Value creation of distributors for semiconductor companies
The majority of semiconductor companies today work with one or more distributors. Distributors handle currently approximately 24% of the semiconductor companies revenue. The collaboration of semiconductor companies with distributors enable them to have a much broader reach regarding the customer base. For example all the small customers can be managed by distributors, or very mature customers which are not so demanding regarding sales and technical support can also be managed via distributors. There are also geographical reasons where distributors could be of advantage. Especially in markets like China where chip manufacturers do not speak the language, face logistic hurdles or cannot cover the chinese product requirements.
Currently there are three major distributors globally. In America and Europe there is Arrow Electronics and Avnet quite prominent, whereas in the APJ region there is WPH Holding leading.
Also that the collaboration with distributors offers huge opportunities for semiconductor companies, more and more chip manufacturers are currently forced to analyse their collaboration model with distributors. This has several reason e.g. a consolidation in the customer base, rising costs and shrinking margins. So chip manufacturers have to review all expenses and revenue streams they do with their distributors.
Apart from the expenses and revenue streams semiconductor companies have to analyse the following areas regarding their relationship with their distributors:
Customer Insight – Manufacturers need to have a better knowledge regarding the customer base of the distributors
Provide the right incentives – In order to motivate distributors semiconductor manufacturers need to provide the right incentives
Product Insight – Manufacturers need to be better informed regarding the product portfolio distributors are offering
Business coverage – which business process is the distributor able to cover. E.g. distributor is just involved in the fulfilment process or in the demand creation or both
For the distributor selection process semiconductor companies have to check the following criteria:
Customer Coverage – Manufacturers need analyse the current market coverage of the distributor depending on region, growth potential etc.
Product knowledge – Manufacturers have to check the product portfolio the distributor has expertise
Sales capabilities – Analyse of sales impact and customer relationships in target markets
Service quality – Check proof points regarding customer satisfaction
Competitive check – Review distributor collaboration models with other semiconductor companies in order to avoid a competitive situation regarding product overlap etc.
In order to simplify the distributor selection process, there is a heat map which helps semiconductor companies to identify customers and products which would benefit from a distributor demand creation. See the following graphic:
With the heat map semiconductor companies can quickly identify if their distributors fulfil the requirements based on customer, region and product coverage.