Avnet, Arrow top the charts
No. 1 Avnet last year implemented a six-part strategy aimed at improving customer service and promoting growth.
| Laurie Sullivan EBN (05/12/2003 10:00 AM EST) |
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In part, the achievement was the result of a two-year-old program led by chairman and chief executive Roy Vallee, in which the Phoenix distributor from 2001 through 2002 shed $300 million in operating expenses and $1.6 billion in net debt as part of a plan to improve return on working capital. As the largest components distributor two years running, however, maintaining Avnet's position at the zenith of the industry could prove to be Vallee's biggest challenge yet.
To keep in step, Avnet last year implemented a six-part strategy aimed at improving customer service and promoting growth. That included a sharper focus on the global technology supply chain, the development of services to differentiate Avnet's products business and better serve companies that procure directly from suppliers, and an emphasis on the company's return on capital model.
"There are only two reasons why customers would increase business with us," Vallee told EBN, following a recent investors' conference at the New York Stock Exchange. "For suppliers, that means increased design work and reaching deeper into the supply chain and across more market segments. For customers, it means helping them get their product to market faster. And if we can save them money it's even better."
Indeed, the guiding mantra for Avnet in the year ahead may well be the pursuit of greater supply chain efficiencies that lower cost and increase profitability--both for itself and its customers. "If we can't accomplish this, we're wasting their time and ours," Vallee said.
Arrow leads the preference pack
Though Avnet may have captured the revenue title in 2002, Arrow Electronics Inc. ranked No. 1 in nearly every area of the EBN 2003 Distributor Customer Evaluation Survey. When participants were asked from which distributor they procure parts, Arrow garnered 68% of the vote. Avnet came in at No. 2 with 56.6%, while No. 3 Future Electronics Inc. grabbed 43.4% of the tally. The fourth position went to TTI Inc., with 35.8%, and the fifth to Digi-Key Corp., with 25.2%.
In fact, OEMs and EMS providers appeared to slough off the concerns of the financial community, some of which were addressed when the Melville, N.Y., distributor early this year appointed longtime board member Dan Duval as chairman and former Solectron Corp. executive William Mitchell president and chief executive.
"Avnet and Arrow probably have more than 50% of the distributor total available market in North America, and I would have been surprised if they didn't rank No. 1 and No. 2," said Matthew Sheerin, an analyst with Thomas Weisel Partners LLC, New York.
"Despite the problems with the macro environment and a severe downturn, both Avnet and Arrow continue to execute reasonably well and it doesn't appear that they have lost market share," Sheerin said.
Arrow, Avnet, and Future were also favorites when it came to "ease of doing business" in all product categories. Arrow led the ranking with 20.1% of the votes cast. Avnet followed with 15.3%, while Montreal-based Future again held the No. 3 position with 9.2% of the votes cast.
Despite their overall market dominance, the Big Three were not the only preferred source for parts and services, according to the EBN survey. Passives and interconnect specialty distributor TTI, Fort Worth, Texas, took the No. 3 spot as the most preferred distributor for the overall product category, displacing Future, which moved to No. 4.
The category of most preferred semiconductor distributors was unchanged from last year, with Arrow, Avnet, and Future claiming the Nos. 1, 2, and 3 positions, respectively.
When seeking the best price for components, availability of material, and on-time deliveries in all product categories, Arrow, Avnet, Future, TTI, and Digi-Key took the top five spots, according to the survey.
In the category for preferred passive components distributor, TTI won top honors. Arrow climbed to No. 2, edging out catalog distributor Digi-Key, which fell to the No. 3 spot ahead of Avnet at No 4.
Traditional services valued
Among the roster of distribution services, traditional programs such as auto replenishment, in-plant stores, inventory and demand forecasting, and just-in-time delivery played an important role for OEMs and EMS providers last year when deciding from which distributor to procure products and services.
Kentrox/Timeplex LLC, Hackensack, N.J., is a $65 million OEM that relies heavily on distribution for just-in-time and bonded inventory services to supply it with the parts to manufacture its channel and digital servers. Don Ciardi, Kentrox's senior buyer for semiconductors, said the company procures about 80% of its electronic components through its preferred distributors, All American, Arrow, Avnet, Future, and Sager Electronics.
"This morning I bought some 7406s, an old Fairchild semiconductor dating back to the '70s or '80s," Ciardi said. "Many of the products we make are older designs and the distributors have these parts readily available through their relationships with suppliers."
Ciardi said the ability of distributors to provide his company with a rapid response is a key measure of his partners' value.
"It's 3 o'clock on a Tuesday afternoon, a manufacturing line just went down, and I need a part here tomorrow morning at 9 o'clock," he said. "If you order that part through a distributor's 800 number and you don't know the person on the other end of the phone, the chance you will receive that part on time is slim to none."
Indeed, while price and delivery are always important, OEMs and EMS providers continue to search for the kinds of close relationships that give them a competitive edge.
"The definition for value-add has changed in the past year," said Michael Hawks, purchasing manager at Ameritron Inc., Rancho Cucamonga, Calif., an EMS provider that generates about $8 million in annual revenue and buys between 60% and 70% of its electronic components through distributors like Arrow, Avnet, Master, and Sager.
"The distributors that deserve that title are those offering a one-on-one relationship with the customer much more so than what we had seen in the past," Hawks said.
Building momentum
Distributors looking to parlay close customer relationships to build new business may also profit from the shift to inventory management and other services such as product information availability, delivery and logistics, design-in functions, and e-commerce capabilities.
"Avnet and Arrow are extremely well positioned to provide services based on their IT systems, and that is key to helping customers execute demand forecasting and inventory management and auto replenishment," said Thomas Weisel's Sheerin. "Both companies have done a good job of quickly integrating IT systems belonging to companies they have acquired.
"Arrow did this with Pioneer-Standard in February practically overnight. This is where some of the distributors have an edge."
In the past year, for example, Kentrox bought three licenses to use Arrow Alert, a Web-based system that notifies users via e-mail when a part becomes obsolete. "The e-mails that alert me when specific parts I need will go obsolete arrive approximately two weeks before I see notifications from other distributors," Ciardi said.
In all, 26.6% of respondents to the EBN survey named Arrow as offering the best suite of electronic commerce services, up from 12.4% last year, which moved Arrow into the top spot in that category--ahead of last year's No. 1 pick, Digi-Key, which slipped from 26.4% to 23.4%, to the No. 2 position.
VMI slowly catching on
Arrow, Avnet, Future, Sager, and All American took the top five slots, respectively, when participants were asked which one distributor best fulfills their VMI needs. However, the percentage of companies indicating they are turning to distributors for VMI remained low, with 79% of survey participants replying that they do not use a distributor for such services.
In spite of this, 69.9% of the respondents that do use distributors to manage inventory said their companies have increased their use of these services during the past year, while only 5.5% reported a decrease in the use of such programs.
Additionally, 70.8% of those respondents that use distributor-sponsored VMI services said they expect to increase their use of the programs in the next 12 months, compared with 6.9% who said they would use the services less frequently.
Survey participants also found value in their use of independent distributors as an outlet for running a more efficient supply chain.
When asked under what circumstances they procure parts from an independent distributor, 89% of survey participants said they use independents to buy hard-to-find parts, while 44.2% said they use them for spot sales and purchases.
Overall, America II Electronics Inc. ranked No. 1 in the preferred independent distributor category, followed by Rand Technology Inc. and Classic Components Corp.
On April 11, 2003, EBN e-mailed questionnaires to procurement professionals in the United States, with a followup e-mail sent April 16. EBN received back 390 completed surveys by April 18. The sample includes large, medium, and small companies from all regions of the United States and reflects the population with a plus or minus standard deviation of 4.8 percentage points.
The respondents were selected because they are procurement professionals or business managers at OEMs (70% of the sample) and EMS providers (30%) who buy or approve the purchase of electronic components, equipment, or services via distribution. The purpose of the study was to analyze which distributors are used and preferred by OEM procurement professionals and business managers for semiconductors, connectors and interconnects, passive components, and electromechanical devices; examine distributor brand strength and reputation; and highlight the effects of geography, industry type, and company size on distribution brand preference.
The measures presented in the charts accompanying this article are: patronage, which refers to the proportion of respondents who bought components from a particular distributor; preference, which refers to the proportion of respondents who said they "prefer to buy or specify" components from a particular distributor; and usage rate, which refers to the type and frequency of value-added distribution services used by respondents.
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