Little more than two months after reorganizing its Electronic Marketing group to the applause of suppliers, Avnet Inc. is receiving its first report card from its vendor base.The results are mixed. A survey of top component manufacturers yielded consensus that Avnet's new Speedboat program is better serving customers by tailoring distribution services to specific product categories and geographies.
However, some of the same qualities that have earned praise for Avnet EM's new structure are drawing fire from component makers, who say the regime could hamper OEM procurement by slicing up the EM group too finely. And others say the program does not go far enough to insulate rival supplier lines, which in particular threatens to exacerbate a shelf-sharing dispute involving Altera Corp. and Xilinx Inc.
"There is definitely a problem in the area of focused resources when it comes to demand creation in these niche business units," said Steve Haynes, vice president of worldwide sales at Xilinx, San Jose. "These Speedboats almost seem like company shells designed to separate entities inside the distributor. But the model as Avnet has set it up dilutes its ability to focus resources on key suppliers when the company includes conflicting lines."
How Avnet has changed
Under its Speedboat model, Avnet EM is creating product-focused divisions-semiconductors; interconnect, passives, and electromechanical; RF/wireless; and supply chain services-each of which has a range of geographical focuses and a different set of revenue goals.
The concept was inherited from WBC and EBV, two European semiconductor distributors that were included in a parcel of companies Avnet acquired last year through its purchase of VEBA's European operations. Avnet RF & Microwave is the most recent U.S. division created under the Speedboat model, with a U.S.-based group focused on semiconductors slated to launch by the end of the third quarter, according to Brian Hilton, president of Avnet Electronic Marketing Global.
"What's happening is that Avnet is beginning to [operate] a lot like Arrow in taking a segmented approach to serving suppliers and customers," said Matthew Sheerin, an analyst at Thomas Weisel Partners LLC, New York. "In theory, these specialized units are designed to give more focus and mind-share to their parts suppliers and the OEM customers. But it's also no surprise that there could be some initial griping by suppliers. Avnet probably needs to work out some kinks, with supplier conflicts being the primary issue."
Line-card conflict continues
One such conflict arose immediately upon Avnet's acquisition of EBV, which represents Altera in Europe. The fact that his company's archrival is now only a business unit away has proved unsettling to Xilinx's Haynes.
What's more, EBV's computing network may yet be rolled into Avnet's under the Speedboat program, increasing the potential for conflict between the semiconductor competitors, according to Haynes. Hilton said Avnet will decide in the next 12 to 15 months whether to integrate the computer systems of WBC and EBV.
"EBV currently remains as an independent company with a different name on the door, but I'm not convinced that will last long," Haynes said. "And when you start rolling in MRP systems along with the inventory, the name on the door is the only thing that will separate the companies. I don't believe in the long term this will work."
Taking a page from Memec
Avnet's Speedboat program is reminiscent of a model developed by Memec, a VEBA distribution subsidiary that was spun out following the parent company's breakup last year. However, Memec's structure, which consists of three autonomous divisions with separate global MRP systems, has received more favorable reviews based on its ability to build permanent firewalls between business groups.
Whereas Avnet's Speedboats share some back-end functions like warehousing and IT systems, Memec's more distinct approach has gained favor with the likes of PMC-Sierra Inc. and Applied Micro Circuits Corp. The two communications IC competitors manage to coexist within Memec by operating out of separate groups-PMC-Sierra from Unique Technologies and AMCC from Insight Electronics.
Hilton didn't argue that Altera and Xilinx are in a similarly competitive environment, but said Avnet is working with each company to provide equal resources as it tunes up its Speedboats.
Nevertheless, shelf-sharing and resource issues remain, according to Don Faria, vice president of customer marketing at Altera, San Jose. "If you look at what it takes to support the top two guys, it's pretty demanding," Faria said.
Indeed, hosting a stable of FAEs for leading suppliers is an expensive proposition, costing distributors between $160,000 and $200,000 a year per person for salary, commission, car, travel expenses, and insurance, according to estimates from several vendors. And creating demand for a supplier's line is time consuming, sometimes requiring 12 to 18 months of negotiations with customers before quotes are finalized.
Good, but not great
Frank Robertazzi, vice president of worldwide distribution at Agilent Technologies Inc.'s Semiconductor Products Group, said Avnet wants "to give its Speedboats real autonomy to operate as independent companies, and in sales and marketing activities that makes a lot of sense."
Operationally, however, the program has the potential to become troublesome, he said. "The Speedboats haven't been fully implemented at the back end, so we're still discussing this issue with them. Today, we ship to one location, but Avnet's request is for us to ship product to multiple locations to different Speedboats within Asia.
"We pushed back because they are moving away from where Agilent needs to go. That is the concern," he said.
Greg Frazier, group marketing officer for Avnet EM, said that to better serve customers and suppliers alike, Avnet has created regionalized businesses in Asia while at the same time recognizing the area's unique market characteristics.
"We've worked to determine prime locations, and at this time it could require suppliers to ship to additional locations such as South Asia, Taiwan, and Hong Kong," Frazier said. "Asia is not unified like the United States. The business in China, for example, is split more by geography than by product."
For Agilent, however, the concept of multiple shipment destinations is not helping the company rationalize its inventory and logistics strategies.
"We want to deal with one Avnet company, back end to back end. This means Avnet interacting with Agilent," Robertazzi said. "We don't want to trade with them in multiple locations and deal with two or three different Speedboats in Asia.
Avnet's Hilton offered assurances that suppliers that have authorized Avnet globally can still engage with the company's global materials procurement organization through a single, centralized point, whether that is in Asia, Europe, or the United States.
"Product is shipped to one location and Avnet's global IT infrastructure can help move it anywhere in the world," he said. "Suppliers wishing to ship to several locations can do so as well."
Geographical concerns aside, other suppliers questioned whether Avnet's niche business units are making it harder for customers to procure parts by requiring OEMs to work with different sales contacts across various Speedboat units.
"You have to wonder how it will work if a customer has to go to one division for integrated circuit devices and another for semiconductors," said Glyndwr Smith, senior vice president and assistant to the chief executive at Vishay Intertechnology Inc., Malvern, Pa. "But I believe Avnet has implemented a program that cuts across all the major divisions to support customers.
"It's important to keep the focus on the end customer and work very quickly, and I believe this is the goal Avnet set up when they created these divisions," Smith said. OR