Out of change and chaos comes opportunity

by Walter E. Tobin

Walter E. Tobin, ERA CEO
wtobin@era.org
T: 617-901-4088

We have experienced change since the formation of the manufacturers’ rep model, the development and formalization of franchise agreements with distribution and the rise of a multitude of electronic component manufacturers.

Our industry is experiencing a lot of changes just since Aug. 1 — a new global distribution association is being formed, a major semiconductor manufacturer is terminating a global distributor, another semiconductor manufacturer is deciding to “go direct” and away from the rep model in almost all of its North American markets, etc. So much change in such a short amount of time, right?

Wrong!

When did our industry NOT experience change? We have experienced change since the formation of the manufacturers’ rep model, the development and formalization of franchise agreements with distribution and the rise of a multitude of electronic component manufacturers.

Distribution went through a tremendous consolidation beginning in 1980 with two major distributors acquiring over 50 other distributors over the next 30 years or so. Do you think consolidation in the channel is over? Not at all! There will be continued mergers and acquisitions (M&A) moving forward as distributors continue to move into new geographies and garner new franchises via acquisition … so stay tuned!

The manufacturers continue to go through tremendous merger activities in order to acquire new technologies via buying another manufacturer versus developing the technology internally. This merger activity allows for a quicker time-to-market timeline and a boost to shareholder value.

What about the reps? They are also experiencing their own M&A activities due to their desire for larger geographic territories or the desire to gain access to additional manufactures via buying another rep company versus trying to add manufacturers one at a time. Once again, time to market and a quick ROI is driving this activity.

But wait! Is there any downside to all this M&A activity? Of course.

The first impact is the toll that it has on the people — our fellow industry citizens. One of the main goals of any merger or acquisition is to try and capture the combined revenues of both organizations while eliminating the redundant expense. Sort of a nice antiseptic way of saying to lay off people.

Another area that needs to be sorted through is technology or manufacturer conflict. When a distributor acquires another distributor, there are manufacturers who will not “share the shelf” with one of their competitors. Thus, they may terminate the new combined company. Same is true when a manufacturer acquires another manufacturer. There may be a small/medium area of conflict that needs to be rationalized internally.

Manufacturer mergers have had a major impact on the manufacturers’ rep network. Manufacturer A buys manufacturer B; there is a rep “bake off” between the A’s rep and B’s rep; however, the manufacturer wants to choose rep A but they have manufacturer C that has a SMALL conflict with manufacture A. If the chosen rep wants to get/keep manufacturer A/B, they need to terminate manufacturer C – even if C represents a major source of revenue to them and the conflict is so small so to perhaps not even matter in that particular territory! So conflict has been a major product of all of this M&A activity.

Perhaps the biggest impact of the M&A activity has been on the customer. Does anyone even think of the impact on perhaps the most-important person in our industry? Our customers do not like surprises or change They like predictability and consistency. When a rep, distributor or manufacturer changes the sales/engineering coverage of a customer, it usually causes a near-long-term impact on the customer. Some customers work through the changes and in fact may become a stronger or more loyal customer to the new entity. Others may decide to “vote with their feet” and walk away to find a new manufacturer, rep or distributor. We should always keep in mind the impact on anything we are proposing to do on the customer.

So … where is the opportunity that comes out of all of this change and chaos?

It rests in your hands! It is up to YOU to lead your organization though this matrix of challenges. YOU need to continue to “skate where the puck is going” and stay ahead of change … continue to reinvent yourself and your company so YOU will be the winner in any of the M&A activity.

Do you have a strong hiring practice that allows you to continue to “restock the pond,” bringing tomorrow’s sales leaders into your organization? Do you have a formal succession plan in place?

A major way to remain relevant is by differentiating your rep company, distributor or manufacturer so the customer simply cannot afford to remove you from their supply chain. Reps can do this by providing a total solution to their customers’ needs through their manufacturers; provide design services via associated selling linking different technologies into a total solutions selling approach versus advocating one manufacturer at a time. Customers want to get total design help versus one socket at a time … be that rep who delivers this.

Distribution can differentiate themselves by developing unique product offerings; interconnect value added manufacturing, cable assembly, crystal programming, etc. They can also develop a strong design-in model either internally using their own FAE teams … OR … by partnering with the rep community and delivering total solutions selling to their mutual customers. Once the solution is designed in, the distributor can set up a strong supply chain model ensuring risk-mitigation and continuity of supply along with a best-in-class OTD and quality measurements. What good is the best engineering solution if the customer cannot get the product on time? After all, nothing happens until the product is shipped to the customer!

Bottom line: Do not sit back and wait for all this to blow over. It never has and never will. Learn to differentiate your company from your competition. Make it almost impossible for someone to eliminate you from their sales model.

Finally, keep the customer in your camp. At some point, a new organization will ask its customers who should be the new rep or distributor. You want them to pick YOU! This will only happen with lots of hard work and tough skating to where that puck is going … be there before your competition!

Skate away …