The “continuous improvement” mantra still echoes throughout the supply chain. As 2014 gets underway, many distributors are responding by reaching beyond their traditional customer base for growth. A pointed example is the tightening of the design and supply chain as companies seek to forge stronger relationships from the design phase on through to production. The trend is an extension of the drive for continuous process improvement in all kinds of manufacturing operations, and it highlights some of the changes taking place in manufacturing today.
“Continuous improvement is alive and well in manufacturing. For most companies, it has become a way of life,” according to a recent manufacturing industry outlook survey from Minneapolis-based accounting firm CliftonLarsonAllen. The firm interviewed executives from U.S. manufacturing and distribution organizations in late 2013 to uncover trends, issues, and challenges facing the industry as we head into 2014. Finding new ways to reduce costs and improve quality remains a top industry goal, the firm found.
“Sixty percent of respondents indicated that their continuous improvement efforts target market pressures like costs, quality, and on-time delivery; 19 percent aim to increase capacity; and just 7 percent said they are targeting inventory reduction,” the survey said. Other efforts to achieve these goals include workforce training, lean manufacturing, and factory automation.
The trend is opening the door for new business to distributors who can drive such changes through supply chain management programs. For some electronics distributors, this means extending their reach to serve a wider range of customers’ needs, beginning with the design phase and moving with customers as they navigate through the production cycle.
Large distributor Digi-Key Corp. is a case in point. With more than 40 years serving design engineers and other electronic component buyers, the distributor has been investing in building its business on the production side since 2000. Vice president of supply chain solutions Steve Vecchiarelli describes the business as an important extension of Digi-Key’s capabilities—and one that takes perseverance and a new mindset.
Vecchiarelli recently sat down with Global Purchasing/Electronic Design to discuss how design and production businesses can work together to expand distributors’ business opportunities while helping manufacturing customers achieve some of the cost reduction and efficiency goals they’ve set in recent years. Here are some excerpts from our conversation:
Global Purchasing: What steps did Digi-Key take to develop this hybrid distribution model, serving both design engineers and production customers?
Steve Vecchiarelli: Digi-Key started its production business division in the 1999-2000 timeframe. Customers elected to give us more business and they said “we like you, your pricing is better, but you know you’ve got to do some other things service-wise to be competitive with other companies.” So, we went from the Stone Age to the Space Age in about eight months, putting the tools and systems in place that would get us into the game [of serving high-mix, low-volume production customers]. Since then we have refined things, and it’s been about eight years in the actual managing of material for customers.
Now, when we go to talk to young startup companies in particular, we try to sell them on a “prototype to production” basis. We actually trademarked that phrase [in 2013]. We have what we think is a unique ability to do that—to supply products from the early design phase, and as they move through the lifecycle of an idea, we build a supply chain so that there is product at every phase of the operation.
Global Purchasing: Does this model work better for particular customer segments?
Vecchiarelli: It does depend on the customer type. If they are more of a contract manufacturing customer, they may not be as interested in it because they have multiple customers and they do different things for those customers. But for an OEM—and one that builds its own products—there is considerable interest. We had a customer recently in Texas who came to us [for this kind of solution]. The customer was using one contract manufacturer for its production work and a smaller contract manufacturer for prototype, with different suppliers supporting each. They wanted one supplier who could work with the engineer all the way through to the contract manufacturer.
We had another customer in California looking for the same type of thing. They were both looking for a bridge between the prototype stage and production, and they asked us to handle a set of products [to that end]. So, it all depends on the customer, but more of them are absolutely coming to [distributors that] straddle both sides of the fence.
Global Purchasing: What are the challenges of doing business this way, particularly when it comes to meeting customers’ cost reduction goals?
Vecchiarelli: I think technology on the customer’s end is certainly a challenge. A lot of customers have grand ideas but don’t have the resources or technology to achieve them right away. I used to say they read the book from Toyota or Apple and they’re all charged up—and they should be, because no matter what level you’re at you can drive cost savings with [supply chain management programs]. But they don’t realize that they buy in a year what Apple or Toyota buys in a month. That can be a frustration for them. The solution is to do a lot of discovery about their capabilities and design a program that works best for them.
Global Purchasing: So customization is important.
Vecchiarelli: Yes. We realize that the only thing that’s the same about all of these programs is that they’re different. We have to be flexible and innovative with almost every single customer we deal with, and we can do that because of the many tools we’ve put in place. We mix and match to whatever the situation is, and it’s PFEP—plan for every part. We take a look at how many times they use it, what’s the best way to manage it, how much they use.
Global Purchasing: Where do you see this trend headed?
Vecchiarelli: Something that we’ve seen for the last [several years] is that customers are looking for better, cheaper, faster. Fortunately, with today’s technology, I think we’re there. So, I think the better, cheaper, faster demand will be around for a long time. In terms of services, it’s all about “what are you doing for me now?” That’s what customers are asking. As a result, none of us can afford to sit on our hands. [In response], we’re adding resources internationally on the production side—in-country resources covering all of Europe and Asia, all focused on the production business side of the company.
