Why are distributors still sometimes only seen as component suppliers and less as system partners?

Andreas Falke: In fact, distributors are always very customer-oriented in order to best meet their requirements. Particularly in the complex electronics supply chain, a large part of the turnover is generated by fulfillment between large OEMs or EMS (Electronic Manufacturing Services) and distributors; here they act primarily as logistics partners. For development and system customers, on the other hand, distributors act in an advisory capacity, for example through their field application engineers, but also offer logistics services. I clearly see distribution as a system partner, especially for small and medium-sized customers.

However, distributors are seen more as partners for OEMs and EMS, especially in mechanical engineering. There is still a reluctance to approach distributors as system partners. How would you like to counteract this?

Andreas Falke, Managing Director of FBDi: "In terms of volume, the demand for electronic components in Europe as a whole is just as high as the component requirements of a single company like Apple."

© FBDi e.V.

Falke: Finding the right partner is vital, especially in today's world. Small and medium-sized companies, the hidden champions of industry and for me the backbone of the economy, are not necessarily the absolute electronics specialists. Different planning and life cycles apply in mechanical engineering than in the electronics sector. In electronics, many things are faster-moving and more complex: products and components often go around the world several times during their development and production before they reach the end customer; in addition, many are 'single source', i.e. only available from one manufacturer. For mechanical engineering, this means that if an engineer is quietly developing at his desk without making sure of component delivery times, suppliers, discontinuation periods, etc., this can lead to problems. And this is where distributors come into play: Their aim is to be very close to the customer very early on in the development process in order to advise and support them with precisely these challenges. They then only recommend manufacturers with products that are suitable for industrial use, for example in terms of long-term availability. In addition to this close partnership, there are of course companies that simply ask for prices in order to push them down elsewhere. Especially in times of supply bottlenecks - as we are experiencing today - these companies often have the biggest problems getting hold of materials: They are not visible to manufacturers and fall behind in long-term planning.

But is an SME so exciting for a distributor against this background?

Falke: Absolutely! In Europe, we have to let go of the idea that we are relevant because of the size of our turnover. Compared to the turnover of a single company like Apple or Samsung, we are - if you'll allow me to use the word - a fly in the ointment. If we look at the demand for components at component level, the demand for components in Europe as a whole corresponds to around 10% of global demand. Do you know who else buys 10% of the global market? Apple and Samsung, respectively. This means that the volume of electronic components required by Europe as a whole, with all its car manufacturers and SMEs, is just as high as the component requirements of a single company.

In terms of turnover, a medium-sized company from Germany is no longer that relevant. What really matters are interesting products that serve an interesting market and can give manufacturers a glimpse of where the journey is heading. These are the so-called lead customers, which are so interesting in terms of technology and development that they are also relevant regardless of volume and market penetration. And distributors provide this visibility for the major manufacturers.

Perfect Match distributors ensure visibility

Now, not every medium-sized company is automatically a technology leader. What opportunities do these companies have?

Falke: Increasing visibility doesn't necessarily mean being present at a TSMC in Taiwan, even for a large medium-sized customer that wouldn't necessarily be the case. However, the manufacturer knows the customer's requirements via the distributor, because this provides long-term visibility, including orders, and the manufacturer can plan accordingly. The important thing here is to plan component requirements over the long term in order to increase visibility via a background noise. In this case, it is no problem to obtain 10 to 30 % more components if required. And even in the event of supply bottlenecks, customers with a background noise are served more quickly than those whose orders only come in sporadically. I can only advise every company to be present.

How have distributors' business models changed over the last ten years?

Andreas Falke, Managing Director of FBDi: "We in Europe have to let go of the idea that we are relevant because of our sales volume."

© FBDi e.V.

Falke: The most significant change is certainly digitalization. Today, around 15 to 20 % of sales in distribution are generated online. And there is an ever-increasing mix of services. Fulfillment has become more important in many areas, as completely different logistics concepts are possible thanks to automated processes, including ship-to-line and individual supply chain/inventory optimization. In addition, there are corresponding service models, which are of course adapted to the needs of the individual partner. However, this requires an intimate and trusting relationship: if I know today that my customer wants to launch a new product line on the market in four years' time, I can work differently as a distributor than just passing on prices.

In this context, could distributors also be described as the purchasing department for SMEs?

Falke: Distribution is an extremely complex and exciting topic, but is often only perceived in individual facets: If I, as an engineer, need support from the field application engineer when selecting components, I don't think about the fact that the same distributor might be talking to my purchasing department about the optimum logistics chain. On the supplier side, the distributor is often perceived as an extension of the sales team, even though it is one of the largest customers. As you can see, the customer sees us as a service provider and partner to the purchasing department, while the supplier sees us as part of the sales team. Good cooperation is therefore always required when all facets are perceived and an open and intensive exchange takes place between all parties involved.

How exactly does system development for customers fit into this area of tension?

Falke : Supporting system development for customers underlines the manufacturers' desire to ensure broad distribution. Semiconductor manufacturers in particular live in an extremely fast market. This means that there is always something newer and better than what I have just sold. In mechanical engineering, devices and machines are built that are intended to be supplied for up to 20 years and sometimes last 50 years. Marrying these two sides is a real test, but it's exactly what a distributor often ensures. Manufacturers can only take care of a few major customers, so-called key accounts; the distributor takes care of the broad business - this is not only the view of the manufacturers.

From the customer's point of view: I have 500 manufacturers who somehow all supply comparable components, but which one is the right one for me? Here, the distributor provides a pre-selection according to the specifications. The better he knows the customer, the better the preselection, of course. For this reason, SMEs and distribution belong together genetically.

'Made in Germany' - Sustainability as the market of the future for Europe

You know the supplier and customer side: Which markets will open up in the future?

Falke : We see the future market of energy technology relatively clearly. The topic of climate with all its facets would also be ideal for German SMEs. After all, the German SME sector is not a mass market like smartphones, nor is it a data market like America with Google and Co. The SME sector in Germany and Europe is strong in the 'high mix, low volume' area. We have always been strong in sustainability: no disposable products, just German engineering! In principle, 'Made in Germany' means exactly that: quality that lasts, meaningful added value. And that fits in perfectly with the topics of climate neutrality, renewable energy, electricity consumption optimization and so on. For us, this is a future market for which Europe is set. A market that will grow and a market that doesn't quite fit in with the Americans and Asians with their mass market mentality.

What challenges are distributors struggling with the most at the moment?

Falke: At the moment it's clearly the shortage of components, but I would like to look at this from a different perspective. At the moment, everyone is talking about broken supply chains and there are 100 reasons for this. However, the main cause is ignorance of the electronics market in Germany: because we were afraid of the pandemic, orders were canceled at the crucial points. Added to this is cocooning, i.e. people are snuggling up at home and doing what? They buy consumer electronics! So when the big OEMs, automotive suppliers, machine builders and plant manufacturers say, 'The market is collapsing, I'm canceling my demand', companies like Apple & Samsung are on the other side and say, 'Stop, I'll take the components because I need them'. At the moment, we are 20% up on last year's sales - not because prices are rising, but because we are actually selling more, albeit in other product areas!

We will see many more facets of increased demand in the future, simply because more and more electronics will be found in more and more applications. Forecasts predict that the electronics market will double by 2030. Many manufacturers are therefore investing massively in production capacities, and components will be available in abundance after the investment phase. Then there will be another cycle in which prices fall. It's a bit like the seven fat years and the seven lean years, except that the seven years will probably be reduced to one and a half years.