Component distributors deeply integrated into the design chain

From the perspective of the global distribution market, Avnet and Arrow ranked first and second, respectively. The two giants have been aggressively acquiring other companies in North America in recent years, and continue to look for opportunities to acquire mergers and acquisitions to strengthen control over the distribution industry. At the same time, they have also carried out a wide range of business in the technology solution market for component distribution, involving the provision of terminal equipment technology and consulting solutions, serving the high-tech, industrial and manufacturing markets, and expanding the business by diversifying into related technology fields. Change.

The third-largest WPG has formed a strong competition between the two. The rapid growth of the Taiwanese background distributor is an important chapter in the story of the current distribution industry. The rapid growth of China's economy and its growing position in the electronics manufacturing sector have driven WPG's sales to increase rapidly. UDA dominates the distribution market for conventional components in Asia, but it also guards against large companies such as Avnet, Arrow and Futurerich, which are also actively expanding their businesses in Asia.

Competition is presenting a global trend and the focus of competition has shifted to combining conventional distribution services with value-added design and engineering services to differentiate their products and services.

According to EBN/EE Times survey data, the overall performance of the global distribution market in 2010 was a sharp rebound after the decline in 2009. In 2010, the electronic components distribution market grew by 31% from US$52.4 billion in 2009 to US$68.6 billion. The "International Electronics Business" survey also showed that China's regional market performance is higher than the global average, with a growth rate of 38%. This has also enabled international distributors, including Future Electronics and Premier Farnell, to accelerate their investment in the Asian market and gain rapid growth.

In addition, the largest number of distributors has become larger and larger, accounting for a large proportion of the overall operating income of the global distribution industry. This strong sales position, combined with the expanding service scope of these giants, means that the largest distributors will continue to determine the direction of the distribution market in the near future.

There are two fairly reliable forecasts for the global distribution market. First, more and more small and medium-sized distributors will disappear in the future rankings, eventually being annexed or squeezed out by large and expanding distributors. The acquisitions of Arrow Electronics and Avnet in the past two years are particularly eye-catching.

The second forecast may be surprising, and the fast-growing global distributor, the United Group of Companies, will probably become the world's largest distributor of electronic components within two years.

The involvement of distributors in the design chain The role of design services for distributors can only be enhanced by two major factors. First, these services are required by both suppliers and customers. Second, the engineering resources of suppliers and OEMs are continuously decreasing.

From the point of view of all parties in the supply chain, suppliers find themselves lacking engineering resources and have been encouraging customers to seek design assistance from the network or channel partners. Distributors are particularly happy to undertake this work, although hiring engineers will increase costs. The customers now let the parties compete for the game, resulting in a large number of engineering resources and talent flow to the channel.

"One of the major changes we see is that customers need a complete design solution," said Ed Smith, president of Avnet Electronics. "If they come to us for FPGAs, they will need other devices that fit the FPGA." ”

“Customers are outsourcing more design work.” Lindsley Ruth, vice president of Future Electronics, also stated that “any company can provide component-level design, but customers also want someone to be able to provide design services that are higher than the component level.”

In many ways, this trend is good for distributors. Distributors go deeper into customers and expand the number of products they sell. If the project goes overseas, they can also understand more about the production of end products. Smith pointed out: "Solutions have become more popular and customers can take advantage of Avnet-developed reference designs, come up with product schematics, and order materials."

However, as distributors go deeper into customer design activities, will suppliers be separated from OEM engineering needs and market trends? Executives said that, in fact, suppliers, distributors and customers must be closer than ever.

Less investment, more work indeed, suppliers are part of the drive for deeper distribution design. With the reduction of engineering resources, component suppliers are focusing on supporting only their largest customers.

"Many suppliers don't have the resources to support a growing customer base. They rely on us to do this for them." Peter Kong, president of Arrow Global Components, Arrow's division, said, "In return, they provide us with product information, Apply knowledge, training and use of other resources. Excellent suppliers have the best distribution channel plans and are able to recognize and balance the capabilities of distributors."

Wide-line suppliers, such as the former Motorola Semiconductor, have been split into small professional companies in recent years and are no longer the one-stop shop for various semiconductor products. Customers can now choose among the best component technologies, but there are more suppliers to choose from. These chip vendors' authorized distributors screen products to help customers determine the best choice for their application.

"Information is on the Internet and it is overwhelming. But there must be an unbiased person who can pick the information and provide the best solution at a cost-effective price," said Futhur of Fortune.

Of course, all these engineering assistances come at a price: Distribution is first of all a sales-driven business model. Highly-paid engineers are the fixed costs in these organizations and must be used by distributors in the most lucrative service areas. Distributors therefore differentiate their design services based on a clear customer base.

"Are's goal is to provide services that meet the needs of our customers. We invest accordingly to achieve this value proposition." Kong said, "Our large customers do not usually require design support, but they need complex supply chain solutions. It may also include programming, end-of-life services, and reverse logistics. Our Arrow Alliance model fits well with this.”

Distributors can spread the cost of hiring engineers to tens of thousands of customers. “Mid-sized 30,000 customers require full service and local support, and our field engineers (FAE) and a large global network provide support to these customers. Arrow also provides excellent services to small and medium-sized customers, including Internet capabilities, rich The inventory and appropriate support.” Kong said, “Our suppliers appreciate this approach because we can bring their technology to market at all customer levels and help them determine the best prospects for their latest technology. ”

In the distribution industry, engineering resources have shifted from a model that focuses primarily on suppliers to a technology-focused model. In the former model, a field engineer specializes in serving suppliers, such as Texas Instruments or Infineon. Field engineers are now experts in simulation or FPGA and other special fields, which are developed by distribution companies and suppliers.

For example, Arrow and Avnet hosted a global training program for several days, including suppliers and customers. Smith said that Avnet's X-fest, Speedway, and On-ramp programs are all hands-on intensive training courses.

Arrow also conducts its Arrowfest training courses in cities around the world. Kong said: “We have established a very close collaboration with our suppliers to provide solutions to our customers. We can help at all stages of customer design, from the launch of new products to the end of product life.”

On-demand technical expertise Customers also rely on distributors to provide support in emerging or specialized markets such as solid-state lighting. Futures and other distributors have established separate business units dedicated to the lighting business, and hired engineers to receive training in heat dissipation, optics, and other topics related to LED design. “In terms of lighting, we are talking about the transition from the electrical field to electronics.” Lindsley Ruth of Futures said, “The market needs to support a wide range of customers, including from industry to medical, defense and aviation.”

“In the past, as long as the component design knowledge, but now you need optical knowledge of the lens.” Avnet's Smith said, "Designing a lighting system requires a lot of technology. The lighting market has formed its own expert group - heat, insulation, electrical and electronic Machinery is all about designing a system."

At the same time, the high demand for systems that include touch screens and panels is stimulating the market for analog design services. "We are seeing more and more interfaces using touchscreen-human interfaces," said Smith. "In many of the designs we are developing, analog technology is the focus. Not only from suppliers such as Atmel and Freescale Now that we have ARM, we must look at how you sell ARM. We start with technology and then we look at the chip and add the advantages and features of the product that end customers need.”

As for the vertical market, Smith said that he saw design requirements from the military field. “This area is pursuing miniaturization so that soldiers can carry more equipment. In the past, soldiers usually carry backpacks and now carry laptops. Night vision technology and blocking radio signals must be miniaturized. We are Make the design smaller and more reliable."

The increase in investment in design and engineering talents is not limited to semiconductors. For instance, TTI has always provided technical assistance according to customer needs and strengthened corresponding interconnection equipment, passive devices and electromechanical device (IP&E) projects.

“The first thing we did was change the type of sales people we recruited,” said Michael Knight, TTI's vice president of product management at the company. “We are looking for salespeople with stronger technical background, including talents with engineering degrees. ”

“The second thing we started with was that where there was traditionally a need for field engineers, there are now many internal application engineer teams who are on call. If the salesperson needs to help the customer design more deeply, they can Contact the engineer on the phone or on the Internet, an on-demand field engineer."

In fact, because there is no design assistance to meet all needs, distributors offer a variety of options to provide services on demand. Customers around the world need to be able to get design assistance at any time. They are not only doing design work between 08:00-17:00.

“As for the customer's preferred contact method, some customers like to communicate online, some want live people to speak over the phone, and some people like to dial the payphone that starts with 800. Therefore, we have to meet these requirements. Avnet has online video and design. Resource Center, said Smith.

Design services are valuable All these design support is expensive, including putting more resources on the network. Not just posting Datasheets, but also design tools, reference designs, video, and webcasts.

"We have a design research center, so customers can view the reference design at any time (24/7), call the video viewing process online, click on the component page and view the schematic." Avnet's Smith said, "We have another With a centralized technical department, customers can dial into the phone or talk online. There are many ways to do the same thing."

In addition, distributors also have certain management project costs. Like the component prices, there are differences in the service value of each region. Although distributors have tried the fee-for-service model, services are still almost assigned to component sales.

“Our price is based on the value of the service provided.” Arrow’s Kong said, “Most of our customers are local customers, and different regions often have very different value propositions for products and services. At Arrow we believe in local services and Support provides a high value to a significant portion of the customer base. Prices are also affected by local costs and alternatives."

Of course, distributors are also concerned about the deployment of their engineering resources. Smith said: "If we only hire engineers for a few customers, we will not do so." At TTI, the FAE assists in triggering sales requests. Knight said: "Usually, this will be the customer we establish a long-term relationship with, and it is part of the customer support process."

As distributors have responded to the need for design assistance, this capability is no longer an important factor in achieving differentiation. However, each distributor manages to maintain its characteristics.

"What I want to say is that during the recession, we have increased the proportion of FAE employees in sales." Smith said, "Suppliers withdrew people from the scene and we took on more design work. During the rising period of the industry, This phenomenon has increased. Therefore, if you look from that perspective, our larger proportion of engineering resources are being fully utilized because we have access to more customers. This helps to improve our profitability and offset price pressures."

The increase in engineering support from distributors also means that suppliers are getting further and further away from customers. This was previously a problem faced by the channel. Suppliers were concerned about losing their understanding of customer design and product development plans, but executives at Smith and other distributors stated that this problem has now eased.

Smith said: "I think that between our suppliers and our suppliers, the systems are now very closely linked. We just registered the design in and we will almost immediately pass it to the supplier. We used to have a bad connection. It must be updated and reviewed frequently, but now you can call up the report and see what the customer is doing.” They do not have to worry about visibility issues.

Registration is a smart tool design registration process that allows distributors to be compensated for design assistance while also providing value to the supplier. Suppliers can see which new products are welcome and which applications they are using. If the manufacturing business is transferred overseas, the registration process can also help suppliers and distributors track project progress.

In order to fully compensate distributors for design services, suppliers and distributors must ensure that if the project is transferred overseas, distributors can provide components at the place of manufacture. Many design-win orders link compensation directly to production volume orders. Distributors can get better prices over a period of time or get higher profit margins on volume sales.

"We follow the design process in order to serve more globally." Smith said, "We have a number of design centers and when global design centers are connected from anywhere in North America to Asia, information can flow globally."

Distributors expect that this model of increasing design support will exist for a long time. “The direct link between distributors and customers is increasing.” TTI’s Knight said, “No matter who owns customer relationships, they must participate in the design process. This may not be ideal for suppliers, but they cut resources and may not Have that choice."

Knight said that suppliers rely on distributors to promote products and provide appropriate engineering resources. “We are the gateway to a large customer base, and customers are increasingly using distribution. Some are acting on the orders of suppliers, but as long as the market requires customers and suppliers to do more with less, then the distributors Can make up for the gap."