Paradigm shift seen in semiconductor distribution

We have seen in recent years how the Web has become a major force changing the world’s distribution structure. Aside from globalization, the Internet has ushered in a new era of doing business in the semiconductor market. Some of the changes include: the addition of design and technical support to sales-type services; the trend of manufacturing products in multiple types but in smaller amounts; the adoption of more efficient purchasing systems; faster transactions and delivery of goods; and the significant price reduction of commodity products.



Since the semiconductor distribution field is likely to have inventories, it is increasingly important to manage inventory turnover. Factors such as varying international logistics and component standardization are also pushing for new paradigms in the electronics distribution industry. While personal/visit sales also have advantages such as building close relationships with customers, Online distribution is advancing rapidly due to developments in IT infrastructures, convenience of communication, and the growing familiarity with the Internet.

ONLINE BUSINESS MODELS

There are four business models in the Online distribution of semiconductors. The first model is the public e-Marketplace which is based on a charged membership system. This business model operates by managing direct transactions among the member companies. The public e-Marketplace is a good venue for small- and mid-sized dealers, and returns of scale are greatly increased.



The second business model is a Web database integrating the inventories from global resellers and dealers. Also, there are individual or private e-Marketplaces where fast purchases and deliveries are performed. This model caters to very niche product demands – known as the “Long Tail” market. To succeed in this Online business model, it is important for the merchants to establish good credit and reputation.



Third is Online sales distribution operated by the chip manufacturers themselves. This model supports research institutes and students who only buy products in small volumes. Chip manufacturers and Online customers that participate in this type of sales are gradually increasing.



Another business model is aggressive marketing by registering inventories into the Website of the company while owning them along with the resellers. This model focuses on getting new customers by disclosing the price of each product and by promptly supplying the orders. The aggressive marketing has immensely influenced the industry. Managing the qualitative and quantitative databases of inventories -- as well as the databases of customers and suppliers -- has simplified the distribution process.



INTEGRATING WITH OFFLINE

The effects brought by Online distribution can be seen globally, and the changes will become even more apparent in the next few years. Can the traditional “offline” sales and distribution model keep up with Online distribution or will it slowly die? I think that the most effective model is to integrate both Online and Offline structures. Acquiring successful online distributors through active mergers and acquisitions could be a realistic alternative for companies.



Whether Online distribution will dominate over Offline transactions, one thing is for sure -- companies that are still stuck in the old ways of doing sales cannot delay in adopting the Online business any longer. Companies should always be on the lookout for new methods of product distribution, or else it will be difficult for them to survive in this highly competitive market.



The distribution industry is undergoing a paradigm shift and we should all prepare for more changes in the future. Early adoption, wise decisions, and realistic expectations can spell a big difference between winning and losing.



About the author

Cathy Hong is the president and CEO of CyberDisty, a leading Online semiconductor distribution company in Korea. She has developed a variety of Online marketing tools such as e-commerce systems and shared purchasing business models. Hong won the e-Business Contest 2007 sponsored by the Korean Ministry of Commerce, Industry and Energy.