By Mel Smith
Creating strategic relationships within a distribution network is becoming more valuable as businesses move into the new millennium. With the emphasis on cost reduction coming from value-added services, electronic commerce and transactional process reduction, distribution is playing a more significant role in the procurement cycle.
Three Key Factors
Looking ahead, it appears that three major factors will affect businesses over the next five years.
- Globalization. Through consolidation of current vendor bases with major customers and expansion into the global market, it becomes necessary to support all divisions, not just those in the United States.
- Strategic alliances. Businesses need to form alliances or long-term commitments both on the supplier and customer sides. This emphasizes to the customer base that they are in it for the long run.
- Supply-chain integration. The capability of trading documents electronically, and integrating and transmitting that data through a system rather than through faxes and paper exchanges, is increasing in necessity because it reduces cost.
At the conceptual stage, engineering staffs begin the process of qualifying and designing components using technology and data from materials presented to them via sales staffs, literature, engineering applications and product specifications. Distribution can play a major part at the design stage to prevent the design and approval of single-sourced components. For example, by having complementary franchises in all commodities, a distributor can provide a dual source for component requirements during the initial approved vendor list (AVL) qualification process.
Once the design phase is complete, inventory profiling becomes critical to the ability to get product into the market cycle as quickly as possible, while keeping the supply chain pipelined to meet production requirements. Life cycles on most newer technology products are extremely short, so selection of distribution partners becomes significant.
Key Tools and Capabilities
Just-in-time (JIT)/auto-replenishment tools/backroom processes are essential. Distributors need to be able to control internal costs in their own computer systems and legacy data, and not tell customers they have an integrated system if they actually use all manual, backroom processes. Internal material allocation processes and logic prioritization are also important. Computer systems can allocate or control material different ways when it is received into a distribution system. Therefore, it is critical that distributors validate materials allocation to their strategic alliances, maintaining strict priorities for materials.
 Kent Electronics' distribution center for interconnection and passive component products in Sugarland, Texas. |
"E-commerce capabilities" should not be used as simply a catchy phrase. Electronic data interchange (EDI), Web-based tools, file transfer protocol (FTP) capabilities and extranet functionality for customer access make up a technology package, or set of tools, that distributors need to have available to them when dealing with multitier customers operating at different levels of technology.
Financial stability to support inventory requirements is too often a problem that can be easily avoided. In the supply chain, distributors must be able to finance and support programs that reliably provide inventory and ensure that suppliers are paid in a timely manner.
Line card coverage and strategic relationships with select suppliers are vital in order to maintain awareness of vendor capacities and product market status and keep abreast of trends, which all keep the supply chain linked. Similarly, procurement philosophies and internal legacy system capabilities are drivers in their own way. With distributors having purchasing systems telling them how much to buy by repetition and inventory levels, it is clear that the part-by-part philosophy is outdated. Strong technology systems must be put in place.
Several other important factors can be viewed as a group. Corporate marketing and asset management staff/qualification are key. From inventory profiling to market cost analysis, they help tie together supply relationships. Field staff and management stability at the local level are what support daily business operations. Without stability, genuine relationships cannot be created or maintained.
Rounding out the tools and capabilities to look for are transportation logistics processes and relationships (JIT consolidated shipments, etc.), which must be global; warehousing sophistication (i.e., moving product in and out of facilities based on technology, not on people); and value-added capabilities, such as performing in-house modifications prior to shipment of finished goods to customers.
E-commerce Transactions
All of these factors are important in the selection process, but some other parameters are technology-based solutions that improve and streamline current business practices. Profiling and delivery of material in time to meet production requirements does not complete the procurement process. There are other factors, such as providing weekly or monthly statements for invoicing purposes. This reduces the number of transactions from the accounts payable side of the business. Going a step further includes the ability to submit EDI invoices (an 810 Transaction), and receive payments utilizing electronic funds transfers. These e-commerce transactions can dramatically reduce paperwork and potential errors created by human intervention.
Conclusion
The distribution network will continue to become a more integral part of the supply-chain and e-procurement processes because of its specialization in logistics and services, which ultimately reduce overall costs in today's economy. What is the bottom line? Distributors specializing in interconnect, passive and electromechanical products are becoming increasingly important to the chain.
MEL SMITH is Director of Strategic Accounts, Kent Electronics Corp., which is comprised of Kent Components and Kent Datacomm, 7433 Harwin Dr., Houston, TX 77036; (713) 954-8473; Fax: (713) 975-3615; Web site: www.kentelec.com.
