Avnet purges scores of IP&E suppliers

Distributor seeks focus following Kent buy

By Laurie Sullivan
EBN
(07/06/01, 03:38:05 PM EST)

Eager to become a more specialized distributor, Avnet Inc. has shed approximately 100 suppliers from its line card as it merges Kent Electronics into a recently formed $1.3 billion IP&E division.

Although several of its midtier counterparts are trimming lines to deal with a drop-off in sales, Avnet Kent claims it has pared its IP&E offerings to achieve better focus. But the move could initially cause confusion among OEMs and make it more difficult for customers to source components, executives said.

"I would rather Avnet Kent have an industry reputation for being the best in a handful of suppliers than be known as an okay generalist," said Larry Olson, president of Avnet Kent. "The strategy is to differentiate ourselves with specialization in the belief we must focus on fewer lines and specific product niches to better serve the customer with training and core expertise."

Avnet Kent will retain 55 lines, including Murata, Tyco, and Vishay, as well as a few potential stars. Avnet has typically zeroed in on franchises that have the market share to bring in more than $100 million annually, industry executives said. The criteria for its latest supplier list includes past performance, potential market-share gains, and ease of doing business, and has culminated in complementary lines that customers can design-in for complete solutions, according to Olson.

"The Kent merger makes Avnet a strong force in IP&E," said Steven Fox, an analyst at Merrill Lynch & Co. Inc. in New York. "The focused line card should mean overall gains in market share."And for OEMs, it should mean a quicker response time and technical expertise based on varying requirements supported by Avnet's back-office functions. But several customers don't see it that way.

OEM reaction
Avnet Kent's line card reduction will compel customers to quickly decide whether to stay with the distributor or follow their suppliers to another.

Eldec Corp., a military equipment manufacturer in Lynnwood, Wash., that procures $300,000 worth of components from Avnet each year, is waiting to see which companies will remain on Avnet Kent's line card. Eldec's choices are limited since the company
buys parts from suppliers that meet military specifications. With only a few options, Eldec continues to maneuver around roadblocks created by mergers or acquisitions."We hear more about what distributors and suppliers want to build and buy, but not necessarily what customers want," said Lorraine Glover, Eldec's electronic components manager. "We haven't had too much trouble getting off-the-shelf components, but it's been more [difficult] with specialized products, especially through distribution."

For Temptronic Corp., a manufacturer of thermal test systems and accessories, selecting another supplier from Avnet Kent's line card could require the company to redesign its systems. But redesigning the device purely because the distributor no longer carries a supplier is out of the question, according to Bill Leonard, materials manager
at Temptronic, Sharon, Mass. "Our products are heavily engineered and the company doesn't have the resources, especially on short notice, to redesign a product," Leonard said. "If the part is available through another source, redesign is not an option. It takes something pretty drastic for a redesign."

Shedding inventory
Avnet Kent's latest efforts could accomplish more than just sharpening its IP&E focus. Industry executives said by shedding suppliers, Avnet Kent could be trying to lighten its inventory load as a strategic way to deal with the electronics industry's component glut.

"Companies look for a short-term fix in this type of market," said one industry executive who requested anonymity. "Today's conditions can either pressure a distributor to drop a supplier line to focus on a particular market or simply get the inventory off its books. The distributor may truly believe they can do without the line or make it up by trying to create demand with another, but part of the motivation is to return the inventory to the supplier to get it off its books."

While the supplier charges a restocking fee that fluctuates between 10% and 20% of the original component price, the overall cost to return the products can outweigh the loss of a particular line. Most franchised distribution contracts stipulate that if the distributor initiates the termination, it's the supplier's option to take back the inventory.

"If we implemented this focus as a short-term move, I wouldn't [trim] the lines because it costs too much," Avnet's Olson said. "Letters are going out to suppliers this week, and we're not sure how much inventory the supplier will take back. This is part of the expense of making the decision we made."

Some stay, some go
Bourns Inc., Riverside, Calif., is one of the 55 suppliers that have retained a place on Avnet Kent's line card.

"I think this merger between Avnet and Kent is going to work well for the IP&E group," said Patricia H. Moorman, Bourns' vice president of worldwide distributor sales. "We support the move and understand the effort to become a more focused distributor in support of the customer. It's similar to the customers' vendor reduction approach."

NIC Components Corp., on the other hand, didn't meet Avnet Kent's requirements, but said it has no issues regarding the decision. "While it was Avnet's decision to drop the franchise, we're comfortable concentrating our efforts with Arrow, Future, Jaco, and our regional distributors," said Richard Schuster, president of NIC, a passives supplier based in Melville, N.Y. "My concern is that the customer has an easy transition. Some will feel comfortable switching the business to another distributor, and others will want to stay with Avnet."

While some suppliers weren't given the choice to maintain ties with Avnet Kent, KOA Speer Electronics Inc. did have that option. Choosing not to continue the relationship, KOA said it will go forward with two global distributors, Arrow Electronics Inc. and TTI Inc. "Avnet Kent requested we franchise them as a global distributor, but it does not make sense for us," said Fred Schenfield, national distributor sales manager at KOA in Bradford, Pa. "We don't want to add another distributor to our global sales channel just for the sake of it."

The KOA franchise came to Avnet from Kent, which focused sales solely in North America. The $800 million supplier's strategy is to continue with a limited distribution network to avoid confusion among customers, Schenfield said.