How distribution has changed in 30 years
There's an old saying: Some things never change. In the electronics distribution industry, however, there's been so much change over the decades that even the concepts that have stayed the same are astonishingly different in size, degree of sophistication and method of delivery. Consider shelf sharing, for example. In the 1950s and '60s, connector suppliers ITT Cannon and Bendix were fierce competitors that were determined not to share distributors' shelves. In the 1980s and '90s, with the dawning of the era of globalization, it was Motorola that wouldn't tolerate sharing a distributor with its Japanese semiconductor rivals. Today the players have changed, but the topic of shelf sharing is still approached by distributors delicately, yet creatively.
For example, Avnet's semiconductor distribution specialist companies in Europe each carry a limited number of different lines and compete with one another for sales and design wins—therefore avoiding shelf-sharing but allowing Avnet, their parent company, distribution rights to the products of the top manufacturers.
The fact that distributors are still wrestling with such issues is a testament to their resilience, their versatility and their long-standing value to manufacturers and customers.
Thirty years ago, component manufacturers' sales forces, traditionally called on their top-tier customers—perhaps no more than 100 firms. Distributors, in contrast, were more egalitarian, serving large, small and growing firms—from garage startups to large concerns such as Hughes Aircraft. One of distribution's core services is stocking volume quantities of both leading-edge and standard products so they can be resold, or modified and resold, in smaller quantities to multiple customers.
And although variations on that core service have existed as long as anyone can remember, two significant trends—the introduction of powerful, network-capable computers and the advent of reliable overnight air delivery service—emerged along about 1980 to propel distribution from a "pick, pack and ship" business model to a key position in the electronics supply chain, offering a host of clearly un-distributor-like services.
Some of the leading component manufacturers in the 1970s and '80s required their distributors to stock full inventories near every major city they served. In those days, Avnet ran more than 100 warehousing facilities scattered around the United States to serve the connector, passive, semiconductor and computer markets. However, a semiconductor glut in the mid-1980s revealed the fatal flaws in the system: high overhead and inventory oversupply.
Avnet's then-president, Leon Machiz, made a radical decision: to centralize and automate with a megawarehouse in Peabody, Mass., which replaced all 100 of the stocking facilities and contained real-time transaction processing computers running homegrown logistics software. Four years later—as the Peabody facility hummed with a wide range of traditional and new value-added services such as connector assembly, bare chip processing, hybrid circuit fabrication, testing, packaging and kitting—Avnet built a second megawarehouse in Chandler, Ariz., to cover the West Coast. The call to centralize and automate had revolutionized the way distribution worked.
Component manufacturers recognized distributors for the critical role they played, not only in value-added services, sales, marketing and delivery of products but also in effective inventory management and all-around customer service. By the 1990s, distribution had become a highly strategic channel for technology products.
And that was good for distribution, because a couple of new trends—globalization and vendor base reductions—were bringing yet more opportunities for deeper entanglement with manufacturers and customers.
Manufacturers had been following their key customers around the world for a decade, and distributors were not far behind, aiming to serve both of those constituents in the far-flung reaches of the globe.
Industry consultants began to drill companies about their core competencies. If sales and marketing were what they did best, why have a gaggle of design engineers when those skills could be outsourced? Why waste manufacturing floor space on inventory storage when products could be delivered just in time to be taken to the work-in-process area? And why have valuable personnel tracking deliveries of entire bills of material when other companies specialize in supply chain management?
At the same time, manufacturers had been cutting back on the number of distribution partners and customers were reducing their vendor bases. After all, significant costs are associated with each relationship they enter. Their goals, then, became to reduce sales, general and administrative expenses; to get everything they needed from the fewest-possible strategic relationships; and to avoid snafus so they could get to market before their competition.
Distribution companies stepped up to the plate and provided the needed solutions. That's why it's not surprising today to find distributors that boast staffs of MBAs and EEs working with graduates of industrial distribution (ID) programs.
According to Dr. Barry Lawrence, Harvey Hubble professor in Industrial Distribution at Texas A&M and a member of the board of the National Electronic Distributors Association (NEDA), the ID curriculum—which dates back to 1956 at Lawrence's campus—was driven by an industry need for sales professionals who understood the technical properties of products, customer service and the basic business processes of distributors and their customers. Later, in the 1980s, distribution industry advocates approached universities and sought to blend engineering and business curricula to create this "sales engineer."
With the onset of "just in time" and "total quality management," it soon became evident that ID students needed logistics and information technology added to their skills as well. Texas A&M developed a curriculum that included classes such as distributor profitability, distribution logistics, supply chain information systems and manufacturer/distributor relationships.
Clearly, distribution has come a long way, from salesmen using black rotary-dial phones to sweeping advances in information technology that paved the way for companies such as SAP to provide multilingual, multicurrency WANs to streamline the order and delivery process. Still, it may seem somewhat strange to consider calling a distributor for FPGA design services or bill-of-materials optimization, but those are bona fide services provided by today's distributors.
These changes have also provided a catalyst for intense industry consolidation among distributors over the last 15 years. There were thousands of electronic component distributors in 1978; today, although there is still a respectable number of competitors, there is only a handful of global distributors that can serve the leading component suppliers and the original equipment manufacturers and contract manufacturers that have, over the years, variously located factories in Mexico, Europe, Eastern Europe and Asia, constantly seeking the lowest land, labor and capital costs.
Distributors have, through the decades, courageously taken on the challenges presented by their trading partners and have proudly grown with the electronics industry. Moreover, distributors have evolved into information technology gurus, logistics and solutions specialists and value-added service professionals, taking on risks alongside opportunities. So it's true: Some things, such as the tenacity of distributors, never change. And that's good for the electronics industry.
Beth Ely is vice president of global strategic account management for Avnet Electronics Marketing in Phoenix, Ariz. She started with Hallmark Electronics in 1982 and remained on when Avnet acquired it in 1991.