OEMs – like all partners in the supply chain – are doing more work with fewer resources. Design engineers, for example, have to select the best components for their product’s application within narrowing time-to-market windows. Plowing through available component data can take days. There is an often overlooked source within the supply chain that has in-depth knowledge about a variety of products under one roof: distributors.
Distributors increasingly are providing technical support to design engineers. This is particularly true for the new components that help drive innovation. “As the Specialist, we need to know more about the products that we distribute so we can properly position these solutions with our customers,” says Jeff Ray, vice president of supplier marketing for TTI, Inc. “The new product introduction and marketing strategies sessions with our suppliers go beyond the typical data sheets and product roadmaps and today include integrating the customer facing resources we need to support both their technology and their solutions.”
Component suppliers are managing fewer and fewer of their customers directly, so distributors are stepping in to provide design and engineering support to customers in addition to supply chain management. Design support requires distribution sales people to have a higher level of technical acumen than ever before. “We have to prepare ourselves to provide every level of technology support that our customers require,” says Ray. For distributors, this can mean everything from in-house training to the hiring of technical people with engineering backgrounds. These programs require investment, and that’s where distributors and suppliers collaborate.
Technology expertise is expensive, so suppliers and distributors have different ways of offsetting costs. If a distributor is able to get a supplier’s component designed in to a customer’s end product, for example, suppliers may grant preferential services to that distributor once the product reaches volume production. This practice, which incentivizes a distributor for assisting in a design, is called “demand-creation.” The program is crafted so suppliers can get their newest components in front of customers that can use them in their latest product releases. However, the process can get complicated.
Many distributors hire technical and marketing resources outright to help customers with their design needs. In the semiconductor market, the rapid turnover in the product lifecycle and relatively high price points on devices can often sustain engineers’ salaries. In the interconnect, passive and electromechanical (IP&E) market, the dynamics are a little different. Suppliers still provide high-tech and proprietary items and customers still need technical support. IP&E products don’t turn over as quickly as semiconductors nor are they generally as highly-priced, so distributors and suppliers have to work closely together to ensure customers get the support they need at the cost they expect.
Compensation, Ray points out, isn’t just gross margins. Suppliers provide a high level of support to distributors in the form of training. TTI itself trains all of its salespeople extensively in the specialty IP&E products it sells. New employees get in-depth training which covers products, product categories, vertical markets and applications. A significant amount of material is provided by or in conjunction with suppliers. At each TTI location, branch product managers that are experts in capacitors, resistors, connectors, EMC, circuit protection and/or electromechanical products provide additional technical support.
New products, however, are the sweet spot for distributors, customers and suppliers. “Customer’s growth is dependent upon being able to introduce new products to the market and demand-creation programs help us get the latest leading edge technology solutions in front of them for new designs,” says Ray. “We start with who we are; we are a specialty distributor that doesn’t have a vast collection of suppliers – we have a limited number of best-in-class suppliers in our chosen areas of specialization.
Suppliers recognize the value of such efforts and support distributors. Murata, a manufacturer of capacitors, resistors, power products and MEMS, has steadily been improving its demand creation programs. “Demand creation has taken on a more significant role over the past five years because of our direction in the marketplace,” says Woody Wilder, Murata’s director for distribution sales in North America. “Our design efforts are focused on not just the highest technology products but also the highest-value.” Murata provides support programs for distributors that get products designed in to OEMs specs and works with distributors through to the production phase.
A product may be designed in the U.S. but manufactured in Asia, and that’s where many demand creation programs break down. Murata has initiated a process for the international transfer of design wins. “Distributors can register a win with us, and we’ll grant a registration to them for 12 months which can be renewed,” says Wilder. Registration attaches a specific design to the distributor that assisted the customer. “If the design is created in the Americas but manufactured in another region, we’ll make every effort to ensure the distributor’s benefit is based on the business conditions as established in the Americas,” explains Wilder. There are often factors, such as pricing in other regions that hamper these efforts, he explains, and can adversely impact these types of programs.
Wilder says this kind of diligence is important to both suppliers and distributors. “The whole idea of supplier engagement is to help distributors secure their business whether the design goes to a subcontractor or an OEM’s sister division,” he explains. “From the supplier perspective, the inability to [reward distributors] creates problems. So we make every effort to provide whatever information is needed as business transitions through our channel partners and we share it with our Murata affiliates in the appropriate region.”
Suppliers and distributors believe a strategic advantage lies in getting new products in front of customers as quickly and efficiently as possible. New orders and new business benefit the entire supply chain. “Our value proposition to the supplier and customer is to be the preferred distributor, and to do that we have to take the long view,” says TTI’s Ray. “Certainly we have to stock the existing products, but we also have to help our customers differentiate themselves by having access to the latest technology. In order to do that, we have to have the latest leading edge technology products positioned and available to sell.” Successful execution of our new product introduction strategy helps keep TTI preferred by both our customers and suppliers.