Over the past two years, America II has evolved into what it calls a “blended distribution” model, combining the strategies of both franchised and independent distribution. The St. Petersburg, Fla.- based company started out 25 years ago as an independent distributor focusing on component shortages and now has more than 50 franchises as it works to develop a “deeper and broader” customer base and expand into new market segments.
But don’t call America II a blended or hybrid distributor anymore. The distributor’s global expansion into Europe, Japan and China, and more recently into Latin America, including Mexico, and India, combined with its franchised lines has changed the company’s go-to-market and business strategy. (See: America II: Evolving the ‘Blended’ Distribution Model and How America II Juggles Spot-Market & Scheduled Orders)
“We are not changing who we are. We are trying to grow and separate ourselves from the independent space, and blended distributor and hybrid model. We’re simply a global distributor,” said Brian Ellison, president of America II.
But America II’s move into the franchised world wasn’t a huge challenge because it already had key executives and sales folks with experience at franchised distributors and component manufacturers. The distributor also had about 200 direct lines – buying direct from factories, and well-developed supply chain programs. It also carried a huge inventory – four million parts in stock, which is something atypical of independent distributors.
“We have one of the world’s largest inventories and we were able to support lead-time products. An independent doesn’t talk about backlog, and we focused extensively on backlog and taking schedules and long-term business. It was just a natural evolution of the company,” said Ellison.
He also paid attention to the diversification of market leaders Avnet and Arrow in order to sustain profitability and meet the requirements of their customers, and realized that if America II remained unchanged it could find itself on the outside looking in.
“We always had supply chain programs in line with traditional franchised distributors - electronic data interchange (EDI), scheduled orders, buffered and bonded inventories and on-site inventory programs,” said Ellison.
But America II had to separate itself from the independent piece of the business to expand into new customers and new segments of the business that made most sense, he added.
A big part of that strategy centers on authorized distribution. Currently, the distributor has 53 franchised lines with several contracts in negotiation. This is up from about 24 franchised lines in late 2014.
America II selects component lines based on a “technology matrix” centered on the customer bases and segments it wants to expand into. The distributor reached out to its OEM customers to understand what types of commodities and technologies they think will be important to them. It also looked at market trends like the Internet of Things (IoT) in terms of component demand, where sensors, for example, are needed.
“That’s how we are pursuing the lines - based on having a wide breadth of technology offerings and trying to have two or three, at least, per technology, and filling the technology gaps,” said Ellison.
He also noted that America II is starting to gain the attention of some large component manufacturers because of its approach – looking at wider customer and market segments, filling the technology gaps, and having a good breadth of product offering.
How the Company Evolved
In 2013, America II started to make a concerted effort around developing its authorized distribution business and putting technical sales and supply chain resources in place. The company already had a few franchised lines, like many independent distributors, but it also had about 200 direct lines.
The challenge of shifting a company culture that had been around for 25 years wasn’t as great as Ellison thought it would be.
“I’ve been absolutely pleased by the way our team has taken to this because they see that it does provide a gateway into new customers and a way to get deeper and wider with them. We are all about long-term business with our customers so this is exactly what we needed,” he said.
One of the company’s biggest advantages was that Ellison, senior management, and the sales team came from the franchised distribution world or worked at component manufacturers or manufacturers’ reps.
“Because we all had experience in the past we only had to pull a team together to get us more centered on how to approach that piece of our business,” said Ellison. “It wasn’t a huge investment just realigning resources that we had internally.”
For the most part the senior field sales teams already had the tech and demand creation skills.
But America II developed an extensive training program for both inside and outside teams so they understood that they were no longer just selling a part number. There was now an associated sell together with the commodity-based line card. Along with the product training, sales folks were learning how to introduce new opportunities to buyers and engineers.
Some of America II’s franchised lines came from its direct line relationships. However, others joined the line card thanks to the sales teams’ relationships with component manufacturers and manufacturers’ reps as well as customer recommendations.
Ellison found that many customers who had to buy franchised lines were not being well supported by their existing distribution network, or if they were buying direct, the manufacturers didn’t want to hold inventory.
Some of America II’s biggest leads came from the Electronic Distribution Show (EDS) over the past two years and Electronica 2014, which is when America II made its big push into franchised distribution. The company is currently in contract negotiations with five component manufacturers with revenues of $500+ million, and recently inked a deal with a manufacturer in the industry for 40+ years.
“Many of those discussions started at Electronica. It takes a while to put the big deals together but that is what is starting to happen. There are a couple of manufacturers – under nondisclosure at this point – that are now approaching us to fill the gap in their distribution network,” said Ellison.
What Ellison has discovered during this transition is that smaller component manufacturers – in the $30 million to $50 million range – aren’t getting the attention they would like on the line card of a larger, multi-billion dollar distributor. While larger component manufacturers – tier ones in the $500+ million range – get attention from their larger franchised partners, it’s typically for a certain commodity.
“They are usually very commodity-driven products but these manufacturers have other technology offerings that they’ve invested money in and want to have print positon. They have the name brand but they don’t get the attention they need on those types of products or into the customer bases,” said Ellison.
“Our focus is on the second- and third-tier marketplace and many of those larger component manufacturers don’t get the attention within that customer base. That is key to the fact that we’re able to be picky now about the lines, and I didn’t think that would be the case,” he added.
“There are some good component manufacturers out there that customers are more willing to look at particularly in the second- and third-tier customer base,” said Ellison.
The franchised piece of the business has “become a part of the culture, our growth and expectation now so we continue to look out beyond that – what is the next thing,” said Ellison.
The distributor is currently looking into new component areas including displays and CPUs. It currently has several display lines and has hired folks in Asia with expertise in the CPU arena.
While America II does “quite well” in the industrial and telecommunications segments, the distributor also is looking to expand more into medical and automotive segments that require franchised lines in order to participate in their business. Other key expansion areas include metering and lighting.