Value-added services help buyers meet supply goals
By James Carbone -- Purchasing, 5/6/1999
Purchasers rate the performance of electronic distributors very highly. Many buyers will increase their orders with distributors, and the vast majority use value-added services provided by electronics distributors.These are some of the highlights of a recent Purchasing Magazine survey of electronics buyers. But just beneath the surface of the numerical results of the survey lies a fundamental fact: Electronics buyers are using distributors to help them achieve long-term supply-management goals.
Results of our survey find that an overwhelming majority of electronics buyers--93%--rate the performance of electronics distributors as "excellent" (47%) or "good" (46%). Only 7% of polled purchasers rate distributor performance as "fair;" none rate it as "poor."
The survey also finds that purchasers on average buy 68% of their electronic-component requirements from distributors, while the rest are purchased directly from manufacturers.
Forty-six percent report that they are buying more from distributors than they were three years ago, and 44% say over the next three years they will place even more business with distributors. They expect the increase to be around 23% on average.
In some cases buyers have no choice than to do more business with distributors. Reason: Many component manufacturers are selling more of their parts through distribution and dealing directly only with very large accounts. But the supply strategies behind increased use of electronics distributors go much deeper.
Where distributors fit
Many purchasers say they buy from distributors because of the availability of inventory and for value-added services. In fact, when electronics purchasers rate distributors, value-added services weigh heavily in their decisions. Indeed, services offered by electronics distributors can produce many benefits.
Many surveyed buyers report that they are using distributors to provide a variety of services that reduce procurement cycle time, reduce inventory levels, and lower the cost of acquisition. Many purchasing departments are continually being asked to do more with fewer resources; value-added services can help purchasing execs achieve this goal.
A strong majority of buyers polled--78%--use the VA services that distributors provide. And the list of VA services is long and varied (see table). At the top of the list of services are bonded inventory, which 62% of buyers use; IC programming (53%), and cable and harness assembly (42%). Such services help buyers reduce total cost of acquisition and help streamline the purchasing process. Sometimes such programs also allow OEMs or contract manufacturers to run leaner operations.
Case in point: eftc, a contract manufacturer based in Denver, Colo. Using in-plant stores and electronic data interchange, eftc is outsourcing a good portion of supply chain management to three distributors: Arrow, Avnet, and Veba. That allowed the company to reduce its number of purchasers from nine to two, says Bob Child, director of procurement. eftc, which had been doing business with 10 distributors, determined that the three could handle all material requirements and were the best for the VA services that eftc required.
"We wanted to consolidate purchases, improve service we get from distributors, and increase inventory turns," says Brian Tracy, eftc vice president of strategic supply chain management. He says eftc is reducing its total cost of acquisition by simplifying its purchasing process through EDI.
"It's computer-to-computer EDI using auto replenishment," says Child. "No human interface is needed. No one has to read the information and talk about it on the phone."
Jim Smith, CEO of Atlas Americas, the value-added division of Veba Electronics, says buyers are getting more sophisticated about total cost of ownership. To those buyers, VA services are appealing. "They know price is only one part of the equation," says Smith.
MC Assembly, a contract manufacturer in Melbourne, Fla., also uses the VA services offered by electronics distributors to achieve supply-management goals. Ray Portiss, director of purchasing, says he uses distributors for IC programming, bonded inventory, and cable assemblies. With the bonded-inventory program, three distributors maintain a stock of parts just for MC Assembly's use.
Portiss also has a "minimum-maximum" program in which Marshall Electronics visits MC Assembly every two weeks, takes inventory of parts, and makes sure a minimum number of certain parts are always available.
Portiss says he is satisfied with distributor performance and expects to increase his use of distributors' VA programs in the future.
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