Restricting choice by limiting the franchised distribution network to a few global distributors does nothing to control the grey market. It just annoys customers and as a result can actually have the opposite to the intended effect.
Customers don’t like being told who to buy from. If they don’t want to use the one or two franchised channels offered, they will source elsewhere. If those few authorised distributors run out of stock of the required parts, they actually have no option but to turn to the grey market – there are no other authorised channels available to them who might still be able to supply.
Customers choose distribution partners for a wide range of reasons. Regional and national distributors tailor their approach to their geographies and to individual customers to a greater extent than the large global organisations can. Design in support is often a differentiator. Since the restricted channel approach often goes hand in hand with trimming margins to single figures, the remaining distributors cannot afford to fund an FAE team. For the manufacturer to put in place a global team of FAEs is no small investment – and even where this is done there is no guarantee that the customer will accept an FAE restricted to just one vendor in this way. Many distributors also have logistical packages tailored to meet specific customers’ needs – for example offering to manage an on-site stock even for relatively small accounts.
Franchised distributors themselves are keen to restrict the grey market and are careful about who they supply to. In any case they are normally required to give point-of-sale (PoS) – which effectively limits their ability to sell in to the grey market. Grey market components often come from customer overstocks. The world’s largest EMS suppliers often buy direct from the component manufacturer and sell on what they don’t use to the broker market. These EMS are completely unconstrained in who they supply to as they aren’t obliged to give PoS.
Unless component manufacturers are able to limit supply, the only way in which they can limit the grey market is to throttle demand. A multi-channel distribution model that gives customers a wide choice of suppliers with a range of design, logistical and financial service models is the best approach. Competition between distributors will ensure that service is sharp and pricing remains competitive. With a greater number of distributors, there will also be a greater depth of inventory available to the market, helping bridge short term supply chain issues without forcing customers onto the grey market.
In our industry, the customer is king. None of us can afford to forget that – not even the world’s largest semiconductor manufacturers. Our industry is blessed with a great many innovative distributors with global, regional, national and niche business models who do a fantastic job of keeping our industry vibrant, and supporting the diverse range of customers from start-ups to large OEMs. Component manufacturers need to work together with all of us to maintain that diversity and enable our customers to succeed.