Designs on Distribution - Specialists still needed

The acquisition of Nu Horizons by Arrow is the most recent example of a consolidation process in UK electronic component distribution that goes back 30 years or more. From the customer perspective, one of the industry's giants can now offer even greater choice of products, potentially making one stop shopping easier. But as distributors have become fewer and larger, electronics manufacturing in the UK has, for the most part, fragmented into numerous small to medium sized enterprises, or SMEs. The giants of UK manufacturing of a couple of decades ago have either disappeared or have moved operations offshore. There is now a real imbalance – a distribution market dominated by large businesses and the electronics manufacturing sector characterised by many smaller firms. Large distributors, through necessity, have to focus their efforts on chasing the largest contracts. It doesn't matter to them that the production order is placed in China, or anywhere else, they still reap the benefit. Along the way, smaller and medium sized UK manufacturers, both OEMs and EMS providers, are experiencing service shortfalls in both commercial and technical terms. Relays, switches, enclosures, connectors and power supplies do not often conform to an industry standard with respect to form, function or electrical performance. In other words, they are rarely interchangeable between manufacturers. The volumes in which these components are sold are much lower than either semiconductors or passive components. An electronic system might contain 100 semiconductors and 500 passives, but it probably only needs one power supply, one box, one front panel and maybe a dozen connectors. All of this makes the electromechanical components business unattractive for large broadline distributors. It's simply not profitable for their business model. In the past, companies like Nortronic, Townsend Coates, Sedgemoor, Roxburgh, Deltron and Radiatron provided expert service in electromechanical and passive components. Industry consolidation has seen them all become part of much larger organisations, where the focus on these technologies and components has been lost. Many of the more experienced electromechanical component specialists have either retired, or are now nearing retirement and the UK is suffering from a shortage of young engineering talent. A recent survey by the Confederation of British Industry and the vocational qualifications organisation EDI found that nearly half of UK companies are having difficulty to find staff with appropriate skills in engineering and technology. Electromechanical components, often seen by distributors as the poor relations of semiconductors, are critical elements in successful product design. Packaging has a huge impact on user appeal and choosing the right switches, relays, connectors, fans and power supplies will have the greatest impact on product reliability. These parts are, by their very nature, likely to be the most unreliable components in any electronic system. Those electromechanical parts with moving parts wear out. Power supplies get hotter than most other parts of the system and contain power semiconductors and (usually) electrolytic capacitors, both of which have shorter life expectancy than components subjected to less electrical stress. Front panels and enclosures can be subjected to wear and tear in everyday use. These electromechanical components are chosen primarily for their form and function, but designers need to know that they have an operating life appropriate to the systems in which they are to be used. The components also need to be available at a viable price. Loss of expertise in the supply chain for electromechanical components therefore impacts electronics OEMs and CEMs in a number of ways. Time to market can be impacted by the time it takes to source and evaluate suitable components. It's a minefield when there are relatively few industry standards. Choosing a part that is less than ideally suited to the system's design will impact performance, operating life and the end customer's experience. The choice of front panels, panel components and enclosures has a significant impact on the visual appeal of electronic products and hence on their commercial success or otherwise. With every consolidation, opportunities to create new distribution businesses emerge. Customers want expert suppliers whose advice they can trust – and they don't just want it for semiconductors. Suppliers want distributors that can give sufficient focus to their products to create demand. However, with every consolidation, smaller customers and suppliers are inevitably ditched by the newly enlarged distributor so that it can focus on those areas that have most impact on the bottom line. This is not a criticism, it's just a fact of life. This is creating opportunities for new UK distributors; it's also creating opportunities for distributors based outside of the UK to enter the UK market. These new companies often do not conform to traditional models. In fact, they usually operate more as a cross between a distributor and a manufacturers' rep. Perhaps they should be called 'distreps'. Gone are the days of holding masses of uncommitted inventory and being able to run a distribution business on stock turns of three or four times a year. Successful distributors today need to hold free stock appropriate to requirements for development and prototype production, but the majority of inventory will be allocated to specific customers in order to create a cost effective supply chain for these firms. Also, the days of trying to maintain unrealistic margins when order volumes grow, or competition dictates that it's uneconomical to do so, are over. A willingness to work in partnership with component manufacturers to secure business that might otherwise be lost is an important part of developing real trust and cooperation in the supply chain. Sometimes, it's more appropriate for the manufacturer to handle the business directly, perhaps compensating the distributor for its design in effort through payment of a commission. These new distributors are often staffed by industry veterans who bring decades of experience to each customer requirement. Most importantly, these are the people that customers and suppliers deal with on a day to day basis. From the electromechanical component manufacturers' perspective, even niche companies with limited product ranges will find their business is important to new distributors. As a result, distributors put in the resources and effort needed to create new business, rather than just service it by shifting boxes from A to B. The component manufacturer gets a stable, experienced team to work with and customers get the levels of technical expertise and applications support that they need. Cyntech Components is one example of this wave of new distribution businesses that is enjoying high growth rates in a UK distribution market that, if anything, has declined in overall value during the last few years. While the few remaining mid size distributors struggle to find differentiation, global industry leaders and small local specialists that operate in niche products, markets or applications, are still finding ways to grow. When it comes to electromechanical components, the intricacies of the business dictate that specialist distributors remain in great demand. Author profile: Dave Mellor is a director of Cyntech Components.