Electronics components and the age of e-commerce: Does price really matter?
June 22, 2017
One thing is true about getting older: You are able to speak about the past with some experience. I was reminded of this recently when having a conver...
One thing is true about getting older: You are able to speak about the past with some experience. I was reminded of this recently when having a conversation about the role of electronic component distribution. Many years ago I worked for a supplier who had the concept of supplying semiconductors without going through distribution. The model adopted was the one that Dell had used so successfully in the PC world. It sort of worked but, then again, it didn’t last very long before the distribution channel was adopted.
Things have changed. The Internet and e-commerce have made it much easier for anyone to buy products from anyone else in the world, English is more widely used (at least at the written level), and payment systems like PayPal are accepted (but not in China). A number of suppliers like Microchip have e-commerce portals that allow almost anyone to buy directly. It isn’t so hard to imagine a future where you are able to buy everything you want directly from the manufacturer.
When most semiconductors were dual in-line (DIL) packages, you could order any quantity of parts you wanted. The distributor would have spare tubes and would simply “tip” parts from one tube into another. If you can’t imagine this try asking anyone over 50 and they can tell you about it. The moisture sensitivity of surface mount packages has put a stop to this practice. You now have to buy complete trays that are wrapped to prevent moisture ingress and you have to buy a full tray or complete reel. Many distributors are unwilling to supply the quantity that the customer really wants.
The logistics side of distribution (receiving, stocking, picking, and packing) is no longer something that is unique and outstanding. The logistics we see every day at Amazon and eBay are probably better than most electronic component distributors.
Before the Internet a key role for distributors was to educate the customers about the products of suppliers and what new products were being introduced. Carrying a half-ton of databooks in the car as you went around meeting customers was completely normal. Nowadays it’s hard to get some people to accept a two- or three-page leaflet, and they often ask if you can email it instead. The Internet has become the source of information for customers, and if anything is not available there is always the avenue of contacting [email protected] for clarification. The role of the distributor as an educator has diminished considerably.
There is one things that distributors do well: they can save you time. If your BOM specifies parts from 50 different manufacturers, you can probably get them all from two or three distributors. This means you only have to process two or three orders and pay two or three bills. It saves you hours of time compared to buying directly from each manufacturer. I build Raspberry Pi systems and one of the design requirements is that all of the parts are available from only one distributor. The reason is to save time; the cost of the parts is a lower priority.
The same can be said for the design process. You can look to use the lowest cost components that achieve the specification, but you may be better off choosing a solution that is easy to implement. If your production volumes are low, say 1000 a year, then the most expensive item in your product is probably your design time. Spending an hour trying to reduce the BOM cost by 10 cents is just not worth it.
The other key advantage of using “easy” solutions is that you get to market quicker. Getting a product out just 1 month early could generate hundreds or thousands of dollars in revenue that would just be lost if the product introduction was delayed. The easy solution that costs more could generate revenue that pays back the additional cost within just one month.
I can remember a time when an engineer was defined as someone who can do for $3 what any fool could do for $5. Times have changed. Components have generally become cheaper and time has become relatively more expensive. Price still matters, but the price per hour often dominates over price per component.