Perspectives on distribution

Distribution Today: Supply Chain Perspectives

In today's rapid time-to-market world, problems with the supply chain can cause major headaches. Distributors can play an important role in easing, or even preventing, these headaches. We asked three industry experts about some of the most pressing topics in distribution today: continuity of technical support, availability of online information, counterfeit components, and the effects of unforeseen natural disasters on the supply chain. Our contributors are: John Bowman, marketing director at Anglia Components; Markus Krieg, managing director of marketing at Rutronik Elektronische Bauelemente; and Geoff Breed, vice president of marketing for Europe at TTI.

Technical Support

Consolidation in the industry is making medium-sized distributors vanish while the big distributors are getting bigger. Many designers use distributors to take advantage of the advice and technical/design support available. Can a distributor with hundreds of lines to support and thousands of customers to deal with really expect to provide the same level of service if it keeps adding lines and customers?

John Bowman, Anglia: Yes, but only if they are willing to invest in their business. Great technical support means investing in great people to deliver it. This isn’t new, but it is something that is often being compromised in a penny-pinching pursuit of margin. For example, by having the FAE team interact with customers online or via the phone they can support more customers with less resource. Anglia has taken the opportunity to increase its FAE and sales resource as our business expands, doubling it over the last year. This means that our FAEs can interact using their customers’ preferred approach. Sometimes that’s online, but more often it means meeting face to face. This is still the only real way to build relationships, understand customers’ design challenges properly, and recommend solutions that really do fit.

Markus Krieg, Rutronik: Over the years, cost pressure has increased enormously on distribution as well as its customers and their development departments. This coincides with shorter time-to-market times. Support from distributors as manufacturer-independent partners is, in terms of technical expertise and comprehensive product, technological, and market knowledge, more in demand than ever before as a result. At the same time, component manufacturers are relying increasingly on distributors and their value-added services. Rutronik has structured its FAE department for different products and countries with regional application engineers, who can advise customers across all product segments, and specialist FAEs for individual application areas. The main objective for the customer is to improve its overall solution, and thus the optimal interactions of all components—an ideal starting point from which Rutronik can fully exploit its advantages as a broadliner.

Geoff Breed, TTI: It is highly unlikely that any distributor that offers a huge number of lines can offer personal technical support across every part, technology, or supplier. At TTI we focus on working closely with a limited number of leading industry brands in the passives, connectors, discretes, and electromechanical sectors and can therefore dedicate resources to being a demand creation distributor. Our competitors who sell semiconductors understandably put their efforts in that higher-priced component area. Because we don’t have these high-end silicon products on our linecard, we can focus on being a specialist in our chosen technologies, so we must be knowledgeable about passives, connectors, relays, switches, discretes, etc.

We should not forget that people and one-to-one communication are still invaluable, so we have highly experienced teams covering all European geographies and product sectors, and as we add new business activities we add more support there too.

We look to support customers with a range of value-added services, including connector assembly, logistics, special certification, etc. Small distributors are often unable to offer such programs due to funding issues. Conversely, large outfits with a vast product range may not see the value to their business. But for TTI it is all about reducing the cost of acquisition for the customer, so we are prepared to work with them to tailor programs to their needs.

“Communication and trust are the key to the success of a supply chain relationship,” says John Bowman, marketing director at Anglia Components.

 

Online Information

As design engineers’ roles expand, they are being asked to do more in less time and now need access to component prices, compliance information, and other data. The Internet is a perfect tool for this job, but how are distributors ensuring all the pertinent information is available easily and quickly to those who need it?

John Bowman, Anglia: Most online component sites are geared to the maintenance and repair market, which needs a device now and isn’t overly concerned with availability in the future. Nevertheless, design engineers often use them as a ready guide to the components available on the market, valuing the convenience of having components for the prototype shipped within a day or two. Until recently, there wasn’t a single supplier that would at the same time ship small quantities of a comprehensive range of components quickly, provide a reliable guide to long-term availability at that stage, and also support volume shipments of the components for the production phase of the project.

Anglia Live (www.anglia-live.com) is an electronic component site aimed at engineers designing for mass production. Customers are only offered parts recommended for new designs and are given full visibility of Anglia current and projected stock levels and any product change or termination notifications (PCN/PTN) issued by the supplier. The stock and pricing information on the Anglia Live Web site is truly live. Order a device and the stock level will reduce in real time. Anglia also provides information on future stock levels. Designers using parts from the site can generate a bill of materials that their purchasing department can source in volume with a single phone call.

Markus Krieg, Rutronik: Rutronik has developed its [email protected] e-commerce platform for this purpose. With the aid of intelligent search functions, developers are able to quickly and easily find the components they require from a database containing more than 1 million items. They can search using technical parameters, part numbers, or full text. Suggestions for alternative replacement items with a detailed list of deviating parameters are also helpful in the event of discontinued components or long delivery times. Existing PCNs are always visible on the product, and data sheets, application manuals, and product links provide quick access to all product information. Contact with personal product specialists is also possible directly via [email protected] Rutronik has recently also begun offering small and medium-sized companies an optimised version of the e-commerce platform (www.rutronik24.com), while in the TechForum community, developers can exchange ideas amongst themselves.

Geoff Breed, TTI: Our aim is to develop markets by designing in new components, so we have worked with many of our partner suppliers to create microsites that showcase the latest in product innovation. Our site www.ttieurope.com also hosts the MarketEye Research Center, TTI’s online vehicle for providing the most accurate and up-to-date market information. Within this site are free, component-specific articles and technical webcasts, plus in-depth research reports from industry experts available to purchase. Through our Web site, TTI also provides timely industry information, such as articles on industry/economic trends, RoHS updates, and raw material cost trends. However, we shouldn’t lose sight of the fact that in lots of cases you still can’t beat the human touch. The Internet can provide data but will not address a complex solution driven by multiple challenges. Therefore it is still vital to have experienced teams operating alongside the best available online tools.

Counterfeit Components

Despite increased awareness of the problems caused by counterfeiting, and the good advice available from many distributors on how to spot counterfeits and avoid them, counterfeits are still causing major headaches in the supply chain. Why is this still such a big issue, and what further action should be taken to help get rid of this problem for good?

“The transition between scarcity and excess production requires the earliest possible intervention to ensure a reliable, unbroken supply,” says Markus Krieg, managing director of marketing at Rutronik.

 

John Bowman, Anglia: Customers generally source on the grey market because they can’t get supply from their regular “white” market supplier. Often, the reason they end up in this position is a lack of communication and trust. Communication and trust are the key to the success of a supply chain relationship. Sharing of information needs to be two-way. Distributors need to supply accurate lead-time forecasts and timely warnings of obsolescence. Customers need to supply the most accurate sales data they have and timely warnings of design changes.

We have a great three-way agreement with manufacturer Wilson Process Systems (WPS) and digital thermometer maker ETI that allows WPS to place firm orders on a rolling schedule two weeks ahead. ETI provides us with a non-binding forecast of demand a year ahead, which allows us to place orders for long lead components, and WPS to manufacture the bare PCBs (printed-circuit boards). Though ETI ultimately underwrites the stock, they are only invoiced for the components that they actually use, which keeps the capital employed in finished goods to an absolute minimum. Effective communication between all three partners has meant that, in four years, we’ve never had to call on the underwriting commitment that ETI provides.

Using a model like this, it is possible to manage all but the most erratic demand within the “white” supply chain, eliminating the risks associated with the grey market. If customers must use grey sources, they should mitigate the risk to their products’ integrity by seeking assurances of provenance and functionality. They should also put components through a thorough quality assessment process, at the very least on a batch basis, before releasing them to production.

Markus Krieg, Rutronik: The market for electronic components is characterised by periodic fluctuations in demand. Counterfeits are primarily a problem in allocation periods when customers urgently require items and procure them from unreliable sources. The transition between scarcity and excess production therefore requires the earliest possible intervention in order to ensure a reliable, unbroken supply. This is where tailored integrated logistics systems from Rutronik come into their own. Forward planning enables it to react immediately to the impact of a shortage, such that customers hardly notice it at all or the effects are dramatically reduced. Rutronik is able to guarantee the reliable supply of its customers direct from franchise manufacturers, ensuring that products come from reliable sources even in allocation periods.

Geoff Breed, TTI: If you are faced with a line stop, it is very tempting to buy components on the grey market. Although there are some reputable traders out there, it is very simple: if you source components through the grey market, you are risking disaster. If you are lucky, you will spot the problem before assembly, or at least, before the product leaves your factory. If you are unlucky, you risk early product failure or potentially even a disaster like a fire on the PCB when a component that is not fit for the task fails catastrophically. The answer is to only acquire products from an authorised distributor, but the likelihood is that counterfeit products will continue to be a problem, as people look to destock, penny-pinch, or are let down by poor quality suppliers.

The situation is probably made worse today because it is so easy to find suppliers on the Internet. At TTI our commitment to our customers is that we will only ever buy directly from the component manufacturer. This guarantees that you will only ever receive genuine components.

“Although there are some reputable traders out there, it is very simple: if you source the components through the grey market, you are risking disaster,” says Geoff Breed, vice president of marketing at TTI.

 

Supply Chain Disasters

Several natural disasters in the last couple of years have highlighted how plans need to be in place for when the worst happens to the supply chain. As supply chain experts, are distributors able to help during disasters, perhaps by seeking second or third sources? What happens to pricing policies during disaster periods? What advice would you give to those facing supply chain difficulties like these?

John Bowman, Anglia: The reality is there will always be natural disasters that will impact our industry’s supply chain. A well-managed supply chain as described above, with a sensible “working” inventory, backed up with true FIFO buffer stocks at the supplier, provides the best possible platform to manage unforeseen disasters too.

Beyond this, some of the “invisible” services that distributors offer the supply chain come into their own. For example, if the distributor offers a working inventory model within their business, rather than back-to-back “in one day, out the next” shipments, this will have significant advantage to the customer in extreme circumstances. It is even better if this inventory is held locally and not reliant on air shipments from a European hub that can be grounded for many days on end. Pricing will always be subject to supply and demand scenarios. However, if the sensible supply chain management steps outlined above are formalized in an agreement between customer and distributor, then an attitude of “business as usual” should prevail.

For major disasters, even the best-managed supply chain will eventually be exhausted. Customers with an interrupted supply chain should first seek genuine product from alternative and second sources. Realistically in a short market, spot buyers will be charged premium prices, but at least they should be able to secure their immediate and short-term needs. The grey market is often used in these circumstances, but care should be taken to verify the components’ quality and provenance. Depending on the likely duration of the shortage, customers might then consider quick re-engineered solutions for the midterm. For the long term, they should put their own “insurance policy” measures in place within their supply chain management so they may cope better next time around.

Markus Krieg, Rutronik: Supply shortages occur in the conventional supply chain when the processes between supplier, manufacturer, and customer are uncoordinated and common decisions across corporate boundaries are not possible. Millions of different components with varied and sometimes extremely long and fluctuating delivery times cannot be managed in this way—or only at the price of a large buffer stock and with it a high capital commitment. The trend to seldom approve second and, even less often, third sources exacerbates this situation even further.

Modern logistics systems that are based on electronic data exchange ensure practically 100% reliability of supply, even in the event of supply shortages caused by natural disasters or for other reasons. At the same time, they optimise the ordering processes virtually automatically and reduce process costs while providing higher process quality. Rutronik is able to process a number of IT systems with different data formats for this purpose. Rutronik supports customers with less developed IT environments with suitable systems.

Rutronik has almost 40 years of experience in the development and implementation of logistics systems. Modules can be combined to form an individual system optimised to meet the specific needs of the customer. More than 40% of Rutronik’s total turnover is generated by logistics systems, including many globally implemented systems in a total of 24 countries.

Geoff Breed, TTI: Tragic events such as the tsunami in Japan and also the flooding in Thailand have caused massive challenges in the supply chain. The awareness of the necessity to put into practice a good and collaborative risk management strategy all through the supply chain has increased, and we are constantly looking at ways to improve.

At TTI we have always worked very closely with our suppliers and customers to build excellent and transparent working relationships so that we can cope with market fluctuations in demand, and this has meant that we are in a strong position to react in extreme situations such as the natural disasters mentioned. Firstly we hold broad and deep inventory stocks. Second, our inventory management systems help us to plan for contingencies. Third, we work closely with our customers to give them very early information concerning any unforeseen situations and look for ways to find alternative products early, before there is any likelihood of a line stop.

Natural disasters, and allocation due to product shortages in general, can also persuade some companies to panic buy. This is unhelpful as it exacerbates an already difficult situation as neither component manufacturers or distributors have any visibility of the true demand.

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