Supply Chain Lessons Learned in a Post-Coronavirus World
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It’s one of those headlines where I had to do a double take to make sure I’d read it correctly: “Mouser and Intel Announce Global Distribution Agreement.” Mouser Electronics is catalog distributor and as a rule catalogs ship product anywhere in the world. I figured Mouser has been selling Intel globally for decades.
But then I realized we were talking about distribution. Franchise agreements are one of those complex things you really need to have spelled out. Franchises historically have been awarded on a regional basis to prevent suppliers from being over-distributed in a market. Here’s why: If multiple distributors are vying for the attention of the same customer, one of them might be tempted to cut price as an incentive to win that business. This hurts the supplier and the competing distributors. So suppliers limit their number of distributors by allowing some to sell parts in the Americas; others in the EU; and yet others in Asia-Pacific.
At the same time, a little competition is good: distributors try to differentiate themselves on the basis of service rather than price; or a customer might prefer a specialty distributor over a broadline. So suppliers franchise a number of partners in various regions.
Regional franchises also reflect the way business is conducted. Most global companies still have separate profit and loss (P&L) centers for the Americas, the EU, and Asia-Pacific. And in electronics, components are priced differently among regions. If they weren’t, suppliers would never attract new customers in Asia-Pacific because prices there have traditionally been lower than in the Americas. So suppliers establish a lower Asia-Pac price.
The problem is, global customers want a global supply chain. Under a regional structure, a company that buys an Intel part in North America from Distributor A may not be able to get the same part in Asia from the same distributor. It could buy Intel from Distributor B, but now the customer’s dealing with two, instead of one, distributors. This often adds cost and complexity for the customer.
So suppliers have increasingly been awarding global franchises. This enables distributors to service customers from design through production all over the world. These agreements were rare a decade ago, but have become more common as suppliers recognize customers want to source the same components in China as they do in the US.
So I incorrectly figured Mouser had a global franchise. Intel very likely gave Mouser the OK to sell its products anywhere in the world on a case-by-case basis—suppliers frequently do that. But now it’s official.
Global franchises are not without their problems. To work perfectly, a global franchise would also price components the same no matter what region they are sourced from. The industry is still far from that, although some suppliers have developed global pricing arrangements.
Global customers buying through distribution may have an easier time if their key lines are franchised globally. If they’re not, chances are distributors will work through the issue anyway. But that’s one more layer of complexity in an already complicated supply chain.
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