners: franchised distributors and component manufacturers.
"Now we are one of their partners. Buyers now understand that they have three partners in the supply chain: the factory, the franchise and the independent," she says. "They are thinking 'how do you use them to take advantage of their core competencies and how do I use them in this marketplace? What I can do that franchised and factories cannot do is sell them product well below their contract price. Anything below contract price goes to the bottom line as profit," she says.
Joe Stafford, president of IC Solutions an independent distributor, says while many purchasers are making opportunistic purchases, many are also using independents to sell off excess inventory through consignment.
"If a customer has not taken the charge against the inventory, they are trying to get top dollar value. If they have taken the charge, they are looking to get some cash out of it," he says. "If customers have too much product where do they go? Franchised distributors don't want to take it back and the factories don't so they go to us," he says.
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