Electronic components distributors are moving toward a fee-for-services business model, through which they provide easy access to unique supply chain management information-including detailed component da-ta on product life cycles, availability, pricing, specifications and cross-references-for a monthly or annual subscription fee.

Because the supply chain begins with the development of a new design, distributors say it's critical to create and link design services with procurement offerings. But don't expect distributors to call them value-added services. Their offerings primarily center on a distributor's proprietary information or intellectual property that can't easily be duplicated by other companies. "Value-added services have revolved around selling services as part of selling product," said Tom Pitera, president of Pioneer-Standard Electronics Inc.'s Industrial Electronics Division (Cleveland). "We did that to be more of a solutions provider to the customer and to serve their needs whether they want to buy a component or a value-added service."

Pitera said he's seen a migration in the industry to a standalone fee-for-a-service solution for the customer, which is not tied to or embedded into the price of the product. "By breaking these services out, we are able to better position and better price our products and services independently to meet the needs of individual customers as opposed to a broad market," he said.

In many cases, only larger distributors such as an Arrow, Avnet or Pioneer-Standard that have the infrastructure in place and a large breadth of product and supplier lines will have the ability to offer intellectual-property services worth paying for. For instance, with more than 10 million transactions per day and more than 650 franchised lines, Arrow can provide information that purchasing and design communities can't get anywhere else, said Chris Henry, vice president and general manager of Arrow's Internet Business Group (Melville, N.Y.). But Arrow's intent is to provide information beyond its 650 franchises around the world. "We also believe that other companies have information of value and the fee-for-services model is likely to be the vehicle to bring that information to the workstation or the PC," Henry said.

Greg Frazier, executive vice president of Promiere (Phoenix), an Avnet Inc. company, said the ability to offer services and have a sustainable business, in a lot of cases, will be determined by size. "If you plan to have a business model that talks in-depth about components parts, you need to have a wide offering of product to make it viable," Frazier said. "If you only have five product lines you will have a hard time getting enough of a footprint to make your service viable."

That raises a key question. Are engineers getting the biggest bang for the buck by buying into these proprietary services? While the preference of many engineers including Tim Strike, associate head of the Technology Application Branch at Georgia Tech Research Institute (GTRI, Atlanta), is no fee for services, he said there are valuable benefits to these services. One of the biggest reasons why GTRI uses Arrow's Digital Solutions that include Arrow Alert and Arrow Risk Manager is to obtain information on hard-to-find or obsolete parts. GTRI is an engineering service company that has deadlines and budgets like any other company. In many cases, GTRI pulls together a small team of professional and student engineers to help companies that are short-staffed and need to get a product done in a hurry, or they are small or virtual companies with no engineering staff. That's why component information on end-of-life (EOL), availability, lead time and pricing is important, Strike said.

"The last thing I want to do is to hand over a complete package to a customer with an obsolete part in it," he said. "Risk Manager helps us see where in the cycle a part is and whether it's a part that we need to be worried about in the future. We can schedule alerts for specific changes like EOL, drastic availability issues or stocking issues. And we can also get an idea of how many people are buying the part. If almost nobody is buying the part, unless it's a brand-new component, then most likely it won't be around for a long time. That's why we need all these little pieces put together."

Strike ran a test to try to quantify the savings that could be realized by using Arrow's services. GTRI recently completed a project that took two engineering interns a couple of weeks to clean up the final bill-of-material (BOM) documentation for a contract manufacturer. The interns gathered information in the typical way, making lots of phone calls and sending e-mails and faxes. The work included getting pricing information and making sure that the parts were available and that their numbers were correct.

Strike took the same parts list and uploaded it into Arrow's system and had the same data in two days with one person doing the work. The test was a bit flawed, Strike said, because he had good part numbers by that time. But the time was greatly reduced, he said, just by eliminating all the phone calls and telephone and e-mail tag. The service also helps GTRI get the best price for its components. For example, Strike's team discovered that a price for a particular capacitor was way out of line with other capacitors. "We went back to take a look at the specs and discovered that we could change the specs a bit and purchase a capacitor for about one-tenth or -twentieth the cost of the original specified part," he said. "It was very beneficial to do that quickly instead of dragging it out over a couple of weeks."

The single biggest drawback in going with a distributor-based product is that you can only run your BOM for the products Arrow handles, but it's only the fraction of the cost of some third-party products, Strike said. "In our case it covers about 75 percent of the parts; the other 25 percent we handle the old way."

Phoenix-based Avnet launched its online services business last October. Promiere provides a range of design, supply chain and inventory management information and services to electronics manufacturers. With the help of partners, including America II Electronics, Cadence, i2, PMG and Spin Circuit, Promiere's services support product development from the start of a design to end-of-life. Promiere's key services include EDA+, which allows users to access and use information for more than a million parts directly linked to schematics without leaving the design environment; supply chain services that include BOM Optimizer and an online benchmarking service; and an inventory exchange powered by America II.

Frazier said these services can help shorten design-cycle time by providing supply chainready product and alleviating potential inventory problems while in the design phase. "If companies had the right information to make their design decisions," he said, "in a lot of cases the inventory glut that we had would have been substantially smaller and much more easily mitigated."

The key benefit of the EDA+ tool is the ability to design in an EDA environment, Frazier said. "Engineers can pull down schematic symbols and access parametric and supply chain data, which is a huge positive and allows the engineering community to solve a problem they have, and that's getting information without having to leave the design environment."

Promiere's future plans center on providing additional information and services for the design community and creating multiple versions of its offerings for different customer requirements.

Key tools
"Ultimately, if we're going to have a highly synchronized supply chain," Frazier said, "it all starts with design. If you want to optimize the supply chain, you have to optimize from the beginning of the design to the end-of-life of the product."

Similarly, Pioneer-Standard has partnered with several companies including Aprisa and SupplyStream to provide supply chain services on a subscription basis. Two key tools exclusively marketed and sold through Pioneer-Standard include Aprisa's CircuitNet Web-based Discovery Center and SupplyStream's supply chain tools that allow companies to analyze large BOMs and annual procurement packages based on total cost of ownership or total acquisition cost as opposed to strictly piece-part pricing.

In addition, Pioneer-Standard also offers a Passive Discovery Center at its Web site, www.mypioneer.com. The free service allows users to perform parametric searches to find specific capacitor and resistor components. Identifying inefficiencies in the supply chain process from discovery to sourcing and production manufacturing led Pioneer-Standard to partner with Aprisa and SupplyStream.

CircuitNet is a solutions product that allows a user to do preliminary discovery in the early phases of a design. The ASP-based software model allows user to do real-time comparisons of more than 2 million orderable components based on any of the 80 attributes associated with the part across multiple suppliers. The fee is subscription-based although customers can purchase an annual license fee to install it behind their firewall.

Arrow Electronics also believes it's important to address design issues in the supply chain. This month, Arrow made available Arrow TestLab, specifically for design engineers. This new service allows users to evaluate and test development hardware and software in an online environment. Users can test and debug code running on Motorola's StarCore MSC8101ADS Application Development System by reserving time on a 24-hour-a-day basis. The fee is $25 per hour. For more information, visit Web site www.arrow.com/arrowtestlab/benefits. Last year, Arrow launched a fee-for-services business called Arrow Digital Solutions. The real-time tool suite gives users access to supply chain information.

Three key services
Arrow Alert, Arrow Collaborator and Arrow Risk Manager are available on a monthly subscription-based fee per seat. Arrow Alert gives customers real-time alerts or notifications of product changes based on 18 elements including EOL and facility change. Arrow Risk Manager offers access to critical component information that could potentially affect time-to-market for a new product. Arrow Collaborator was created for customers that buy a significant portion of their components from the distributor to address issues connected with the daily supply chain, materials planning and forecasting.

Chip specialists such as distributor Insight Electronics (San Diego), which focuses on technical and design services for FPGA and ASIC products, say they have always been very clear about which services do and do not come at a price.

"There are certain things on the design side of the business that we've always charged for, such as design services, typically on an hourly basis or by project; intellectual property that customers integrate into both FPGA and ASIC designs; design services to integrate IP into silicon; and reference designs that we develop with our suppliers if they buy a physical board," said Greg Provenzano, president and chief executive officer of Insight. "What we don't charge for is FAE field applications engineering support."

The distributor has also linked its design efforts with the supply chain since it implemented its demand-forecast system about six years ago.

Company Contacts

Arrow Electronics Inc.
Call (516) 391-1300
www.arrow.com/arrowdigitalsolutions
EETInfo No. 621

Insight Electronics
Call (800) 677-7716
www.insight-electronics.com
EETInfo No. 622

Pioneer-Standard Electronics Inc.
Industrial Electronics Division
Call (440) 720-8540
www.mypioneer.com
EETInfo No. 623

Promiere, an Avnet company
Call (877) 664-3731
www.promiere.com
EETInfo No. 624