Value addition is the key in distribution

The distribution industry is taking a new shape in India’s changing electronic environment with manufacturing activities and market size growing at a rate among the highest in the world. With leading EMS companies setting up their facilities in the country, the local distribution industry looks forward to a huge demand of SMP and lead-free components.

Component distribution in India is mainly handled by distributors, and much less by traders and component manufacturers. Amit Vohra, branch manager, Future Electronics New Delhi, estimates that distributors account for 70 to 80 percent of the total component distribution, and traders, 15 to 20 percent. Hariom Sagar, sales manager, AMAX New Delhi, puts these figures at 65 percent and 35 percent, respectively.

“Distributors can provide a vast range of components with value-added services. Traders are not capable of providing either the full range of components or the range of services distributors provide. They provide only commodity items,” Vohra said. MANUFACTURERS AS DISTRIBUTORS

There’s a trend that component manufacturers are setting up offices in India to cater to the needs of OEMs such as Nokia and Motorola who source components directly from component makers, not from distributors or traders. Murata, Rohm and TDK are among such component makers.

“Component manufacturers supply 3 percent to 5 percent of total component supplies,” said Vohra, who believes that customers are more confident when dealing with distributors. “Supply chain is better managed through distributors. Although manufacturers are setting up their local offices worldwide, customer still prefer dealing with distributors. Sourcing from distributors will continue even though component manufacturers are setting up offices here to sell components directly.”

Distributors play a key role in the components supply chain by complementing their offerings with other value-added services such as component selection, materials management, vendor managed inventory, programming, environmental compliance, and design services. According to Vohra, “Technology plays a key role in helping distributors to offer value-added services. For example, an electronic component distributor’s product information management investments also empower the company to offer component information service as a fee-based service to OEMs, contract manufacturers or EMS providers.”

“Apart from the traditional value-added services, we keep arranging vendor managed inventory (VMI) programs to educate our vendors regarding the current status of the stock, technology of the component, government issues, delivery, and other important facts,” said Jitender Trikha, national manager, INR Business, WPG Electronics India.

Technology investments can also empower a distribution company to accomplish the following: distributors have the opportunity to leverage traditional strengths in order fulfillment and logistics management to offer a host of supply chain services; customers are increasingly willing to outsource non-core activities to distributors; and distributors are uniquely positioned to know supplier innovation and also understand customer demand, providing them with the ability to offer several demand generation, product installation and support services.

Prices have become very competitive because customers now have access to prices from various sources all over the world. In India, the profit margin is as low as 3 to 5 percent for most components.

In the pre-Internet era, the processes from component procurement to the final product took 12 weeks. Now the Internet has shortened the time to around four to five weeks, while in general the lead time for component is six to eight weeks. Consumers in need of components urgently have access to a large number of distributors globally to meet their requirement of shorter lead time. “Distribution through Internet needs a lot of updating, like stock information, technical information of the parts, worldwide channel partner, documentation, and so on. Lack of information may make the company or distributor incur losses,” said Vohra.

HELPING DESIGN INDUSTRY

Another value-added service that distributors provide is helping customers in design. To maintain a long-term relationship with customers, distributors have field application engineers who assist designers in providing the best components that suit their design needs. Distributors let their customers test the component quality and performance by providing free samples of the components.

The design engineers have less time to shop around for parts. The one-stop shopping trend can save a design engineer many hours of sourcing for products. Next is the shipping time which is another area for distributors to compete in this business. As the competitive environment changed, distributors adapted and began offering quicker shipping times.

A good distributor Internet site can provide a design engineer with all the needed information to complete the design work. This includes not only technical information, but also information on obsolescence, basic pricing, and lead times. Through the Internet, distributors are providing tools to create and manage bill-of-materials; allow a customer to build a prototype order over a period; and provide order acknowledgement and tracking, all on a 24/7 accessibility basis.

The customers have almost the same expectations from distributors worldwide. They look forward to good pricing, shorter delivery times, and sample support. However, customers in India are more particular about pricing. “Price is a very important issue for customers in developing countries like India and China, but not as important for European or American component buyers,” said Sagar of AMAX. “The customers have the greatest competitive impact on business. They are demanding and are frequently raising the bar on the levels of service they have come to expect.”

Distributor Internet sites have the potential to be one of the most effective means of helping customers address their competitive issues. “To stay competitive, we do our business in two ways,” said WPG Electronics’ Trikha. “First, our Singapore-based company directly supplies to the customer who deals in dollar business; second, we import the component and supply to the customer who deals in Indian rupees.”

The “green” trend is also affecting the Indian distribution sector. Many of the companies are applying environment-friendly practices in their warehouses, delivery, and day-to-day working. The Indian government currently imposes 20 to 22 percent excise duty on the components. But in the future, it is expected that this will be eliminated, which distributors say will be helpful to the distribution industry.