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Avnet adds no value confirms Texas Instruments: How OEMs save and why more component vendors will follow TI strategy

Move marks beginning of the end for electronics distribution model as we know it.

By Mark Zetter

I’ve managed contract electronics divisions for years and noticed long ago the cozy relationship electronics components distributors like Avnet, Arrow, Future, TTI, Mouser and others have with EMS manufacturers.

Beyond moving boxes around, distributors add no real value to OEM supply chains, only resulting in added expense (e.g. higher material costs) to electronics OEM BOMs and final product costs with their EMS manufacturing partners and, ultimately, higher pricing at the point of consumption for OEM hardware.

Electronics distributors are on the lowest level in the hierarchy of the electronics supply chain:

  • Semiconductor firms design and innovate
  • OEM hardware firms design and innovate
  • EMS providers create and execute operations
  • Distributors move boxes around

Buyers want ‘click-to-cart-to-door’ and they want it now. Most electronics distributors cannot get it out fast enough and nearly all electronics distributors have been slow to adapt. Distributors will claim they protect the supply chain against counterfeits in the marketplace but this argument is a low-cost process that is already being automated.

Removing excess fat (and cost) from electronic supply chains

The padded components cost to OEMs to get semiconductor pricing has always been rolled into the costs OEM incur from dealing with distributors directly, or indirectly through their EMS manufacturing partners.

So, the announcement via Barrons.com Texas Instruments (TI) is ending its Avnet distribution deal comes as no surprise and confirms my earlier prediction about the state of the electronics distribution industry.

TI sees the reality of the future and will now have more insight into OEM customer experience. This smart, strategic move also gives TI greater control over their Company future.

Texas Instruments sent termination letters
to six distributors worldwide.
— Stifel Financial Corp.

 

Electronics OEMs will applaud TI’s move and, should bypass every electronics distributor, instead going direct to components suppliers like TI, NXP, SK Hynix…for their components.

It just makes sense.

I predicted two years ago why components manufacturers such as TI will drop electronics distributors. How will the supply chain look as TI’s OEM customer begin to see immediate savings with lower costs? How will the electronics supply chain respond as OEMs start to apply even more pressure by purchasing direct from semiconductor firms in increasingly larger volumes?

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“Over the past several years, we have been evolving our distribution network to better align with our strategy to establish closer, more direct relationships with our customers,” Texas Instruments said.

SEE ALSO
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TI plans to end its distribution relationship with Avnet by December 31, 2020. TI accounted for 10% of Avnet’s sales in the June 2019 fiscal year. Avnet is the first shoe to drop. But know Texas Instruments sent termination letters to six distributors worldwide, according to Stifel Financial Corp, a US multinational, independent investment bank and financial services company. More on this here per Phoenix Business Journal.

Electronics distributors simply take things from point A to point B. Many distributors today are fighting the tide, trying to re-invent.

In the end, distributors lose the war. When they do, how will distributors look back and define the moment of disruption? Will it be because semiconductor firms partnered instead with UPS or DHL or FedEx? Perhaps it will be because financials will show more OEMs will have purchased direct from components manufacturers, or semiconductor vendor accounts on Amazon.com.

Impact to EMS manufacturers

Now that TI has made the first move, rest assured more semiconductors manufacturers will follow. Electronics distributors are now placed on notice, in survival mode and re-directing blood flow to major organs in order to survive.

Another related change emerging in electronics supply chains as a result of TI’s action: as more components vendors follow TI, EMS manufacturers will begin feeling pain as they lose leverage with OEM customer program quoting, becoming less capable to hide components purchase-price-variance (PPV) from OEM customers.

RELATED
Understanding PCB assembly quotes
RFQs for managing EMS materials costs
EMS quotes and should cost analysis

For more on PPV management and OEM best practices for EMS manufacturing request-for-quotes (RFQ) and request-for-proposals (RFPs), visit our EMS manufacturing quote strategy page for OEM decision makers.




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