Representor Winter 2025 - Executive Commentary

EXECUTIVE COMMENTARY

Caveat emptor…Buyer beware!


Walter Tobin, ERA CEO

by Walter E. Tobin, ERA CEO

Look at the main ballroom here at the 2025 ERA Conference, packed full: 650 of our manufacturers’ reps, manufacturers and distribution partners, all working together to introduce the latest technologies to our customers and to keep them up to speed and ahead of their own competition in the race to win that coveted socket on the new project’s bill of materials.

None of this happens by magic, does it? It starts with the manufacturers who invest thousands of hours in both time and treasure introducing their latest products to keep their customers moving ahead in our great electronics world.

The manufacturers then train their rep network who in turn trains the local distribution branch sales offices on how best to introduce this technology to their local customer base – hopefully by making joint buddy calls to show the strong alignment in the field. When this happens, it is pure magic!

All of this up-front product development and sales training does not come free. Hundreds of hours and thousands of dollars are invested by all “three legs of the stool” to get the products both introduced and designed in.

However, all of this effort is for naught if a socket is not won and an order is not booked by one of the manufacturer’s authorized distributors whose POS report is then used to calculate the appropriate commissions to the corresponding territory rep and revenue to the local distributor branch office.

The distributor, rep and manufacturer all lose when one or more of the “three legs of the stool” is weakened or cut off. The stool simply falls over.

The end customer also loses by buying from a non-authorized source by giving up the protections afforded by an authorized distributor: pass-through warranty protection and indemnification from patent infringement, as well as the danger of buying a counterfeit or out-of-date code product. What will happen to them if their customers introduce defective product into their end-products? Their reputation could be shattered, perhaps forever—all in the name of cost savings and PPV achievement.

So what brought this on, are you asking? Why is Tobin suddenly talking about the brokers who have been around for years? Why now? What has changed?

The brokers are on major marketing campaigns rebranding themselves as independents. Brokers have been around forever, often used to find hard-to-get product when the buyers have exhausted the authorized channel and are forced to the broker world. The customer used to buy only what they needed to get their product built, no more and no less.

But something has changed! Perhaps it was the dreaded pandemic that caused the supply chain to go haywire with panic buying and shortages in all product categories. Perhaps it was the emphasis on the procurement world to focus on PPV and piece price versus total cost of ownership. The old world of TCOO, the Deming Quality ratings, etc. has long been dormant—perhaps it’s time for a rebirth.

During electronica in Munich this past November, I had the chance to walk the floor a bit to visit many ERA Members stands – manufacturers and distributors alike. I was stunned to see the size and scope of many of the independent distributor stands with a huge floor footprint (and some with second-story restaurants and bars) that cost hundreds of thousands of dollars or more. Since we have all been swimming in inventory over the past 18 months or more, how could the broker world afford such a huge expense? What could their sales have been over the last 18 months when the authorized channel has found itself in an over-inventoried situation with softer sales than forecasted? The authorized channel had everything in stock…and then some!

In the September 2024 issue of Electronics Sourcing North America magazine, it was reported that the top global independent distributors had revenue of $13.3 billion in 2023. Say what? How much did you say?

When I read this article and saw this number, I was stunned! Why did the global customer base find it necessary to procure from the independent channel versus the authorized channel when the authorized channel was in an over-inventory situation? Where did the independent channel get all of this product to sell? What would the financial benefit have been for the authorized channel if they had realized this revenue? Could consolidation and layoffs have been avoided?

What about the impact on the manufacturers’ reps? None of the reps got any commission on this revenue! I can bet that there were a lot of sockets that were won by the hard work of the local distributor branch and the local rep who ended up doing all of the design work and received no financial compensation. How long can the distributors and reps continue to do this demand creation and receive no compensation? Not long, I can guarantee you.

The independent channel has become more sophisticated in their marketing and sales strategies. They are touting their global sourcing capabilities and their many software programs to catch counterfeit products and keep it out of their supply chain.

However, they cannot provide the pass-through warranty protection and indemnification from patent infringement that the authorized channel can provide—and if the authorized channel only buys from their authorized manufacturers, there is zero concern about counterfeit product in their inventory.

All of us here at the ERA Conference need to remain united against the independent channel. It only drags business away from the authorized channel using short-term PPV benefits and is fraught with many long-term negative consequences.

Any dollar that goes to the independent channel erodes the ability of our manufacturers, manufacturers’ reps and distributors to continue to provide the demand creation and supply chain management via authorized product that our customers expect and deserve.

I was honored to give a presentation at the recent Electronics Lifecycle and Supply Chain Summit in which I give more color to this topic.

View this presentation if you are interested in seeing my comments on this subject.

Caveat emptor…