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Discretes Aren't Always Passive
Lines of discrete semiconductors were important additions to TTI's linecard.
By Simon McLean, VP Marketing, Discrete Semiconductors, TTI Incorporated, Fort Worth, TX
As a specialist distributor, our mission is to field technically informed salespeople who provide assurance of supply and product of high quality from leading component manufacturers. While there are some similarities between our model and other component distributors, we tend to maintain a limited line card or portfolio of suppliers which is partly a by-product of our specialization.
In 2007, we added a fourth area of specialization to our portfolio by expanding our program to encompass discrete semiconductors. As we're accustomed to managing components in high volume, diodes and transistors were a logical step. Supply shortages are not tied to the price of a part so rather than focus on selling the most expensive parts as some may, we prefer to prevent shortage problems by covering as many of the units a purchasing department must address on a bill of materials. The systems and processes already in place allow us to maintain overall on-time delivery of greater than 98 percent. And we can provide 99 percent on-time delivery to the request dates of our supply chain program customers who are already configured for resistors and capacitors — components with procurement behavior that is similar to diodes and transistors. Our industry faced significant challenges in the year just past, but those difficulties suggest that we chose correctly when we expanded our specialization to distribute discrete semiconductors.
A Cyclical Business
While the "high tech" sector is a cyclical business, last year the rate of change became more acute than ever. After a very slow first half, lead-times on electronic components lengthened significantly, several products began to be allocated and many companies scrambled to replenish inventory and fill unforeseen orders.
After the dot.com bubble burst of 2001, one theory suggested that the increased availability of information driven by the Internet and greater business-to-business connectivity would make us smarter and more capable of identifying trends as they emerge. This would, in turn, soften the impact of a market decline because excessive inventory build-up could be forestalled. Indeed, companies within the supply chain are better connected than ever before and, as it turns out, that same availability of information and more automation in our purchasing systems can clamp down and ramp up the order flow more quickly.
Hiring and Training
However some aspects of the manufacturing process such as the hiring and training of personnel and the installation of new manufacturing equipment still takes considerable time.
This information transparency tends to create a group mentality — a perception of the market that has more influence on purchasing behavior than does an individual company's outlook.
Though the semiconductor market remains cyclical, this appears to be accelerating the pace of change. As demand changes more quickly, component manufacturing struggles to react in time, leaving gaps in supply.
Suppliers who carry a deep and broad available inventory — beyond the stock already committed to customer requirements — prove their value when electronic component lead-times jump from six weeks to 16 weeks or more with relatively little notice. Commitment to inventory which can bridge the problem caused by stretching lead-times is more difficult to maintain for public companies whose inventory turns are the subject of financial scrutiny. For those who can, maintaining a buffer inventory offers a tangible benefit to a company's customers during market upswings.
Formerly privately-owned, TTI Inc. became a Berkshire Hathaway company in 2007, which allowed us to maintain our inventory-heavy philosophy while also permitting us to address one of the other concerns which surfaced last year.
Supplier risk management became critical in late 2008 and early 2009 as a fear began to manifest itself — a fear of company failures upstream in the supply chain. While TTI had always been a successful company, our association with Berkshire Hathaway, the company chaired by Warren Buffett, served to reassure customers that we had the resources to weather the challenges of a very difficult economy. Many companies are now expected to focus more on supplier risk management in the future, believing that a similar situation may recur. So companies now monitor the financial health of the companies who are their suppliers as a matter of course. When tied to suspect companies, one recommendation is to spread the risk by bringing in alternate suppliers in the short term and migrate over the long term.
Cutting the Tape
Early in 2009, we decided to make our discrete inventory available to customers on cut tape rather than holding to the standard reel sizes established by the manufacturer. This decision was largely caused by interest from customers early in the design cycle. But we also experienced an increase in activity as customer inventories were managed down and companies sought to increase their liquidity early last year. This common-sense approach of offering the quantity of components actually desired by a customer was well-suited to the economic climate. Customers and the market determine what the optimal price/quantity combination should be. In a cash-poor economic climate, the credit provided by a distributor also becomes more valuable.
Our initial entry into the discrete semiconductor market was supported by three very strong supplier partners: Bourns, Littelfuse and Vishay. Since then we have added discrete semiconductors from Toshiba and strengthened our portfolio of light-emitting diodes and high reliability discretes by adding Harvatek, Semelab and Hi-Rel Components, a division of Aeroflex-Metelics.
Within our product specialization, we strive to offer our customers technology that solves any design challenge they may encounter while concentrating our efforts and inventory commitment among fewer suppliers. The advantages of that close association are then shared with our customers. While we will expand our supplier line card in the coming years, we will continue to be very selective and will create close and mutually dependent relationships which endure, regardless of the troubles that a particular market cycle or economy can bring.
Another by-product of what is now being described as "the great recession" is the heightened interest in power conservation and the search for scalable sources of alternative energy. TTI has created a Power Management Resource Center to showcase the power component products, market trends and information available to companies active in this effort. Our discrete suppliers are very involved in improving efficiency within existing power management systems while also playing a key role in developing new products for emerging power generation applications that include solar and wind power. In addition, light-emitting diodes are now considered a more cost-efficient source for many lighting applications, though much development is still to come. This is especially true when total costs are considered in a comparison between traditional and LED lighting options.
To be successful, specialist distributors must add incremental value over their more generalized competitors. In 2009, TTI's decision to distribute discrete semiconductors provided measurable advantages to our customers in a very difficult economy. We appear to be on the right track but will continue to seek customer input and adjust as we move forward.
Contact: TTI Incorporated, 2441 Northeast Parkway, Fort Worth, TX 76106-1896
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