Feature
Toronto. He said
“The globalOEMs and the global EMS providers are asking us to tie supply chain and logistics together,” said Ed Smith, president Avnet ElectronicsMarketing Americas.
Celestica’s use of distributors is growing as its business strategy expands to include more diversified customers and it focuses less on highvolume consumer products and more on low volume, highmix
equipment segments such as
aerospace andmedical equipment. “As our diversifiedmarkets have grown, we have beenmoving
more business to distribution,” said Castaldo. One reason for the transition is distributors help Celestica reduce total cost.
He said Celestica can get lower prices for parts by buying
directly froma componentmanufacture, but the Canadian company often buys fromdistributors to take advantage of suppliermanaged inventory programs to reduce total cost.“Distributors will hold inventory for us until we need the parts” resulting in lower inventory costs, he said.
“We also want the flexibility of us not having to own
inventory andmanage it,” said Castaldo. Suppliermanaged inventory includes inplant stores, which
are sometimes run by a distributor. In some cases Celestica will manage the store, but the distributor will visit the store every day and determine what parts need to be replenished.
Other valueadded programs such as IC programming, kitting,
lead forming also help Celestica reduce cost. Castaldo said 80 percent of Celestica's distribution business is
with top distributors, but it also purchases some products from niche distributors when necessary. “We use the whole realmof distribution, large and small.We also use independent distributors as well when there are shortages.”
Total cost is key Michael Knight, senior vice president Americas for distributor TTI, based in FortWorth, Texas said Celestica is not the only electronics company that is increasing its use of distribution. He noted that whilemany large companies have always purchased fromdistributors during shortages,many are now increasing business with the channel to lower cost. One way the TTI and other distributors help larger OEMs
40 |May/June 2013
reduce cost is by holding inventory. “These days nobody wants inventory,” said Knight. “Distribution’s role as a carrier of inventory has never beenmore important.”
He noted that "once upon a time a componentmanufacture
would stock inventory" for large OEMcustomers. “That is less true today. Componentmanufacturermargins have been squeezed so they are focused on an improving their return on capital employed. One of the key ways to do that is not to carry inventory,” said Knight.
As a resultmore inventory is pushed to distribution so “OEMs
more andmore are coming into the channel looking for inventory coverage,” he said.
That inventory coverage is important to OEMs faced with
compressed product lifetimes and faster timetomarket requirements than in the past.
OEMsmay have to paymore for the parts purchased from
distributors rather than buying themdirectly fromcomponent manufacturers, but "they are willing to pay themarkup to distribution to hold that inventory.”
Another reasonmore larger OEMs and EMS providers are
using distribution is extended payment terms.
“We will offer
60, 90, sometimes longer terms to these large OEMs, which they are not able to get fromthe manufacturers,” said Knight. “That helps large OEMs with their return on capital employedmetrics. Their cashtocash cycle is improved when they source through distribution,” he said. Knight noted that flexible terms and carrying inventory is not
new in electronics distribution, but large OEMs recognized the value of itmore now than in the past. Some distributors say that larger customers are finding
greater value with distribution, because some distributors have enhanced and expanded their value added and supply chain services.
www.electronics-sourcing.com
“Distribution has always been part of our overall strategy,” said RiccardoCastaldo, vice president of supply chain and interimchief procurement officer for EMS providerCelestica in Toronto.
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