As Published in the Wiring Harness News, May-June Issue 2005
Independent distributors continue to get an unmerited negative reputation despite the fact that many of them work professionally and diligently every day for their customers; though they conduct countless legitimate and successful transactions, they are still considered the "risky" go-to people in an industry dominated by authorized, franchise-based distributors. Moreover, even though quality independent distributors are often heroes to the in-a-jam OEM or contract manufacturer (CM) in need of highly allocated or obsolete product, many in this critical sector remain victim to false perceptions.
Statistics from several CMP Media publications indicate that reputable, legitimate independent distributors service about 10 to 20 percent of the total worldwide distribution market. These quality independent distributors provide a basic yet extremely valuable service to the overall market; they assist their customers by supplying them with highly allocated product or by purchasing excess inventory and/or filling shortages as needed. In essence, they re-distribute or "fine-tune" the balance of distribution so that product goes where there is demand, thus relieving the OEM or CM of their unbalanced inventory concerns and thus ultimately contributing to their bottom line.
Quality independent distributors are often miracle workers of the electronics supply chain. They should be recognized for their incredible strides over the years as legitimate and reliable resources for sourcing electronics components¾resources that work alongside the franchises, and resources that this industry simply cannot do without.
Quality assurance and training
While fraudulent, substandard and counterfeit components continue to find a place in the industry, when using quality certified independent distributors, the customer's risk of encountering such product is diminished significantly. In fact, because quality assurance is a "must," ISO-registered independent distributors go the extra mile, hiring and training inspection and engineering teams to examine and validate their incoming and outbound products.
However, while a percentage of independents distributors are considered legitimate and reliable safety nets, there are still many in existence that are not set up to address the quality issues affecting today's market conditions. "With the expansion of the Internet and its vast online resources, it is easier than ever for fraudulent companies to participate in the market and advertise every item possible," notes Dan DiMase, President of SemiXchange, a Rhode Island-based independent distributor.
Even with procedures in place, any company including component manufacturers, franchise distributors, independent distributors and OEM's alike can encounter counterfeit or substandard components. Therefore, if the industry as a whole were to collaborate more effectively, perhaps by attempting to share information whenever new problems arise in the market or even trace back the source of these problems, it would be easier to alleviate the counterfeit and substandard parts issues. More importantly, the "blame" would not scapegoat and automatically fall on the quality independent distributor.
"Counterfeit issues are an industry-wide risk and challenge, and they must be taken seriously by every member of the supply chain," says Kamran Malek, Vice President of Marketing for Advanced MP Technology, a global independent distributor with its corporate office based in San Clemente, California. "And despite views to the contrary, quality independent distributors are actually a source of service and information to minimize many of these risks," he adds.
The coexistence of independent and franchise-based distributors
The fact is, with all of the industry consolidation in the franchise distribution market, there have been fewer and fewer choices for customers to procure their material. “Now, there are basically a handful of major billion-dollar franchise distributors that are supporting most of the major lines," says DiMase. "They typically cannot offer the same flexibility that the independent distributor can offer."
Many independents note that the biggest challenge in doing business along side of franchise-based companies is the perception that all independent distributors do not have quality control programs or an ability to trace the origin of the components to ensure the quality of the product being sold. They also point out that when there are manufacturing defects in the devices they sell, franchise distributors get support from the component manufacturers they represent; whereas many manufacturers avoid supporting the end-customers when they learn that material was acquired through the independent market.
Ray Ford, president of Impact Components, an independent distributor based in Chula Vista, California, offers a different school of thought. "It's not so much that the independent distributor or the franchise has advantages over the other. Each has its own merits," he says. "Independents offer a wide variety of product¾current as well as end-of-life or obsolete. Looking at the big picture, many a production run would have stopped dead in its tracks if supply of critical components was left solely to factory and franchised distributors. Likewise, many dollars wasted on dead stock in the inventories of manufacturers have been recouped through the independent channel,” he explains. But franchises have an advantage in that they can typically insure the origin of the product direct from the factory, which independents sometimes do, as well as procuring much new product from excess inventories."
Malek agrees. "Quality independent distributors co-exist and yet also complement the functions of the franchise distributors," he says.
Overall, it can be said that the independent distributor balances out the supply chain. Independent distribution continues to play a major role in smoothing the peaks and valleys associated in supply chain management. They assist with last time buys, hard-to-find components and items with extended lead-times, and they play a critical role in excess material management and reclamation. Pricing from the independent market is typically driven based on supply and demand; so when there is an abundance of product in the marketplace, independent distributors can typically offer a significant cost savings over the traditional channels of supply.
"These are just some of the reasons quality independent distributors are so successful," says Malek. "Additionally, they maintain superior capability in operating with the open market, including specialized expertise in purchasing, inspecting and data retention. They are customer satisfaction-centric, providing customers on a global level with the products they want and request, versus pushing a particular product or line of parts," he adds.
The idea behind IDEA.
Quality independents continue to invest in their overall business and infrastructures to assure that ultimately, their customers are protected; however, they remain shadowed by so-called peers who have not made the same commitment and dedication. To help distinguish themselves from the pack, a group of independent distributors banded together just over two years ago to form the Independent Distributors of Electronic Association (IDEA). Comprised of professional members who are ISO certified, have an ESD program intact and carry liability insurance, this uniquely focused trade association is dedicated to "legitimizing" the independent distribution channel, setting high standards and promoting quality services and products.
IDEA’s purpose is to promote the independent distribution industry through an information and idea exchange between company owners and executives. IDEA has produced a 75-point inspection manual, promoted its purpose and members in ad campaigns, developed guidelines for terms and conditions and established a non-conforming parts alert board. The association has also provided an analysis of the impact of Restrictions on Hazardous Substances (RoHS) on the independent community, and much more. "As you can see, IDEA member-distributors are part of the solution to the problems currently plaguing the industry, not part of the challenge," says Malek.
“Yes, quality independent distributors have come a long way since days gone by,” adds Ford. “They continue to serve the global market, meeting the current supply and demand, facing industry challenges head-on and mitigating problems so that the customers receive exactly what they ordered.”
"IDEA members have found that sharing information doesn't mean giving up their competitive edge. In fact, it enhances it," explains Nick Davis, IDEA's President who concurrently serves as President of Husky International, a Colorado-based independent distributor. "This effort also raises the bar for all constituents and I predict that soon, OEMs and CMs will require that all independent distributors on their approved vendor list be IDEA certified."
Through the works of IDEA, as well as other entities such as the Electronic Resellers Association International (ERAI) and BrokerLynx, the independent distribution channel can only continue to thrive. Together, these organizations set high standards, proactively monitor the latest industry developments, develop solutions and encourage open lines of communication to enforce positive change throughout the industry.
As you can see, whether it's the independent distributor or franchise, there are many legitimate players in the electronics distribution channel. Each provides a valuable service, and the savvy businessperson recognizes and understands the roles of each, and knows how to utilize them properly.
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