Obsolescence Insurance, a New High-Margin Business for EMS Companies
by 
Rutronik's Jeff Shafer
The announcement is vaguely reminiscent of the 1990s: A successful distributor in its domestic market is duplicating its model overseas. This time, however, it’s a European company establishing itself in the U.S. Rutronik Elektronische Bauelemente GmbH, founded in 1973 in Ispringen, Germany, has opened its U.S. headquarters in Cleveland, Ohio. (See facts and figures, below.) Its Vice President for North America is Jeff Shafer, whose previous employment includes Digi-Key Corp.
U.S.-based distributors have far from abandoned their home market, but their focus has shifted in recent years toward Asia-Pacific where customers and suppliers have been flocking to take advantage of low wages. The U.S. is still the electronics industry’s center of design, which is the reason Rutronik has chosen the U.S. for its latest venture.
“There was no actual date and time slated for opening in the U.S.,” said Shafer during an interview. “But we felt business was on the upswing and that distribution was changing and becoming more logistics and less design oriented. A design-oriented distributor can expand its account base through EEs and Rutronik has a strong background in design which has been a proven success in the EU and Asia. We’ve been talking to our suppliers on the design side and with their investment in R&D and the fact that sales reps have had a hard time reaching engineers, they were looking for people that perform to their objectives.”
Boutique distributors that focus on a limited number of products are not unheard of in the U.S. — the VEBA Group, also out of Germany, had compiled a number of small design-oriented businesses into a global organization in the late 1990s. But customers were looking to consolidate their spending with fewer partners and were moving their volume spending to broadlines. VEBA was eventually sold and its divisions were parceled out among leading global distributors Arrow Electronics Inc. and Avnet Inc.
The VEBA companies were always highly profitable, though, and in some regions of the world Avnet retained the boutique model. One of those regions is Germany. “We are strong in semiconductors, wireless, IP&E and embedded and the automotive market is about 45 percent of our overall business; headquartered where BMW, Audi & Mercedes are located,” Shafer said. "We also play in medical, industrial and home appliance and lighting, and we are now the third largest distributor in Europe and the 10th worldwide. The company has been owned privately and continues with a philosophy committed to excellence,” Shafer added. “We’ve garnered support in all corners of Europe and in Asia.”
Most leading U.S. distributors, including Arrow and Avnet, have staked out design engineering as their key to growth. Rutronik believes it can be competitive. “We’ve seen inconsistencies in these strategies,” Shafer said, “and the question is, can they be sustained? Things occur one year and a year later they change. Because of this inconsistency the supplier sits back and says ‘OK, but will momentum be gained? Can I justify continuing [with this distributor]?’ When things get a little gray or cloudy the consistency doesn’t occur on a regular basis.”
The design business has better margins than the volume business, Shafer acknowledges; thus the focus on engineers. While leading distributors such as Digi-Key and Mouser reach many engineers online, Rutronik thinks customers need more. “Engineers still need and want new technologies and they still want someone they can call locally with a brick and mortar facility that can support the customer base,” Shafer said. “A lot of distributors have gotten away from product management and we feel this is important. We develop relationships with reps and they, in turn, will support us with their expertise and special pricing.”
Rutronik opened its office in Cleveland in late April and will look to expand into Dallas, San Jose, Boston and Toronto. Rutronik has already been supporting Mexico out of an office near Mexico City. “That office has grown very fast, and we’ve changed it into full-fledged sales site and have hired field sales engineers. Now, our first venture into U.S. and Canada is occurring,” Shafer said. Rutronik has had a number of customers that have wanted to award the distributor global contracts, but the U.S. segment of the market was missing. “Our [current] success has been because of those relationships, and people [in the Americas] will find out about us because the success is already there," said Shafer.
“Our strength has been in Europe and we have been able to follow our customers into Asia, so I guess the question about North America is ‘Why not now?’” Shafer concluded.
Rutronik Inc. - Data and Facts
Type of company: Franchise distributor
Founded: 2015
Headquarters: Cleveland, Ohio
Management: Paul Scholten, President
Jeff Shafer, Vice President
With its headquarters/sales office in Cleveland, Ohio, and with future expansion planned in key markets throughout the US, Canada and Mexico, Rutronik Inc. is positioned to serve the North American market. The company operates independently and flexibly within the global Rutronik Group.
Holding company: Rutronik Elektronische Bauelemente GmbH
Founded: 1973
Headquarters: Ispringen, Germany
Warehouse locations: Eisingen, Germany Hong Kong
Worldwide presence: Represented in more than 30 countries: Austria, Belgium, Bulgaria, China, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great Britain, Hungary, Ireland, Italy, Lithuania, Mexico, Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Sweden, Switzerland, Slovakia, Slovenia, Spain, Taiwan, Thailand, Turkey, USA
Management: Helmut Rudel (President)
Thomas Rudel (CEO & Managing Director Sales)
Markus Krieg (Managing Director Marketing)
Alexander Schröer (Managing Director Finance & Accounting)
Joachim Kaiser (Managing Director Logistics)
Marco Nabinger (Managing Director IT/Organization)
Employees: more than 1,300
Sales 2014: 740 Mio Euro
Product and services portfolio:
The Rutronik services portfolio is divided into four areas: Consult, Components, Logistics and Support.
Consult worldwide – Technical support by product and applications specialists The focus is on the personal advice and support of customers in the development phase of an end product, with solutions from a range of manufacturers. Therefore, Rutronik makes its technical expertise available not only in terms of the product, but on the applications level as well.
Components worldwide – Product range and manufacturers Rutronik offers semiconductors, passive and electromechanical components, wireless products, displays & embedded boards and storage technologies. The company is an official franchise partner of leading manufacturers with first-class product and market know-how.
Logistics worldwide – Commercial logistics and optimal flow of goods The Rutronik logistics modules simplify and speed up the procurement processes and thus avoid redundant procedures in the flow of goods. This reduces procurement costs and liberates tremendous cost potential. The modular logistics system is tailor-made to meet the customer's requirement.
Support worldwide – Transfer of information and knowledge Together with manufacturers, Rutronik holds specialised seminars and workshops for customers, in order to guarantee an optimum transfer of knowledge and keep customers up-to-date in terms of technical and market-specific issues. The Rutronik24 eCommerce platform www.rutronik24.com allows customers to access the three main sections Online Catalogue, Procurement and Product Change Notifications (PCNs) with a single login.
Related posts
