U.S. Manufacturing Index Inches up From 11-year Low
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Allied Electronics' Dan Stewart
The electronics companies most likely to be affected by Amazon.com/business -- catalog distributors -- are not particularly worried about the e-commerce giant’s foray into the b2b components market. Catalog distributors – and electronics distributors in general –have a number of attributes that provide them a competitive advantage in the high-tech industry.
“There are distinct complexities of our market that cannot be easily met by the Amazon model,” said Tamara Jurgenson, senior vice president for marketing at Newark element14. “There is significant value in the Newark element14 singular focus and multi-channel sales model that is unique and superbly navigates the complexities of the electronic component space. For example, we have processes in place to prevent counterfeit materials and the use of conflict minerals; we offer guaranteed same-day shipping; our value-added services include kitting, re-reeling, custom enclosures and much more. We’ve been able to shape our solutions and evolve our processes through an 80-year partnership with our customers and suppliers.”
Most electronics distributors are authorized (or franchised) by component suppliers which give distributors special privileges. Authorization passes manufacturer warrantees on to end-customers. It helps distributors manage price variations so they can compete with other component sources. Authorized distributors maintain a chain of custody so components can be traced back to the original supplier, which helps eliminate most of the risk associated with procuring counterfeit components. Authorized distributors can also return a certain level of inventory to suppliers if parts aren’t moving or begin to age.
Although distributors such as Newark element14 and Allied Electronics specialize in quick-turn low-volume/high-mix orders, they also provide services that Amazon.com/business is unlikely to match. “Component distributors have to carry various certifications or they can’t sell components into military or aerospace markets,” said Dan Stewart, vice president for marketing and e-commerce at Allied Electronics. “We also hold stock for our suppliers, which make us an extension of their supply chain.” Amazon.com does have some warehousing but will often ship products from a non-Amazon source. “[Authorized distribution] guarantees that parts are from a reliable source and will not cause a liability to the end customer,” Stewart said. “With Amazon.com you don’t know who you are buying from.”
Electronics distributors are expected to be experts in the devices they sell. Suppliers often provide training for their channel partners so they can assist customers in their product designs. “If you look at Allied, we have 45 sales offices and dedicated salespeople that know the electronics business very well,” Stewart said. “We have salespeople that have had relationships with our customers in excess of 20 years. With that level of experience, we can provide complete components solutions to our customers that help them get to market more quickly.”
There are distributors in the electronics market that are not authorized by suppliers. These independent distributors have more flexibly in price negotiation than their authorized brethren. One of Amazon’s chief advantages in any market it plays in are the economies of scale it can leverage by selling huge volumes and its de-emphasis on brick and mortar warehousing. But price is only one of many factors to consider in purchasing electronics, Jurgenson points out. “For those who may be wooed by Amazon’s offering, it is important to consider the benefits of going with an experienced component distributor like Newark element14. We have strong, established relationships with manufacturers and processes in place that minimize many of the risks that may come with purchasing through a non-authorized channel.”
Amazon is advertising “used” components on its site at a discount, although in the retail lexicon “used” can mean repaired, refurbished or just previously owned. “There are many risks regarding 'used' components,” said Jurgenson. “They may not be able to withstand the rigors of the intended application. They may be rendered obsolete soon after purchase. The benefits of going with an experienced component distributor like Newark element14 are numerous and include strong supplier relationships; processes in place to ensure the most up-to-date, high-quality products; and expert design and support services, among others.”
Still, Amazon.com is a price leader in most of the markets it competes in. Electronics component suppliers and their distributors are continually fighting margin erosion and it’s possible that Amazon.com could push component prices lower. Even though Amazon.com/business provides a storefront for component makers, it’s not in suppliers’ best interest to compete on price. Authorized distributors already compete with one another, Stewart points out. “Manufacturers are looking to reduce the number of distributors they carry to make sure their products don’t get commoditized,” he said. “Commoditization erodes margins for everyone.” It’s unlikely that component makers will authorize a reseller such as Amazon, he adds. “We haven’t seen manufacturers going in that direction.”
“Certainly the potential [for price erosion] exists, however customers care about more than just price,” said Jurgenson. “Throughout our history, we’ve listened to what component customers want and shaped our model accordingly with respect to price, purchase channels, services, etc. We’re confident in our ability to provide extraordinary value to customers, and will continue to do so as new competitors arise.”
Many of the services Amazon.com/business provides have been available through the electronics distribution industry for decades, Stewart adds. “They are providing options such as workflow management and e-procurement, and that’s stuff we have been doing for the last decade. There is nothing that Amazon.com/business is offering that we don’t already provide.”
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