In 1989, Michael Galinski founded America II Electronics Inc. with the intent of building a successful IC distribution company. Today, America II is one of the largest independent distributors of electronic components in the world.
Now in its 25th year of business, America II has expanded globally and has consistently ranked as one of the top distributors in its market. It hasn’t always been easy – independent (or non- authorized) distributors have faced an uphill battle in establishing themselves as trustworthy sources of supply. America II’s President Brian Ellison spoke with Electronics Purchasing Strategies about how America II has faced criticism from segments of the industry and has addressed concerns regarding quality, counterfeit components and customer service.
The St. Petersburg, Fla. - based distributor began expanding in 1994 with the establishment of America II Europe Ltd. in the UK before opening the America II Japan office in Yokohama in 2000. That same year, America II achieved its first $300 million year. It has since expanded into Mexico, Belgium and Germany.
In 2003, America II opened operations in Singapore and started representation in China and Israel; in 2004 it added representation in Italy. Fully operational offices were established in Singapore in 2004 and China in 2011.
The America II distribution facility stands at more than 420,000 square feet and stocks 4 billion components. America II has been ISO 9002-certified since 1994 and carries ANSI/ESD S20.20 certification. In 2003, America II was certified to the ISO 9001:2000 standard. Ellison said these efforts are only part of a bigger picture.
EPS: Let’s get the tough question out of the way first. The perception in the industry is that independent distributors are the primary source of counterfeit components in the electronics supply chain. Can you address those concerns?
Ellison: I don’t know if that is the standard perception, but there are customers not familiar with our business segment that believe that. I like meeting those customers because it becomes an educational process. If you look at America II, we have been in business 25 years and we are doing business with 10,000 customers globally. The perception is becoming that China is the problem – that is the direction everyone is going in – and many customers believe we facilitate [the problem].
We do get that question [from customers]: The one thing we throw out at them is the 2010 survey done by the U.S. Department of Commerce that found 21 percent of original component manufacturers (OCMs) affected by counterfeits traced them back to authorized distribution. The problem went back to return policies in the distribution channel. It also found something like 47 percent of distributors procure parts from independent distributors.
EPS: So how do you manage [counterfeit prevention]?
Ellison: It starts with us controlling the supply chain and who we buy from. We have a stringent vendor qualification process and we classify vendors based on risk. We spend time with them and make it clear we expect our supply chain to have the same expectations our customers place on us. We have disqualified 4,000 vendors — it is a two-way street [with our suppliers] regarding quality control.
We have also adopted the IDEA 1010 inspection process; we have 59 ICE certified inspectors; we have component engineers on staff; an in-house testing facility and we reach out to the market to share this wealth of knowledge. We host OEM and EMS customers [at America II] and teach them how to incorporate the [inspection] process.
The other thing we have is a lot of transparency with our customers. We have an open door policy with auditing – our facility averages 40 to 50 audits per year.
We also offer a 10-year guarantee of our products. If there is a product that we sold in the last 10 years and it does not perform to the manufacturer’s expectations we will take it back and pay for repair and replacement or refund the value of that product. The industry standard [for most products] is two years.
It goes back to our blended distribution model of authorized direct and traceable products. We carry those manufacturers that will support their products. Outside of that – if we don’t have a relationship with the manufacturer --- we have failure analysis on site so we know why a product failed.
EPS: Explain to our readers the hybrid model, and how the benefits of authorization spill over into the rest of your business?
Ellison: We use what we call “blended distribution.” The basis of it provides the best of both worlds. For the customer it represents both authorized and independent distribution; our original charter in life was to support shortages but you can’t build a deep and broad customer base just doing that. That’s why we adopted blended. We have the ability to directly trace products for the customer, and the big thing is to be able to support long-term business. To support that over time, you have to have consistent supply. We have $1 billion of inventory but you still need a consistent source of supply.
We may start out with a customer by helping them out of a [shortage] spot, but having authorized lines helps us enter into long term support agreements.
We have 21 authorized distribution agreements and three pending in legal and we are approaching a total of 200 lines in which we don’t have franchise agreements but we buy directly from [OCM] factories. A lot of companies may not reveal where they buy from, but our customers want stocking packages and stock rotations so we do that with our [authorized] lines. We also provide POS information back to our suppliers: that is part of the deal. We started out [buying from factories] and there are some [relationships] under NDA, but we start out with them and over time they offer us an opportunity to take on franchise agreements. It is an education process with them and in many cases where that starts is they get a lot of excess inventory. Component guys don’t want to stock so we are the arm to move that product out into the market safely.
EPS: In addition to these efforts, what other measures has America II taken regarding anti-counterfeiting and quality control?
Ellison: One of the first things is to talk about traceability – the ability to trace the CofC [certificate of conformance/compliance] back to the OCM. With many of our suppliers we can, but that isn’t always possible. What we do when buying from those guys is push the IDEA Standard 1010. Do they follow the procedure and process of the 1010 or are starting the process? It is a standard you can purchase and we are offering that to our vendors and encourage them to adopt corrective actions. We are quite insistent that they adopt that process and if they don’t it indicates they don’t care that much about their sources of supply. We ask “what are your inspection processes; what types of equipment are you using;” we ask for model numbers and pictures. We have people in each of the major [geographic] regions and if we want to engage at higher level we go visit them.
In the second part of the interview, Ellison discusses how America II manages customers’ needs in the spot market as well as long-term supply chain relationships.