One message rang loud and clear: “There were a number of examples of companies that didn’t change with the market and they went out of business,” Chris Beeson, vice president for global sales & business at Digi-Key Corp. told the editors of EPS in an interview. “The question is, to what degree are we willing to make changes?”
Much of the drive for change has been coming from distributors and suppliers that maintain a number of legacy practices that no longer work. Two of those – design-win compensation and ship-from-stock-and-debit – were enacted before the channel faced global competition, the Internet, the dominance of contract manufacturing and an increasing demand for technical support. The cost for suppliers and distributors to serve their customers is increasing while profit margins continue to shrink. The channel is looking inward for solutions to these problems.
One constituency absent from the ECIA conference was customers. That’s not unusual— the ECIA is a trade association for suppliers, distributors and sales reps. OEMs and EMS companies have made presentations in the past but generally aren’t part of the public dialog. Competitiveness is one reason for this dynamic: suppliers, distributors and customers don’t like to share the nature and specifics of their relationships.
Another reason might be that such conversations are becoming more difficult. Recently, Arrow Electronics Inc. disengaged with a customer because Arrow wasn’t making a competitive profit on that business. Arrow is not alone in that situation. (See: Arrow Shows When to Drop a Customer).
One way the distribution channel is becoming more cost-effective is by moving purchasing and select support services online. Other businesses are doing this as well. Beeson shared a college-applications experience he had recently: “MIT told us to look at their online services for electrical engineering. You think about that analogy and how it relates to our industry and [you have to] ask if we are really comfortable with the transformation that’s occurring from a consumer standpoint?”
Distribution continues to walk a fine line between balancing the expectations of customers with the cost to service them. Online business is a classic example of this dilemma: sure, it’s less expensive, but do sites needs 24/7 assistance, FAEs and other types of customer support? “Is our model positioned to accommodate the needs of the future as it relates to the customer?” asked Beeson. “That’s really the dynamic that we are trying to get our heads around. What are the needs of the customer today and moving forward? If we can just stay with that we think our company will be fine.”
Digi-Key recently hosted an event recently in Munich that included suppliers and customers. “If you look at the industry in general there aren’t that many kind of venues anymore – a combination of the customer, the supplier and the distributor,” Beeson points out. “What we hope to have is that tri-party conversation about what we need to do to move forward.”
There’s no question that in the supply chain the customer is king. Suppliers and distributors have made significant changes in the interest of customer service: a practice known as “shelf-sharing” -- which limited what product lines a distributor could carry -- has been abolished. If you ask most distributors what their customers want, it can be summed up in three words (with a shout-out to Rob Rodin): “Free, perfect and now.” That hasn’t changed in 20 years.
If dynamic change in the supply chain is going to occur, customers have to be part of the conversation. And maybe they’ll have to shift a little bit, too.