Some distributors that specialize in connectors, passives or other components compete with larger broad line distributors by James Carbone
The business strategy for many distributors is to carry as many line cards as possible to service as many OEM and electronics manufacturing services providers as possible across numerous industries.
However, some distributors have carved out a niche for themselves in the electronics supply chain by specialising in a limited number of products such as passives, connectors or switches. Some niche distributors supply parts to customers in a few industries, while others sell parts to multiple customer segments.
Some specialised distributors are large and global. TTI is probably the most well-known specialist distributor with strong business in North America and robust sales growth in Europe and Asia. TTI, based in Fort Worth, Texas, sells passives, connectors and electromechanical devices. It had $1.95 billion in sales in 2015 and was expected to end 2016 with low single-digit sales growth.
Michael Knight, senior vice president of TTI Americas, said the distributor would post mid single-digit growth in North America in 2017 and would have even stronger growth in Europe. He noted TTI’s business in Europe is about the same size as it is in North America.
Small is beautiful
However, most specialist distributors are much smaller in terms of sales and geographic reach, although they often compete with larger broad line distributors.
For instance, Dove Electronic Components, based in East Setauket, N.Y., specialises in crystals, oscillators and other frequency control products and carries all the same frequency control lines as larger broad line competitors plus some other lines that its competitors don’t carry, according to Matt Waite, Dove president and CEO. Dove also competes with other distributor specialists “that have emulated Dove’s model.”We find competing with them is the same as competing with our larger rivals,” he said.
Integra Electronics, a specialised distributor based in Anaheim, Calif., also competes with larger broad line distributors, according to Mark Baker, Integra’s director of business development.
Integra’s products include resistors, capacitors, connectors, frequency products and some other components.
He said one way Integra competes in by carrying some nonstandard products such as higher capacitance capacitors or non-standard inductors or display or cable assembly products that other distributors may not carry. Integra sells such products to customers and “at that point we start to build a relationship with the customer” and gradually sell more standard products to the customer, he said.
Another way specialised distributors compete with their larger distribution rivals is by offering customers in depth expertise of the product lines they carry and providing design assistance concerning those products and an overall higher level of service.
“The differentiation for us is a laser-like focus on solutions,” said John Hufnagle, general manager proprietary products for PEI- Genesis, based in Philadelphia. “We only carry interconnect products. All of our resources are pointed towards connector products and providing application-specific solutions to our customers,” said Hufnagle. “We are able to give greater attention to a customer’s problem and pull the right resources together to solve it.”
Often specialised distributors are involved in design activities of customers.
Baker said Integra’s staff has “extreme technical knowledge” of the products that the distributor sells. “We are experts in everything we sell. We help engineers solve problems,” said Baker. “Customers come to us with the layout of the circuit board and we work with them on the design for manufacturability of the board. We help them select the right packages and maximise board real estate,” he said.
Hufnagle said PEI-Genesis “plays a role in the customer’s design of a product enabling us to then provide the optimal interconnect solution, whether that’s a connector, a connector assembly or a custom product,” said Hufnagle. “We become a member of the customer’s design team serving as the interconnect expert.”
He said PEI-Genesis has in-depth “technical expertise and resources” and is focused on engineering services. He said customers appreciate the design expertise they get from PEI Genesis because most customers are not interconnect experts.
An OEM may know how to design an electronics system or subsystem, “not how the box gets connected. If you make an ADC box your expertise is in the ADC box. It is not in how that box gets connected. We help customers during the design cycle to ensure the integrity of the interconnect,” said Hufnagel.
Besides a high level of technical expertise, some specialised distributors carry a relatively high inventory level to support customers. “Another advantage is our inventory position,” said Hufnagle. “We carry literally on a daily basis $70 million of inventory in component parts.”
How’s the service?
Specialised distributors also compete by offering customers some of the same value-added services as a broad line distributors.
PEI Genesis offers value-added services ranging from “kits to cable assemblies,” said Hufnagel. Dove offers customers oscillator programming, said Waite. Some of Dove’s competitors also offer the service, but “to our knowledge not on the scale that Dove has. We can typically offer all the value added programs our larger competitors can,” Waite said.
Baker said Integra is offering more value-added services. “We are getting more and more into that. We have significantly expanded our cable operation,” he said. “We do a lot more cable assemblies. Integra also has in-house stores for some customers and consigned and bonded inventory and other VA services such as kitting and special packaging.
While some specialty distributors are small, their customers sometimes range from small to midsize and some have even large global OEMs and EMS providers.
Baker said much of Integra’s business is supplying components for volume production and many of the distributor’s customers are small to midsize contract manufacturers. “Our customers are the CMs that range from $15-25 million. We have a couple CMs that are probably in the $100 million range,” he said. “We don’t do business with any of the big overseas contract manufacturers,” said Baker.
Integra CM customers are building consumer, medical, industrial and communications type products. Baker said that Integra has many CMs as customers because the service and support the customers get from Integra “can’t be matched. We are small and nimble,” he said.
He added that Integra also does business with OEMs that have in-house manufacturing. Many of them “tend to be more consumer related or high-volume industrial controls companies. We also do business with server companies and companies that make specialty industrial products,” said Baker.
Hufnagel said that PEI-Genesis has a “diverse customer base.” The distributor has customers in the oil and gas, military, industrial, aerospace, and rail/mass transit industries.
Adding more lines?
While specialist distributors have found success by offering a limited number of product lines, some say they will expand product offerings to a certain degree in the future as technology changes. For instance, there is a growing need to connect more products to the Internet which is resulting in greater demand for certain products that enable connectivity.
“We are looking to add more product lines, but the product lines that we will be adding are going to be more of the machine-to-interface type of offerings,” said Baker. “Our market is evolving and we are looking at products that are geared towards human/machine interface and data,” said Baker. “We’re looking at sensor lines, more displays, and communication modules,” he said.
Hufnagle said that PEI-Genesis remains committed to interconnect, but “we just recently added a
sensor line which is a perfect addition as sensing devices are connected, so it’s a natural expansion for us,” he said.
Knight says many customers and suppliers would like TTI to carry semiconductors in addition to passives, connectors and electromechanical devices.
“The market does not today have a significant semiconductor specialist which hurts suppliers trying to come to market,” with new products, he said. At the same time, “there is a great appreciation for our model and a great desire with suppliers and customers for us to deploy that model for semiconductors,” said Knight. But if TTI was to carry semiconductors “then our model would go away. Semiconductors would dominate and we would lose focus on IP&E (interconnect, passives and electromechanical),” he said.