Powering the Hi-tech Value Chain through Collaboration
An in-depth look at the hi-tech value chain
As an extension to the design win process, a two way dynamic collaboration provides the best route to successful innovation and implementation. Many companies reduced research and development (R&D) investments as part of the cost-cutting frenzy during the last recessionary period, but now are forced to re-focus on innovation, which is more of a requirement for survival today.
R&D alliances are linked to exploration in search of new opportunities. Marketing alliances, however, are linked to exploitation, refinement and selection of potential innovation themes from a market perspective. Marketing alliances are critical to re-using technological knowledge and exploring new application areas, i.e. cross-application of knowledge to create and shape demand. For successful market-led innovation initiatives, hi-tech OEMs need to bring the innovation wave down to the realm of component suppliers. The latter can then constructively influence the innovation strategies of the OEMs.
Component distributors, by virtue of their technical expertise and crucial positioning between OEMs and/or EMS players and component suppliers, can bring together virtual marketing alliances among the OEMs and/or EMS players to create market-led innovation instances by the component suppliers. The fundamental difference from the design win process would be that the marketing alliance enables cross application of a novel idea across segments that has been tried somewhere else in the value chain. For example, a PC OEM launches a novel feature that was supported by a couple of new components. The component distributor can collaborate with its potential customers in an altogether different segment, say, in the video business, to find cross application of this knowledge within the ethical framework. It would thus create new opportunities/applications of an existing piece of knowledge.
The reverse flow — passing the need for specific innovations from an OEM or EMS player to the potential suppliers — also takes place. Thus the distributor acts as an innovation channel, creating win-win situations for its customers and suppliers. A significant value-add in this scenario would be to recognize and pass on the trends to the partners about any "disruptive innovation" — something that can eventually overturn an existing dominant technology.
Ship and Debit Process
Component suppliers regularly publish a "recommended price list" for their parts and suggest that distributors use this as a guideline. However, distributors will often have to deal with the following situations:
- Special price requests from customers based on competitor quotes or volume buys
- Stock on hand that is significantly overvalued during a falling market price scenario
Distributors have worked with suppliers to structure price protection and ship and debit clauses to cover their stocks as well as to service customers at special pricing. During the above situations, the suppliers that have entered into ship and debit clauses issue a lower price list and credit the distributor with the difference between the old and the new price for stock on shelf. For customer orders with special price requests, the distributor obtains permission from the supplier to sell it at a lower cost, ships the stock first and then a debit claim is made on the supplier's account to recover the difference. Some component suppliers keep the recommended price list a little higher and push for a number of ship and debit transactions, as this implies the distributor is financing over-valued inventories for a period. This is an important collaborative mechanism because it helps suppliers to track market pricing and demands more closely, and distributors to win more customer orders and to better service price sensitive customers.
Dealing with Industry Regulations
The electronics component distributors need to collaborate with the OEMs and the suppliers in a way that the products handled by them in the supply chain are compliant with such regulations as Reduction of Hazardous Substance (RoHS) and Waste Electrical and Electronic Equipment (WEEE). The role of the distributor is particularly critical in disseminating RoHS-compliant component information, the absence of which has the potential to disrupt the complete supply chain, particularly in the European Union where the regulations went into effect on July 1, 2006.
