Strategic Purchasing

Some Buyers Welcome Distribution Consolidation

Consolidation is nothing new in the electronics distribution industry.

Distributors are always looking to grow their sales, add to their product lines, gain more customers, and reach new market segments by acquiring smaller distributors. It’s not just large distributors such as Arrow and Avnet that are active on the acquisition front. Midsize and smaller distributors also look for acquisition opportunities as a way to become a larger player in the electronics supply chain.

TTI’s acquisition of Astrex last month is the most recent example of distribution consolidation. TTI, a passives, interconnect, electromechanical device and discretes semiconductor distributor, bought Astrex, a specialized connector distributor that primarily services the defense/aerospace market. Astrex had about $37 million in sales and ranked 28th on Global Purchasing’s Top 50 Electronics Distributors list. TTI was ranked sixth.

Some electronics buyers lament distributor acquisitions. They point out that the number of North American-based distributors has shrunk drastically over the past 10 years at a time when more OEMs and electronics manufacturing services (EMS) providers are purchasing more components from distributors.  Such buyers don’t like to see mergers and acquisitions among distributors because it means fewer choices and less competition.

Consolidation often makes buyers rethink their distribution strategies and choices. If one of their key distributors is acquired by another, a buyer may have to qualify another distributor that has similar product lines and services as the acquired distributor.

However, there are advantages to consolidation for electronics purchasers. For instance, Connie Wan, vice president of global procurement and supply chain for Toronto-based EMS provider SMTC, recently told me that distributors today are carrying much stronger line cards because of mergers and acquisitions in the industry. She said it's easier to find many more components from one distributor than was in the past.

An acquisition can also help an underperforming distributor. Sometimes a distributor that is struggling in the marketplace is acquired by a more successful one that can invest resources to make the struggling distributor more financially sound and viable. The distributor may be able to keep its own brand and, with an infusion of funds, beef up its operations, making it more efficient and competitive.

Another upside to consolidation is that the acquiring distributor may gain expertise with a certain technology or product family, making it better able to provide design and value-added services to OEM and EMS customers.

Many strategic-thinking buyers view consolidation as an opportunity, not a challenge. Such buyers have forged close partnerships with distributors to leverage their capabilities to reduce risk and total cost. Buyers may purchase parts from dozens of distributors, but much of their spend often is concentrated with a few key broad line, specialized and catalog distributors.

If one of a buyer’s distribution partners acquires another distributor, the acquisition can further enhance the value proposition for buyers if the acquired distributor has the product lines and services that the buyer’s company needs.

 

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