Engineers enter supply chain - News - distributors to develop electronics products - Industry Overview

Electronic News, May 20, 2002 by Ed Sperling

Distributors are quietly shifting their business models to add more engineering expertise into up-front sales, a move they believe will help them create demand for vendors' products while slicing out logistics costs through automation on the back end.

What's driving these changes are the increasing complexity of electronics products coupled with a growing phobia among many distributors about getting stuck with inventory in a market beset by cyclical downturns. With margins already running extremely thin, it's also a way of pushing their various business units into more profitable areas such as sales and marketing and charging extra for those services.

"We are increasing our technical expertise in engineering for our inside sales team and applying that to our long-term goal of getting everything tied to an accelerated e-business model," says Andy Bryant, president of Avnet Electronics Marketing. "Our goal is automating the back end and increasing our expertise up front."

Bryant noted that in Avnet's RF and microwave division, 65 percent of the sales force holds engineering degrees. "We will upscale our sales force," he added.

If all goes as planned, that will create a huge gulf between catalog distributors, such as Digi-Key, which make a premium off warehousing and ready availability, and broad-line distributors such as Avnet, Arrow Electronics and Pioneer-Standard Electronics. The broad-line distributors are pushing expertise as a selling point as they try to move up the food chain, unbundling those services they believe they can sell at a premium while pushing inventory out the door as quickly as possible.

Mark Larson, president of DigiKey, says his company turns over inventory about twice a year. That compares to about four times every quarter for Avnet, and Bryant says his company ideally wants to see inventory turns of six to eight times per quarter.

It also moves Avnet and others increasingly into the space occupied by companies such as Memec, which has been making its living for years with demand-creation from a highly technical sales staff. Memec CEO David Ash worth says his sales staff is getting evenmore technical.

"There are a lot of people in broad-line distribution talking about this," Ashworth says. "But they have a poor track record in this area. For us, it's part of a 26-year trend. Products are infinitely more complex. We're constantly trying to invest at the front end and make the back end as efficient as possible. We have to invest in engineering people and design tools, and our training will only increase."

How this all shakes out is anyone's guess, but most players say the issues will only get more complicated as manufacturing shifts increasingly to places such as Asia and eastern Europe and distribution becomes an ever-more global business. As a result, distributors say they will be experimenting with a host of value-added services that can play in one or more geographies and add incremental revenues and higher profit margins to the bottom line.