Distributors and Net-based sourcing companies team up

By Staff -- Purchasing, 5/18/2000

As interest in electronic commerce grows, many franchised distributors are forming alliances with online buying services.

Arrow Electronics has invested in several, including QuestLink Technology Inc., Virtual Chip Exchange and ChipCenter and Viacore. Avnet is also putting big bucks into the online market space, investing in ChipCenter, QuestLink and Viacore as well.

The idea of the service is to provide information about parts and manufacturers and to make it easy to purchase online.

QuestLink Technology provides free online access to a database of more than 20,000 application notes using the root part number, part description or product category as a search parameter. It also provides company profiles on more than 400 manufacturers, suppliers and vendors.

With its acquisition of NetBuy, buyers can purchase online from Questlink which has access to more than $3 billion of inventory from 2,000 manufacturers.

"Through our site, a bill of materials (BOM) with parts from six different distributors and 20 different manufacturers can be built," says Mike Schultz, president and CEO of QuestLink. "With a click you can get price and delivery information on the entire BOM. In another click you can buy." Questlink has more than 192,000 registered users.

Also positioning itself as a resource for the front end of the design cycle is ChipCenter.com. Founded in 1999 through the unlikely alliance of Arrow Electronics and its rival Avnet Inc., together with Aspect Development and CMP Media, ChipCenter.com offers a "supercatalog" that gives design teams access to the aggregate catalogs of both Arrow and Avnet, which represent more than 900 manufacturers. ChipCenter also includes a parametric search capability, as well as access to industry news, technical data and articles, and online seminars.

In addition to Arrow and Avnet, ChipCenter provides access to inventories of other franchised distributors who have joined as fulfillment partners, including Avnet Marshall, Pioneer-Standard Electronics and TTI.

TTI aligned itself with ChipCenter because it's targeted at the engineer, says Craig Conrad, senior vice president of sales for passive components leader TTI. "And it's supported by authorized distributors which is the business model that we want to be associated with and certainly want to be endorsing."

As for other Net-based companies such as PartMiner and USBid, Conrad does not see them as a threat to traditional distribution and expects that they will find their niche.

Other distributors are taking a wait-and-see attitude about teaming up with alternative sourcing companies. "At this point we just haven't seen the right fit that would warrant an equity investment," says Larry Olson, president and COO of Kent Electronics Corp.

The need for hard-to-find or obsolete components is a primary driver behind the growth of many online companies. The market for excess inventory reached $21 billion in 1999, almost 30% of the total market for electronic components, according to research firm International Data Corp., Framingham, Mass.

"A broker will typically buy excess from an OEM, pay 5¢on the dollar, put it onto his shelf and wait for a customer," says Mike Wood, president of Virtual Chip Exchange (VCE). "He has to pay so little because he sits on the inventory until a customer comes along. That's his risk."

It's a model that has worked relatively well for brokers, but has never truly satisfied buyers who are often forced to pay hefty markups to get a critical part.

Using the Internet as a vehicle, sites such as FastParts and USBid are working to create a venue where both buyers and sellers determine the fair market value for these goods.

For example, FastParts acts as a "transaction facilitator" providing a neutral trading floor where buyers and sellers of electronic parts directly negotiate and execute trades in a secure environment. FastParts also coordinates all trade fulfillment activities including payment and delivery, but never takes ownership of the parts.

FastParts.com, which derives all of its revenue from a percentage of each completed transaction for the seller, recently secured $35 million in financing.

Other services offered on FastParts. com include the sold! Internet auction, an equipment exchange where members can buy and sell new and used manufacturing equipment, as well as a Private Trading Exchange Intranet service which gives multiple location organizations the ability to trade parts internally across the various sites.

In addition, FastParts offers a Brand Exchange service in which the company enables individual manufacturers and suppliers to offer their products for sale on the Internet. The site, which currently has 2,000 members, typically has more than 180,000 unique part numbers available at any given time, says George Gordon, president of FastParts.

While brokers were the site's early adopters, Gordon says that the percentage of broker users on the site continues to decline as the number of other users rises. "It was a logical development of the company, since these people already had parts for sale," Gordon says. "But that is not the reputation we want to have in the long term."

Like FastParts, USBid.Com contends that it is neither a broker nor a distributor, but merely a "facilitator of buy and sell transactions."

"USBid never buys or sells components ourselves. We are never involved with pricing, nor do we ever take a position in any auction," says Gary Heyes, president of USBid.com.

In an effort to avoid becoming an alternate channel for component brokers, USBid only allows inventory at the site that is either from a direct manufacturer or from an OEM or distributor that bought the product direct from the manufacturer, Heyes says. USBid also requires sellers to have incoming inspection and inventory controls in place, as well as either a manufacturer's warranty or a standard minimum "form, fit and function" warranty for all parts sold through the site.

Site features include AuctionWatch, which enables users to track bids they place or simply watch the activity on a particular item. An AutoBid feature allows users to place a maximum bid on an item and automatically adjusts bids to the next winning bid amount.

In addition to the three auctions it manages per week, USBid has also recently added a "BuyNow" feature to the site, which allows users to immediately purchase an item if a bid hasn't been placed on it yet.

"While auctions are well served for certain customers in situations where getting the best price is the goal, if a user needs a part, he doesn't really want to wait until the end of the day for the auction to close," Heyes says.

Like others in the industry, USBid charges only a transaction fee to sellers, which ranges from 5% to 25% of the value of the sale.

VCE also seeks to provide franchised distributors, component manufacturers and OEMs with an alternative channel for the buying and selling of excess inventory, but VCE uses an exchange rather than an auction model.

In addition to searching for individual parts or a complete bill of materials, users can access a variety of market intelligence, including most wanted parts, market prices, leadtime trends, industry news and a parts library.

VCE's Wood says that Arrow Electronics' involvement in the site proves that businesses like VCE are not a threat to the existing distribution models, but rather a complement.

"There will always be the franchised scheduled business model, but companies like Arrow are not in the business of supporting obsolete products," Wood says. "So in cases where the customer has a secondary market requirement, whether its selling excess inventory or finding obsolete or hard-to-find parts, Virtual Chip steps in," he says.

Garnering almost $100 million in venture capital since its inception, PartMiner was spun out as a separate company from independent distributor Microcom Technologies in 1999. Microcom first developed PartMiner as a procurement agent for internal use. In 1998, Microcom made the technology available free of charge to the public.

The company provides proprietary Internet-based applications to buyers of electronic components to help them select and buy products using their preferred suppliers. In those cases when regular sources of supply cannot meet the buyer's demand, PartMiner will act as a market maker.

Buyers can enter a series of part numbers or import a bill of materials from an external application to execute a search of multiple Web sites. This search data may include manufacturer part number, description, price, quantity available, manufacturer and data sheets where available.

Users can also select a line item related to a specific component and the PartMiner procurement agent will transport the user to the supplier's Web site, where the user may purchase the component online if the supplier's site is capable of executing transactions.

To further automate transaction activity between buyers and sellers of electronic components, PartMiner is in the process of developing the Free Trade Zone, a Web-based procurement platform that is expected to launch in the second half of 2000. The Free Trade Zone takes the online sourcing process a step further by enabling component buyers to use the Internet to send requests for quotes, receive, negotiate terms and place orders.