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Impact of E-commerce on the Component Supply Chain
February 7, 2013 |Estimated reading time: 5 minutes
Editor's Note: This article originally appeared in the January 2013 issue of SMT Magazine.
According to an October 2012 IBISWorld research report, the global supply chain for electronics and semiconductor components is a $676 billion behemoth, employing over 3.4 million people across almost 40,000 companies. This sprawling, fragmented industry is at the beginning of an exciting evolution in which e-commerce will play a significant role. New entrants to the market are beginning to exploit opportunities in the supply chain to deliver more flexibility and efficiency via e-commerce targeted to engineers and buyers. Online distributors are responding to concerns about counterfeit parts by partnering directly with manufacturers to ensure a secure supply chain and satisfying purchasing experience. As a result, e-commerce is gaining momentum, with some industry sources stating that nearly half of overall sales are coming from e-commerce platforms, clearly indicating that the electronics component industry is embracing its future. Keyword Search Begins the “Virtuous Cycle”The evolution of e-commerce in the electronics component industry can be viewed as a “virtuous cycle”--each step in the process feeds the next, culminating in new purchasing habits which are self-sustaining.
Figure 1: The virtuous cycle of e-commerce in the electronics component industry. The first step is education, through a keyword search. By now, the Internet is a part of everyday life and for engineers and buyers, conducting a Google search to obtain basic product information is increasingly the first stop in their research and buying process. Statistics show that the volume of these electronics and semiconductor industry-specific keyword searches is increasing. In a recent study, Components Direct highlighted findings that correlate keyword searches to where buyers are in the purchasing process. For example, generic keywords, such as “processor ic” and “connectors,” receive over 2 million searches a month, while specific part number searches, PAS5001-NM3-LF, or long tail keywords, such as SCSI bus termination ICs, while low in search volume, often originate from searchers further along in their design or buying process.
This “education phase” is an important first step on the path to full online purchasing and is fueling the rise of a new class of inventory search sites that has emerged to provide more detailed information, such as pricing, availability, and fulfillment lead time. With the rapidly proliferating number of components being offered, these search sites, such as Findchips, Datasheets.com, and Octopart, provide a breadth of information and an efficient format for locating specific components that cannot be matched by an engineer consulting multiple distributors. The product information on the search sites is updated daily by affiliated distributors. When the desired component is located, the engineer is able to click directly to the distributor’s website. Importance of Buying from Authorized E-commerce Distributors The next step, and perhaps the most important, in the virtuous cycle is the rise of fully featured and authorized e-commerce websites where buyers can confidently evaluate, comparison shop, and buy authorized components. Just as buyers are welcoming e-commerce as a complement to their personal relationships with distributors, e-commerce websites are also providing more features and content to deliver unique, compelling value to their customers. Figure 2 illustrates the ease-of-use and unique tools e-commerce provides. On this website, engineers and buyers can browse by product category, manufacturer, and package type. They can compare features and prices of various components, search by various attributes, and download datasheets. Figure 2: A sampling of the unique tools e-commerce provides.When the buyer is ready to purchase, full-service e-commerce websites offer a multichannel ordering process so buyers can choose to conclude purchases online or speak to a salesperson to negotiate price and delivery times. Registered users can also track and manage their orders, upload a BOM, and speak to a customer service agent at any time. Features like these are helping enthusiasm for e-commerce spread throughout the electronics components sector, with some industry sources stating that 50 to 75% of new business, and nearly half of overall sales, are coming from e-commerce platforms, with an anticipation of significant future growth. Avoiding the Counterfeit Trap Although the Internet has lowered the bar for engineers and buyers to find and source components, it has also reduced the time and cost of creating a storefront. In less than a day, anyone can register a domain, build an e-commerce storefront, and promote themselves as components distributors. Given the growing threat of unauthorized and/or counterfeit parts, buyers must be extra vigilant in validating the legitimacy of an e-commerce website. Savvy e-commerce providers recognize this and ensure that their websites are as safe for purchasing authentic parts as traditional methods. Many distributors have responded to counterfeit concerns by offering 100% direct manufacturer traceability, with stringent requirements for inventory and successful fulfillment, the last step in our virtuous cycle.Industry certifications are one way e-commerce providers are signaling the quality of their products and operations to purchasing professionals. Legitimate e-commerce providers will ensure that their processes and operations comply with the most stringent industry quality standards, such as ISO 9001, ISO 14001, ESD 20:20, and TAPA. Furthermore, leading e-commerce providers guarantee same-day shipment of small lots and high-volume orders and provide world-class customer service to reinforce the personal relationships that buyers enjoy. Buyers are increasingly becoming convinced that they will not have to sacrifice any of the benefits of their direct relationships when buying from an e-commerce platform that meets their unique needs while helping them avoid counterfeit parts. Distributors that offer an efficient and productive e-commerce experience--with guaranteed direct manufacturer traceability, industry recognized quality control certifications, and a convenient, easy-to-use ordering interface--are more likely to earn repeat business and the loyalty of buyers. The move to e-commerce is accelerating, with every part of the global electronics supply chain beginning to embrace and reap the benefits of participating in the virtuous cycle. Steve Martin is executive vice president of sales at Components Direct, where he has responsibility for all facets of the sales channel incorporated with both upstream supplier and downstream customer business. Most recently, Martin was in charge of running the Western region for a leading independent distribution company, which provided fulfillment and supply chain programs to EMS and OEM companies. He has also held senior sales and supply chain management roles at Solectron and TTI. Martin began his career in the electronics industry in 1992.