Trends in electronics distribution: global vs local, rising component prices & value-added services

Author : Stefan Barrig | Head of Product Management | Heilind

01 June 2019

For Heilind, it is about closer integration with the customer's processes, for example with automated inventory management (vendor managed inventory)

Specialist electronics distributor, Heilind is a big player in the US, but is also now investing heavily in European markets. In this interview, Stefan Barrig, Head of Product Management at Heilind, discusses the trends he sees in electronic components distribution.

This article was originally featured in EPDT's 1H 2019 Electronics Distribution supplement, included in the June 2019 issue of EPDT magazine [read the digital issue]. Sign up to receive your own copy each month.

Barrig gives his insights on: how a family business can hold its own in volatile markets; ensuring security of supply and reducing procurement costs, despite rising component prices; and why kitting, labelling and customer-specific adaptations are in high demand.

What can industrial customers expect from Heilind?

As a specialist electronics distributor, we focus on connectors, electromechanics, sensors, relays and switches, as well as production and consumables. As the No. 1 interconnect distributor in North America, we have very good and close relationships with more than 100 major manufacturers. Many of these manufacturers also target European markets. We have won some for the local market and are gradually expanding our linecard. This opens up interesting product alternatives for our customers and helps stimulate the market.

Which changes can we expect in the distribution market?

We assume that consolidation in the distribution market will continue, resulting in changes to the distribution model. Expectations regarding service are rising, component manufacturers are reducing the number of distributors, and the old division into prime, regional and catalogue distributors is being increasingly challenged. Heilind supplies small quantities for the design-in and prototype phases, up to high-volume for mass production.

You are talking about rising customer expectations…

Customers expect to receive the right service from a distributor at every stage of the product life cycle. If products are developed locally and then manufactured in Eastern Europe or Asia, we also have to be represented there as a distributor. That’s why we already have more than 40 locations worldwide. Heilind is currently investing heavily in expanding its local presence, for example in Germany and Eastern Europe. In Germany, we have increased the number of employees by more than 50% to over 100. In Asia, we have grown by a factor of four in recent years and we are well represented locally.

As a family business, we are not under pressure from short-term profit margins. That's why we can stock up on individual products, build up safety stocks and continue serving our customers

And yet Heilind is not a global corporation, but a family business…

Heilind was founded in 1974 by Bob Clapp in Massachusetts, USA. It is a family business: traditional values such as reliability, loyalty and stability apply. Most employees have been with the company for many years, if not decades. The company values both local proximity and personal relationships with the customer. This is the opposite of the typical shareholder value model: when in doubt, we will forego short-term profits to establish a sustainable and long-term customer relationship. This enables us to provide customised solutions, even when markets are volatile.

Which customer segments does Heilind address?

In the industrial sector, we focus on small and medium-sized companies, without neglecting globally active companies. Thanks to our specialisation in certain parts and components, we can get much more involved in individual technologies, know the trends and recognise at an early stage where new business areas are developing. Sensor technology is a good example. Here, we have developed our know-how worldwide. In particular, small and medium-sized customers can benefit from this knowledge.

What do you do to reliably serve your customers in volatile markets?

For our customers, on-time availability is of the utmost importance. However, as the market is turning faster and faster, logistical concepts have to change. Therefore, we are more proactive. This means that, in addition to safety and consignment stock, the focus is increasingly on closer integration with the customer’s processes. As a distributor, for example, we receive a rolling forecast from the customer, take over automated inventory management (vendor managed inventory) or deliver just-in-time. In this way, customers benefit from a logistics solution tailored for them.

As the component market becomes ever more fast-moving, how is the role of distributors changing?

We see several trends. Component manufacturers are reducing their costs. Unprofitable components are removed from the range. Also, logistics costs are reduced and this tedious business is handed over to distributors. On the other hand, depending on the product life cycle and component, our customers require both small and large-scale quantities. Excessive stocks of material, due to large packaging units or minimum order quantities, are becoming less and less acceptable. Customers also expect us to procure components outside of our linecard. Furthermore, more and more customers are transferring their stock to us. As a distributor, we are therefore increasingly integrated into our customers’ procurement processes. The demand for technological consulting and design-in is increasing, as products become increasingly complex.

As a specialist electronics distributor, Heilind is the ideal partner for connectors, electromechanics, sensors, relays & switches, as well as production consumables for a variety of markets

What are distributors doing to address delivery reliability in light of extended component delivery times?

We are experiencing a worldwide increase in demand for components and, at the same time, a shortage of product range due to years of consolidation on the manufacturer side. That’s a fact. As a specialist distributor, however, we have a very intensive and close contact with the most important manufacturers. As a result, we can detect changes in delivery times at an early stage, and inform our customers about such trends. Moreover, as a family business, we are not under pressure from short-term profit margins. That’s why we can stock up on individual products, build up safety stocks and continue serving our customers.

What influence does a distributor have on rising component prices?

There are very different starting points here. As a specialist distributor, we have deeper insights into component segments, closer contacts to manufacturers and we can often offer our customers more cost-effective product alternatives. On the other hand, as an extended workbench of the manufacturer, we also undertake assembly tasks. Thanks to certified assembly of plugs and switches, we can often deliver finished products within days, instead of weeks.

A third point is often underestimated. Despite rising component prices, the costs of the entire product life cycle are decisive. We give our customers the opportunity to reduce their administration costs. The purchasing process, material planning, monitoring of deliveries, warehousing and the management of invoices absorb enormous resources. We offer lean and customised logistics concepts that help reduce bureaucracy. We also offer flexible financing. If, for example, small customers receive a payment term of 60 days instead of 30 days, this can noticeably reduce liquidity costs.

What about the need for technological advice? What can distributors realistically offer here?

As a specialist distributor, we can certainly offer valuable advice. Since we are deeply involved in the product details, we can provide complete project support. We support our customers from the product idea through sampling to series production. This involves, for example, the integration of new technologies or the consideration of new environmental standards. Knowledge of market trends is also becoming more important. Ultimately, in view of the fast-moving component market, our customers also expect early information on component discontinuations, the end-of-life of a component, and options for final orders, in order to be able to stock up on sufficient parts.

Thanks to the certified assembly of plugs and switches, Heilind can often deliver finished products within one day instead of 20 weeks

What about value-added services? What is your offering?

Value-added services are a response to increased demand for them. More and more inventories are being outsourced. Companies want to reduce costs everywhere. When investing in expensive machines, they question whether such purchases are worthwhile. Industrial printers are too expensive if they are rarely used in projects. Small and medium-sized enterprises in particular will often work on a project-by-project basis. As such, our value-added services meet increased demand in the industry. We offer what the market needs. We think about every single production step of our customers, and fill in gaps to help companies that could not otherwise get ahead on their own.

Under the label ‘value-added services’, you offer assembly services. What does this mean?

There is a great need for a wide variety of services. This includes connector production, which we provide to manufacturers under license. This enables very fast deliveries or allows customer-specific adaptions. We have our own location for the assembly of circular connectors, fans, enclosures, consoles, terminals, switches and relays. Often special cable configurations are needed, something has to be rewound or contacts should be knocked off.

Kitting is another area. Heilind creates complete component sets based on a parts list. They are already prepared for production at the customer’s site, or include an accessory pack consisting of connectors, contacts and seals for the delivery of a machine. Such compilation saves customers time and costs for non-production activities.

Are print services or special labels a growing area?

We have set up our own department for labelling and packaging, offering a wide range of customer-specific solutions for packaging, barcoding, labelling and quality control. Here, we colour parts according to pre-determined colour codes, mark products or print housing, security and barcode signs. Using special printers, we supply various label formats, labels for pallets or printed shrink tubing, or even high-temperature and traceability labelling.

You supply your customers with small quantities and also take over excess material stocks. What’s the rationale behind this approach?

Predefined packaging units or manufacturers’ minimum order quantities make products that are to be launched on the market in small series more expensive. On the other hand, purchasing small quantities of components is often very expensive. Thanks to our global presence and close relationships with more than 100 major component manufacturers, we can often deliver alternatives that are available in smaller units. However, we also take over the remaining quantities of large packaging units, because the component is interesting for other customers. In the end, we win as a distributor because we are valued as a trustworthy partner, offering both small quantities and high volumes for mass production.

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