Distributors traditionally have been important sourcing partners to established second- and third-tier OEMs and electronics manufacturing services (EMS) providers. Distributors provide such customers with components as well as a plethora of design, value-added, and supply chain services that help companies reduce cost and better compete.
However, in recent years a new wave of fledgling startups hoping to become the next FitBit or GoPro also have been using distributors as strategic sourcing partners. Although startups often have an idea for a hot, new, potentially game-changing product, they often lack expertise in design, manufacturing, procurement, and supply chain issues.
Many startups turn to outside design houses and EMS providers for design and manufacturing expertise. But many also look to distributors for sourcing, purchasing, supply chain, and design know-how.
Distributors point out that they have both the inventory and the technical and supply chain expertise that startups need. Many startups lack such expertise, as well as the resources to hire design engineers. They turn to distributors for help, using distributors’ capabilities to develop reliable products with a minimum of assembly time and tooling costs.
Startup customers also rely on distributors to recommend and supply parts that are both cost effective and readily available.
“Startups definitely look to us to leverage our technical capability,” an executive for a large global distributor recently told me. “They leverage our knowledge, our skill sets, and our partners to help them out.”
Some distributors have design centers that work with startups (and other established OEM customers as well) to take a design concept and turn it into a prototype. For instance, Arrow Electronics says it can produce a prototype or start up within five business days at its centers.
Many startups have product ideas related to the Internet of Things. IoT requires a lot of expertise in a variety of technologies involving wireless and power management chips, sensors, and connectors, among others. Developing an IoT product can be challenging for small startups, which usually don’t have the in-house technical knowledge involving multiple technologies—but some distributors do.
Large broad-line distributors with design services programs often have the technical expertise needed to develop an IoT prototype product.
Once a startup’s product concept turns into a viable design, the startup often will have similar sourcing needs as established OEMs. It may purchase parts from small-volume distributors for prototypes and may use larger distributors when a product goes into volume production, as an established OEM may do. In addition, the distributor may help the startup manage supply chain risk.
“We help them do component selection and identify where parts are in the risk cycle, or in the bell curve of the design cycle, and which parts are at risk of going obsolete,” said another North America-based distributor executive.
After a startup’s new product goes into production, the new company may need help with forecasting and managing inventory. Startups have limited capital, and they want to use it to develop new products and for marketing—not to build warehouses to hold inventory.
“We smooth out their forecast and minimize risk because for us inventory can be an asset, but for them it becomes a liability or potential risk for them," the executive said.
He added that startups trust distributors and in some cases outsource procurement of components as well as design to them.