Electronics distributors target defense industry for growth

Defense contactors have different requirements of electronics distributors than most OEMs.

By Jim Carbone -- Purchasing, 8/7/2008 1:30:00 PM

Some electronics distributors are seeing strong growth from defense contractors, especially as those companies outsource to electronics manufacturing services companies.

Some electronics distributors, like TTI in Fort Worth, Texas, began their businesses supplying to defense and aerospace industry and their EMS partners and then expanded to the commercial sector. Other distributors, such as Astrex, do the bulk of their business with defense and aerospace OEMs and EMS providers.

Distributors say defense companies have different requirements than commercial customers due in part to the fact that volumes tend to be low in defense. “In the commercial world you deal with a low-part count and high-volume,” says Frank Stalzer, president of Astrex in Plainview, N.Y. “In military it is low-volume, high-mix. There is a wider breadth of part numbers, but a lower volume.”

Electronics distributors have to carry a variety of inventory for defense customers, says Mike Morton, senior vice president, corporate product and operations management for TTI. Morton says distributors must have mil-spec parts, but also commercial-off-the-shelf (COTS) parts. In some applications, defense customers want COTS parts that are compliant with the Restriction of Hazardous Substances law and in other cases, they want COTS parts that are non-compliant. This means that TTI and other distributors need to have inventory of all three types of parts.

While defense contractors and their EMS partners may require a variety of parts, their demand is often more inconsistent than commercial OEMs. For instance, Motorola may build a handheld scanner for an inventory company and produce 500 units per month, says Stalzer. “Production is consistent. But defense business can be spiky,” he says.

“When Lockheed gets a contract to build 150 missiles, they get the release and boom they have to build this product and get all the material in a short period of time,” he says. As a result, the amount of business that a distributor does with a defense customer can vary from quarter to quarter.

“In the commercial world the top 10 customers are the same customers every quarter,” says Stalzer. “In military you see the opposite. If we look at our top 10 customers in Q1, in Q2 there could be five of them from Q2, but there is another five because of the erratic mature of the military business,” he says.

Another way defense business is different than commercial is there are often special packaging requirements. For instance, in some cases parts have to be packaged individually because they may be used to service a system in the field, says Morton.

Often parts have to be kitted, says Stalzer. Astrex supplies connectors to defense industry. “We sell the contacts, the shell and an insert. If it is going out to the field, it has to be kitted so someone can pull the box off and in the bag and the contact, the shells and inserts are all there,” he says.

Defense also requires other value-added (VA) services. Bryan Brady, vice president/director for defense/aerospace at Avnet Electronics Marketing Americas, says that like commercial customers, defense OEMs and EMS providers require traditional VA services such as tape and reeling, programming and labeling. But there is greater demand for services such as lead solder dipping, electrical screening, burn-in, and temperature testing.

Defense buyers also require “more sophisticated supply chain services such as consignment, virtual stores, forecast/trigger based receiving-to-work-cell inventory management,” says Brady.

Also see: Many distributors posted double-digit growth in ‘07