By Christopher R. DeNisco
Many changes have occurred in the electronics industry over the past decade but none appears to be as fundamental as the relationship between original equipment manufacturers (OEMs) and electronics contract manufacturers (CMs) and franchised and open-market distributors. These dramatically altered roles have forced many OEMs and CMs to reconsider their business practices and ask anew what they should expect from distributors.
Electronic component distributors come in all sizes —from giant, franchised conglomerates to small, broker, non-franchised companies that barely register a blip on industry radar screens. Most are still bricks-and-mortar companies but others are now entirely Internet-based. Nearly all of them offer a growing menu of value-added services that include providing input into product design, warehousing, just-in-time shipping and in-house brokering.
The trend today in which distributors assume many vital supply chain functions and responsibilities has necessitated a trade-off between competition and convenience. As a result, OEMs and CMs are limiting the number of providers they regularly deal with, often choosing to rely on just one franchised distributor and one open-market distributor. This means that although they are confining themselves to fewer providers, they will benefit in the long run because their steady business results in a higher customer profile, volume discounts and more specific value-added services.
Consolidation in the industry has led to fewer very large distributors, which are being called upon to deliver a greater number of services than ever before. Today's distributors can perform functions that begin at the design stage and continue through warehousing, shipping and final assembly. OEMs and CMs can now demand that their distributors be true partners, committed to reducing overhead costs up and down the supply chain. To accomplish this, distributors must possess three indispensable qualities: competence, trustworthiness and knowledge of the market.
Competence
Competence implies reliability. A reliable distributor makes sure that its sales representatives are accessible by telephone 24 hours a day, seven days a week. Surprisingly, many individuals from both sides prefer information to be disseminated and business to be transacted exclusively on the Internet or by e-mail. This misguided policy renders it virtually impossible to develop personal relationships between buyers and sellers, making it harder to work through the inevitable problems, both big and small, that arise in the course of business. In the long run, companies that frown upon buyers and sellers maintaining close ties cost themselves time and money.
A friend and business colleague once said that if the telephone were invented after the advent of e-mail, it would be hailed as a marvelous communications breakthrough. Imagine not having to type out a message and wait for a reply! Compared to e-mail, the telephone is almost magical. Just speak into it and the other party answers instantly. E-mail is a wonderful tool but it should not be used to build a wall that inhibits human interaction. Communicating with a distributor sales representative should be as simple as dialing the number of a phone or pager, anytime or anywhere.
Of course, this is only possible if there are no layers of bureaucracy between the customer and the representative. Under no circumstances should a salesman ever tell a customer, "That is not my department." All problems should be resolved quickly and without inconvenience to the customer. The most important value-added component that a distributor can offer is capable and personalized customer service.
Trustworthiness
Trustworthiness means that the distributor stands behind the product. Because there are millions of counterfeit or intentionally mislabeled components in the market, an open-market distributor must have the experience and quality control to ensure that these components do not end up on its customer's assembly line. To accomplish this, an open-market distributor must know its sources, even if it means regularly traveling around the world to inspect a supplier's facilities and meet eye-to-eye with its principals.
Market Knowledge
Knowledge of the market is the rarest of assets because it cannot be completely distilled into facts and compiled into a database. It takes six to seven years to train and develop an experienced and thoroughly knowledgeable sales representative. For representatives to be truly helpful to OEM and CM customers, they must have experienced the various cycles comprising the ebb and flow of the electronic components industry.
For some time now, the industry has been in an allocated market. When demand exceeds supply, sales representatives need unique skills to competently procure parts for customers in a timely fashion at the best possible price. When the current market shifts into an oversupply cycle — as it ultimately will — an entirely new skill set will be required. Only veterans who have experienced both cycles can acquire the knowledge necessary to keep their customers supplied with vital components in either market.
Internet Impact
There is no question of the Internet's impact on the industry. Today, all distributors offer customers various services and information online. Franchised distributors now have the means to provide detailed parts lists and descriptions on their Web sites. Customers can select and order parts with just a few mouse clicks. Indeed, e-commerce is the wave of the future, but OEMs and CMs should avoid distributors that have completely forsaken the human factor in favor of technology.
The Internet is an effective tool for widely dispensing general information — but it fails as a provider of customer service. In the electronics world, many complex factors often determine parts orders. Merely studying a parts list online does not usually provide adequate information. Often, there are reasons not to use a certain part for a particular application — facts that may be known to a competent sales representative but cannot be ascertained otherwise.
Conclusion
Because of the complexities of the industry today, it can take months or even years to disengage a relationship. So before entering into one with a distributor, OEMs and CMs must be sure of the distributor's integrity and adherence to the aforementioned qualities of competence, trustworthiness and market knowledge. Without an old-fashioned devotion to personalized customer service from experienced professionals, no distributor, no matter its avid adaptation of cutting-edge Internet applications, can provide OEMs and CMs with the level of service they need and deserve.
CHRISTOPHER R. DeNISCO is CEO, SND Electronics Inc., 77 South Water St., Greenwich, CT 06830; (203) 532-1212; Fax: (203) 532-1382; Web site: www.snd.com.
