The global electronics supply chain is by its very nature a complicated business. Certain aspects of the relationship between suppliers, distributors and their customers only add to the complexity. But when a system works the way it’s supposed to, everybody wins.
Demand creation is one of those intricate programs suppliers and distributors have to manage. On the back end, issues such as distributor compensation have to be hammered out. On the front end, though, an effective demand creation program is often as straightforward as an in-depth knowledge of products.
Specialty distributors such as TTI for example, focus on a limited number of vendors and become experts in their products. At the same time, specialists have a broad perspective on product solutions because they carry multiple brands. “The majority of our customers come to us and say ‘I have this application – what kind of connector do I need?’ ” says Jim Pasquale, vice president for TTI’s Transportation Business Unit. “They give us the criteria of the design, and they come to us because they know we have established relationships with all the suppliers on our linecard. We are able to throw four or five options at them, and they know the technology [we recommend] will work.”
This solutions approach differs from the days when distributors were expected to push one supplier’s brand or focus exclusively on new products. Sometimes, new products aren’t part of the solution at all. “Typically I don’t do a lot of outside sourcing, meaning we have an approved parts list [as a starting point],” said Garrett Blizzard, a design engineer with Daimler Trucks North America. “I go to our onsite parts engineer who has a catalog we can sort through.” During a recent product design, Blizzard said, Daimler didn’t have anything in the parts catalog that fit a connector spec. “So I went to our distributor for a suggestion,” Blizzard said. “They were able to show us the component’s data and we ran a test [on the part and the design] and we were done.” The connector Daimler chose was an existing part the company was not aware of.
For suppliers, getting a component designed into an OEM’s product can mean decades of ongoing sales. To incentivize distributors to pursue more design opportunities, suppliers such as Delphi Connection Systems structure programs that reward distributors for their efforts. A typical compensation program pays distributors based on component volume sales. “There are more than just cash incentives,” said Ken Schack, Delphi’s distribution manager for North America, pointing to supplier assets such as product training, a wide product portfolio and ease of doing business. “We offer well-known and respected products that provide distributors opportunities for growth in a very broad market,” Schack said. “We also provide a one-stop shop so when they identify a new opportunity they have a variety of solutions to offer.”
As design engineers – like most of the electronics industry – are doing more with less, a centralized source for product information has become increasingly valuable. “We often ask distributors about which devices are best in certain applications,” said Daimler’s Blizzard. “We also like to know what other OEMs are using and what they have used in the past. We find our distributors to be valuable assets in this regard.”
Using a specialty distributor has its advantages, Blizzard added. “In this case, we asked historical questions and we received a document with actual data that supports [the choice of the connector]. We could also see what to expect in terms of volume and what pricing will be based on volume.”
In demand creation, volume is the ultimate goal. But Delphi’s Schack points to other channel services that support both suppliers and customers. “Distributors deliver small volumes direct. They provide payment terms [for customers], consignment programs, targeted marketing and a variety of other things that aren’t considered [as part of a demand creation program.]”
The electronics market is always evolving, Schack said, and distribution helps Delphi keep on top of that market. “Our distributors give us a perspective that we otherwise wouldn’t get [from a direct customer base.] It helps us to continue to bring the right products to the market.”