As part of a major restructuring to improve customer services and gain market share, Premier Farnell plc plans to spend nearly $4 million to streamline and rebrand its four regional catalog distributor subsidiaries to operate as one global organization.
Under the new arrangement, OEM and EMS customers can acquire the same products and service offerings from more than 3,000 suppliers at any one of Premier's four Marketing and Distribution Division subsidiaries: Newark Electronics, MCM, Farnell, and BuckHickman.
Newark Electronics will be the first to begin operating under the global network, called InOne. Over the next 90 days, the remaining three subsidiaries will adopt the InOne brand and processes, which Premier Farnell said are tailored to enable them to work together more efficiently but still independently, and cut days from their order-to-delivery cycle.
Each subsidiary will be equipped through an Internet-based system to offer companywide ordering capabilities, product information, price and availability, and delivery lead times.
"I can place an order on Farnell's system for a European-style component, have it shipped from our warehouse in Europe, and have it delivered directly to the customer anywhere in the world within three days," said Michael Ruprich, chief executive of Newark InOne, Chicago.
"The services will become uniform across our distributors as well," Ruprich said. "Each distributor had different service capabilities and we wanted to align the businesses to work seamlessly across geographies."
While the InOne network is designed to help Premier Farnell gain global market share, the catalog distributor's regional focus will not change, he said. Newark and MCM will continue to serve the Americas, and Farnell and BuckHickman will remain concentrated on Europe and Asia-Pacific.
"Premier Farnell's companies have more scope for growth in Europe than they do in North America," said a Merrill Lynch & Co. Inc. analyst in London. "The Farnell subsidiary has relatively small market share. It isn't as comprehensive as Newark, so they have more opportunities for growth. The division's revenue share from sales in Asia is not big either, only about 5%."
The Merrill Lynch analyst said market share for the components and MRO industries the catalog distributor serves in North America is 5%, and much less in Europe and Asia.
Newark over the last three years has spent $50 million on technology and talent to establish itself as a global player, a requirement in the distribution industry today, Ruprich said.
Premier Farnell has selected customer relations management software from Siebel Systems Inc., San Mateo, Calif., to enable the four InOne distributors to link local sales branches, outside account managers, and call centers. The Farnell subsidiary implemented the system late last year; Newark has tested several modules and intends to fully install the software later this month.
The InOne network, which gives customers access to 400,000 in-stock products, will add an unspecified number of supplier lines by July. Most new lines will come from suppliers with which Newark works, adding to the more than 100,000 products it now stocks. Ruprich said Newark plans to expand its product offerings by 50% and will double its passive component selection.
Already rolled out on Newark's Website is access to product information across the InOne network, including the ability to view recent transactions and shipments. Supplier links have been added to the Website to give OEMs an additional 1.2 million items from which to choose.
Is there a need?
Steve Stallings, president of Practical Micro Design Inc., said his Springfield, Va., company purchases about one-third of its components through catalog distributors.
"We're involved in data communications, product development, prototypes, and small production runs," Stallings said. "For our business model, it's not terrifically important to work with a global catalog distributor that offers the same products and services in each region."
More important, he said, is that a catalog distributor have the parts available when needed.
It is not likely, Stallings added, that Practical Micro Design, which fits Premier Farnell's profile of a company that purchases components in small quantities for R&D, prototyping, small-scale production runs, and MRO, would need to buy parts stocked in Europe, but "I suspect organizations doing MRO with field offices would."
Some of the changes at Premier Farnell, including expanding its passives offerings, were based on requests from design engineers, according to Ruprich. But a major motive for the restructuring is to shore up revenue and net income.
When Premier Farnell next month reports its performance for fiscal 2002, which ended Jan. 31, global revenue is expected to decline by more than 5%, to $1.2 billion, said Sue Cox, an analyst at ABN AMRO in London.
"We're forecasting sales for the Marketing and Distribution Division in North America will decline to $477 million from $534.4 million, and for division operating profits of $50 million, compared with $54.9 million the prior year," Cox said. "Within that, we expect Newark's sales, which represent 92% of the division's total sales in North America, to decline 11% and MCM's to fall by 7%."
Analysts believe distributors striving for a global presence must have transparency across their groups. But while Premier Farnell is combining processes, services, and products, the distributor doesn't plan to link its disparate IT systems, due in part to tax regulations in various countries, the company said.