Houston, Texas - Independent distributors played a key role in the supply chain last year by filling in the gaps that couldn't be met by suppliers and franchised distributors as they faced similar challenges caused by huge inventory buildups in the channel.

"The largest OEMs [original equipment manufacturers] and CEMs [contract electronics manufacturers] face issues every day of too much or too little product and they want to work with someone in the market that can solve these supply chain issues," said Bob Ackerley, president of Smith & Associates, based here.

During tough times, independent distributors can help companies sell excess inventory, and during allocations they can help engineers and buyers locate hard-to-find or obsolete parts to get production lines up and running again to meet the requirements of customers.

To help the electronics industry deal with excess inventory, a few independent distributors like Smith & Associates and Triangle Electronics Group have implemented consignment programs to help OEMs and electronic manufacturing service companies better manage and sell their excess inventories.

In many cases, independent distributors report that they can sell the consigned inventory for market price. "They get a much better return than if they were to sell the material for pennies on the dollar," said Chris Cooper, president and CEO for Triangle Electronics Group Inc. (Ronkonkoma, N.Y.). "We've been handling excess inventory for more than 10 years, but the amount of inventory in the marketplace [in 2001] is more than I've seen in 20 years," Cooper said.

Strategic Partners
Triangle Electronics has also recently formed a strategic partnership with GE Capital Asset Management Group. Under the agreement, Triangle Electronics buys and sells excess OEM electronic components inventory, while GE handles the sale of excess capital assets for mutual customers.

In many cases, large independent distributors can no longer be associated with the broker channel as they adopt key business processes and strategies used by franchised distributors in the areas of customer service, engineering support, quality and security.

For instance, independent distributor Smith & Associates last year appointed a vice president of corporate security to oversee security issues and launched SmithDirect, a 24-hour telephone number that connects customers to Smith representatives anywhere in the world. "We've adopted what franchised distributors do best in a lot of areas such as customer service, quality control and credit management. The difference is that there are business processes that franchised distributors don't want to be involved with or they didn't realize would be important and those are the areas that we shine in," Ackerley said.

Smith's business is built around quick delivery of hard-to-find parts, Ackerley said. To meet these demands, companies need a work force of people who are highly trained, know the market and understand the pricing dynamics and logistics needed to get product from point A to point B very quickly, he said.

"Supply chain volatility is not something that OEMs want to discuss, but our business history over the past couple of years shows that we are an integral part of the business function at some of the largest OEMs and CEMs in the electronics business," Ackerley added.

Leading franchised distributor Avnet Inc.'s recent alliance with independent distributor America II in the launch of its new fee-for-services company Promiere illustrates a growing role for large independent distributors in the supply chain and adds credibility to their role as key suppliers in the electronics industry.

America II's expertise in excess inventory management gives Promiere's customers access to a market exchange that supports order processing, inventory management, ISO 9002 certified final inspection and shipping.

"The fact is that there is excess inventory in the marketplace and it's a problem for every major customer," said Jim Magee, president of America II (St. Petersburg, Fla.).

"It's a clear signal that franchised distributors are dedicated to addressing every service need in the supply chain," Magee said.

"Certain aspects of the supply chain can't be addressed by franchised distributors because their business model doesn't allow them. Our charter is to let franchised distributors do what they do and we handle the other 5 to 10 percent that they can't."