The challenges that buyers at electronics distributors face are often different than the issues that purchasers at OEMs and electronics manufacturing services (EMS) providers need to deal with.

After all, the distributor business model is different than an OEM's or EMS provider's. Distributor buyers purchase parts for resale and OEM and EMS buyers purchase components just for their own companies for the equipment they manufacture. Buyers at distributors need to make strategic and opportunistic purchases of parts that will sell in the marketplace. OEM and EMS buyers don't.

"We need to make sure we always have parts on the shelves for when a customer opportunity presents itself at the sales desk," says Paul Benge, senior vice president, director of materials management for Avnet, headquartered in Phoenix. "We have to have inventory availability to ship from stock."

In addition, buyers at distributors need to make sure there is stock for customers who are serviced by vendor manage inventory (VMI) programs provided by the distributors. Buyers at OEMs and EMS providers only need to worry about whether there is stock for VMI programs for their company.

Still there are some similarities in purchasing between OEMs and distributors.

"We share the same issues in the timing piece," says Jim Seifert, director product management, at Arrow North America Components in Denver. He is in charge of purchasing for Arrow.

"We both need to have the right product on the shelves at the right time at the right pricing point to support the market," he says. "We have the basic common needs of managing that piece of our business to help us achieve our working capital."

However, purchasing is different because distributors have to buy a lot of products to support a wide base of customers, says Seifert. A buyer at an OEM is buying just for his own company and an EMS provider purchaser may buy parts for a limited number of customers.

Michael Knight, vice president of corporate product management for passives and connectors at TTI in Fort Worth, Texas, says having a wide variety of customers that often want very specific parts can be challenging for purchasers at distributors. He says it influences how distributors must purchase.

"Our first purchasing objective is to have the parts that an OEM or EMS buyer is asking for," says Knight, who is responsible for purchasing at TTI. "If it is a Murata part, our objective is to have that Murata part in inventory," he says.

He says often OEM or EMS buyers will want very specific parts and will accept no substitutes even if a substitute part may cost less.

"From a purchasing standpoint, I have to make sure I am stocking what is called out. Still, the second purchasing objective is "to have an alternative part on hand" when the original part is not available, he says.

"I need to have good alternatives so we can add value to the relationship with the customer if we need to move the customer to a part that is more competitive or fits their application a little better," says Knight.

This can be difficult because many OEMs and EMS providers may have Lean purchasing groups and buyers may not have as much product expertise that they need, he says.

"The buyer may not know enough about the part to make the part substitution call. It puts a lot of pressure on us to make sure we are inventorying what they are calling out," Knight says.

Buyers also work with suppliers to determine which parts may be most in demand in the near future.

"We get a lot of help from suppliers. We constantly ask suppliers about what their higher runners are," says Knight. "What is driving the market? Where are things going? What part numbers have 100 customers and let's make sure we buy them and set a re-order point that guarantees that we have those parts in stock at any given time when a customer calls for them," he says.

Having parts when they are needed is essential because OEMs and buyers "don't seem to be as loyal to a particular distributor as they once were," says Knight.

“Our first purchasing objective is to have the parts that an OEM or EMS buyer is asking for,” says Michael Knight, vice president of corporate product management for passives and connectors at distributor TTI.

However, TTI and other major distributors have very close relationships with some OEM and EMS customers and run VMI programs for them.

With such programs, purchasing responsibility is easier because they are highly automated.

"About 40% of sales are done by program accounts where we have a formal vendor managed inventory program in place with customers," says Knight. "We're getting MRP forecasts from them that enable us to bond inventory for that customer."

He says TTI has developed a history with many customers and has learned the quality and reliability of their forecasts, he says. The more reliable the forecasts, the less TTI purchasers have to scramble to find parts for customers.

Avnet purchasers also must support VMI programs.

"We get 600 customer MRPs weekly, bi-weekly or monthly," says Benge. We manage those for customers." Avnet ships the customers parts based on the MRPs. Avnet has contracts with those customers.

"We have established some standards of performance and some expectations on what we can do and what the customer expectations are of us."

Find the parts

Avnet often has VMI programs for such customers, including consigned and bonded inventory, in-plant stores and auto replenishment. While Avnet has franchised agreements with component manufacturers, there are times when it is asked by a customer for parts it is not authorized to sell.

In those cases, the distributor will try to get a site franchise for the customer or it will buy from other distributors or brokers. With a site franchise, a distributor is authorized to sell the part to a certain customer at a certain site.

"About 80% of our off-line card purchasers are with component manufacturers through a site agreement or some form of agreement," says Benge. "Quite often with site agreements I get can get terms of warranty and price protection. I try to negotiate as many of the standard terms and conditions that I get with a franchised supplier," he says.

Benge says about five years ago, Avnet bought more from distributors. "But I have an issue of giving more business to my competitors," he quips. He says about 16% of his off-line card purchases are with other franchised distributors and about 4% with brokers.

“We need to make sure we always have parts on the shelves for when a customer opportunity presents itself at the sales desk,” says Paul Benge of Avnet, senior vice president, director of materials management.

“We both need to have the right product on the shelves at the right time at the right pricing point to support the market,” says Jim Seifert, director product management, Arrow North America Components.

Avnet has pared down the number of brokers from about the two dozen it used five years ago to about seven.

"I do a site visit before I engage with them," says Benge. "I have visited everyone that we use and met with their management to get a sense of what their business is about. I asked them some hard questions about where they get their products," he says. Some distributors are leery of buying from brokers or even from other franchised distributors.

"We typically do not purchase from other distributors," says Seifert of Arrow. "We have engagements with our supplier-partners that pretty much cover customers' entire bills of materials. There are very limited parts that we are not franchised for," he says.

Some distributors are concerned about the robustness of parts purchased from nonfranchised distributors and risk of buying counterfeit parts.

"The value of franchise is extremely high especially in this day and age of Asian counterfeiting," says Knight. "In order to assure customers that what they are getting is true and genuine from a Vishay or Amphenol, we only buy lines we are franchised for."

He says TTI will occasionally buy from other franchised distributors for "major customer engagements when someone needs help, but often times we will give the customer the referral and say 'this guy has the stock.'"

He says TTI will often try to get a site franchise for a part if it isn't authorized to carry it. But suppliers often don't like to award site franchises.

"The supplier mentality is I don't need to give TTI a site franchise," says Knight. "I will still get the business through Future, Arrow or Avnet or someone else. They aren't worried about losing the business."