Many of the issues in the distribution chain are felt most commonly amongst the ‘mid-tier’ OEMs/ODMs. It is these companies whose needs, in my experience, are too frequently overlooked by existing distribution models. More often than not, ‘mid-tier’ OEMs/ODMs are simply not a priority for ‘tier one’ distributors, who favour the high volume and high profit business that keeps their shareholders content. Similarly, typical ‘independent’ distributors cannot guarantee the volume or reliability that long-term business requires. The mid-tier companies are left with a choice of two distribution models, neither of which perfectly meets their requirements.
The global semiconductor market is forecast to hit $370 billion by 2017 and this growth can be attributed to various industry trends - one of the most popular being the Internet of Things (IoT). Of course, it is opportunities like this that the mid-tier OEMs are keen to capitalise on, but to do so they need a distribution partner with a very particular mix of capabilities.
The majority of IoT devices are not demanding in terms of their processing or power requirements. In fact, despite the huge number of IoT devices forecast to be in the world, the general needs of IoT device manufacturing can currently generally be summed up as ‘lower-cost components developed in small to medium batches’. This immediately changes the focus of what mid-tier companies are looking for from their distribution partner. Competitiveness on price and the option to purchase within a High Mix Low Volume (HMLV) model are particularly important to mid-tier OEMs/ODMs and OEMs/ODMs looking to exploit IoT opportunities. But, at present, the number of distributors meeting this demand remains low.
Generally these ‘mid-tiers’ also need access to both high-volume, guaranteed franchise lines alongside boutique lines. However, the true value for them comes from a distributor that can also offer open-market buying capabilities and access to components that are typically harder to source.
What’s more, most mid-sized companies cannot afford to engage in stockholding on their premises. This means another value-added service much-prized at the moment is inventory management, which allows for components to be sold back to the market as and when necessary.
Ultimately, industry trends are transforming the way electronic components distributors are doing business. Nevertheless, in my view, there still remains a misalignment between what the mid-tiers need from their distribution partner and what’s currently on offer. To cater for these companies, distributors will need to diversify their offering and provide a unique blend of capabilities if they are to meet the needs of this growing market.
