The electronics distribution industry has evolved to the point that the old monikers used to differentiate companies no longer apply. Distributors that used to print phonebook-sized tomes of component specs now do the bulk of their business online. “Catalog” no longer describes distributors that specialize in low-volume high-mix component orders. Now, “independent,” which was used to describe distributors that sell components minus franchise agreements, is giving way to “hybrid” or “blended” distribution.
Last month Astute Electronics, a U.K.-based provider of electronic components and value added services, launched a franchised electromechanical division to complement its brokerage business. The division launched with six significant franchises: Amphenol, Airborn, Delphi, Fischer, Positronic and Quell. Gary Evans, who has many years of international sales and marketing experience at connector companies including Deutsch, ITT and Harwin, will head the division.
The term “independent distribution” used to be interchangeable with “broker.” Brokers in the electronics industry usually buy excess components at rock bottom prices and then resell them at a premium during periods of shortages. Brokers are able to make money on these transactions by reselling components at prices higher than suppliers or authorized distributors. These companies are frequently small, fly-by-night operations that set up shop online; order components and then disappear or change their name without paying vendors. They have also been known to sell counterfeit parts, partly because of shoddy quality control procedures and partly because they established relationships with counterfeiters. Recently, the U.S. government successfully prosecuted several individuals that created and operated distribution companies under the names MS Technologies, A-One Electronics, A-Best Technologies, ARRCORD Group, SMC Group and Smooth LLC.
Over the years, independents have tried to differentiate themselves from brokers by not gouging customers during times of shortages. Many independents have adopted stringent quality control practices; vet their suppliers; have applied for and received accreditation from standards agencies; and have invested in inspection equipment to examine incoming parts. The industry has also formed the trade association IDEA to set standards for independent distributors.
Slowly, some independents have established reputations as trusted suppliers. Smith & Associates has invested millions of dollars in its quality control operations – including a state-of-the-art test lab – and has stringent processes in place that test and inspect incoming and outgoing devices. The company has achieved global accreditation from the ISO and the CTI and has gained AS9120 (aerospace) certification. “The product going out the door is basically the same as the authorized distributors’,” co-founder Lee Ackerley told EPS earlier this year. “Our customers demand that every part has come from stable sources and has been tested. They no longer ask us where it comes from – they know it is excess from EMS or directly from component factories. Quality control is non-negotiable and we will not send our customers anything that could be a problem.”
Authorized distributors, which are franchised by suppliers, continue to object to independents, which are also referred to non-authorized distributors. Franchises put some strictures on distributors such as how much they can increase or decrease suppliers prices. Independents can often undercut the prices that authorized distributors offer. However, authorized distributors buy components directly from suppliers and pass on component warrantees to their customers—non-authorized companies cannot. Authorized distributors are carefully audited by suppliers; are trained in their technologies; and are considered a direct extension of their suppliers’ salesforce. Authorization greatly reduces the risk that counterfeit components enter the supply chain.
A Sea Change in the Channel
Within the past few years, component suppliers have begun to authorize independent distributors – a practice that was unheard-of a decade ago. Authorized distributors in the past had the unspoken policy of dropping supplier lines that franchised independents. Suppliers add distributors to expand their market reach and, in the case of independents, provide suppliers the flexibility to sell excess inventory. Although authorized distributors still object to independents, customers’ desire to buy more components through fewer partners may be one reason suppliers are authorizing independents.
Another reason is the seemingly impossible-to-solve issue of excess inventory. Suppliers don’t want to carry any finished goods, if possible: it impacts their bottom line. Distributors often hold inventory for both suppliers and customers in anticipation of upswings or downswings in demand. Some inventory not sold by distributors can be returned to suppliers, but distributors generally feel the amounts are not adequate. OEMs and EMS companies have increasingly built relationships with independents that get a share of the OEM/EMS “spend” in exchange for a dependable outlet for excess inventory. OEMs and EMS companies want to get rid of inventory for the same reason suppliers do—it doesn't look good on their books.
For their part, independents say authorizations provide an added level of legitimacy regarding their practices. Suppliers audit their distributors to make sure they have safe-handling and quality practices in place. America II Electronics was one of the first independents to be authorized by suppliers and refers to its business model as “blended.” “The basis of it provides the best of both worlds,” said Brain Ellison, president of America II Electronics, in an interview earlier this year. “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, which why we adopted blended. We have the ability to directly trace products for the customer, and the big thing is to support long-term business and to support that over time you have to have consistent supply.”
“Names such as Amphenol, Airborn and Delphi speak for themselves”, said Astute’s Evans in a press release. “They have been the preferred choice of our customers for many years, so it is an obvious benefit that we have formalized our relationship with these suppliers. Fischer is also well-known and offers products that feature innovative contact technology which are rugged yet space saving and have high environmental ratings. Positronic adds excellent power connectors plus a wide range of standard and custom devices for hi-rel applications.”
“We are also very excited about a new name - Quell – which offers unique EESEAL technology that addresses EMC issues both at the design stage and during final test,” Evans added. “Suppression is contained within the seal itself reducing size, and delivery is under seven days from concept, slashing TTM.” Astute Electronics has sales offices in the UK, the US and China. Astute is AS9120 accredited and has achieved Bronze Status in the SC21 program.
It is unlikely that non-authorized distribution will ever disappear. The battle between authorized and non-authorized channels has been raging on for decades. The emergence of “hybrid” or “blended” distribution is still relatively new. The practice of buying and selling components in the open market hasn’t changed, but companies that resell parts in that channel have.