Tools for EMS manufacturing quote pricing analysis - Optimize total landed cost savings for your contract electronics outsourcing programs

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Tools for EMS manufacturing quote pricing analysis - Optimize total landed cost savings for your contract electronics outsourcing programs

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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.

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