Future Electronics, the link between upstream and downstream

A mature industry must have established a virtuous circle of ecological chains, allowing companies in the chain to compete in an orderly manner and develop in a balanced manner. The semiconductor industry is such a relatively mature industry. As an important and indispensable role in the industrial chain, IC distributors are the link between upstream and downstream industries. We took Future Electronics as a case study to see how this leading distributor found a unique and suitable path for itself in the industry landscape.

Do your duty as a distributor

Tan Rongxi, vice president of business development in the Asia Pacific region of Future Electronics, said that the reason why Future Electronics is unique is that it is not a listed company. "Because we have not been listed, we can focus on the future of the company and plan the company's development strategy based on the long-term. Without financial statements, Future Electronics can better grasp its own rhythm, which directly forms Future Electronics in the supply chain. ”

The advantages of Future Electronics are embodied in three points: First, Future Electronics reduces the inventory pressure of customers on the basis of low inventory turnover. Generally speaking, the annual inventory turnover rate of electronic distributors is 8-10 times/year, while the annual inventory turnover rate of Future Electronics is maintained at 3 times/year. Inventory annual turnover reflects how long a component has been in inventory (ie 12 months/inventory turnover). In general, the higher the inventory turnover rate, the better, indicating that the operation efficiency of the enterprise is very high.

But for distributors, stocking is the fundamental task in the electronics industry chain. When both upstream original factories and downstream equipment manufacturers pursue high inventory turnover and are unwilling to take inventory risks, if distributors do not adopt an active stocking strategy, when the market fluctuates due to external influences such as natural disasters, demand changes, and capacity shortages At the same time, the supply chain of the electronics industry will inevitably be impacted.

Usually, no matter semiconductor fabs, component manufacturers, distributors, processing plants, or manufacturers are reluctant to stock up, and Future Electronics fully realizes that stocking is the duty of distributors, and is willing to undertake this function. Feng Xinhua, Director of Supply Chain Management Solutions at Future Electronics, said, "It is a very important advantage for us to be able to fully and effectively stock up for customers. When other companies shy away from stocking up, we dare to store the products in inventory. Because we have a huge global customer base and Sales channels, if a customer cancels an order that has been stocked due to fluctuations in market demand, we can immediately sell the stock through a variety of channels, so that we can control our inventory risk."

Secondly, as a privately held company, Future Electronics treats inventory as a strategic asset, not a liability on financial statements. Provide timely support to customers when they need it.

Third, Future Electronics has the world's largest inventory of components in stock. More than half of Future's inventory is available for sale, and the rest is prepared for customers in advance. They have less than 15% of their inventory available for sale compared to their peers, and products are constrained by existing orders.

Tan Rongxi believes that it is the distributor's duty to bear the inventory risk for customers. "Inventory risk is a risk that needs to be carefully avoided for upstream original factories and even companies in the same industry, and we are willing to take such risks and provide flexible services to our customers and our original factories. In this regard, we help customers and original factories to make their financial statements look better and their capital turnover faster.”

“In addition, our services enable them to use their expertise to carry out processing, OEM, Research and development, while sales, logistics, and inventory are not what they are best at. A large number of customers actually need channels and distribution agents to help them. Future Electronics has done what we should do."

The right to speak depends on strength

As a link between component manufacturers and manufacturers, distributors often exist in the cracks. Faced with the challenges of upstream and downstream inventory, prices, etc., how does Future Electronics change from responding to changes to actively grasping the right to speak? According to Feng Xinhua, Future Electronics' distribution system and distribution network covers 170 regions in 42 countries around the world, and has 100% ownership and operation rights to all branches. "Being a financially sound privately held company means we have a lot of flexibility."

Future Electronics has approximately 600 product marketers worldwide. Different from the way that general distributors divide the marketing team according to the agent product line (brand), the structure of the marketing team of Future Electronics products is planned according to the type of product. Product marketers often have in-depth knowledge of a certain product technology, understand the same products from different original manufacturers, and are familiar with the supply and demand conditions of a specific product in the upstream and downstream markets. When customers need to find alternatives, product marketers can provide customers with a variety of options in terms of price and availability.

"At the same time, our product marketing team is specialized in understanding market development trends for market needs, and provides customers with professional component knowledge, market trends, product blueprints, professional quotations and life cycle analysis." Feng Xinhua said. In addition, Future Electronics' system design center and approximately 300 factory-certified engineers can provide customers with state-of-the-art complete circuit design services and technical solutions.

Feng Xinhua said that Future Electronics' right to speak also comes from the customer experience in place. Tailor-made business according to customer needs, to achieve service-oriented; no matter the size of the customer, the service is equal; very competitive pricing, so that customers can be guaranteed supply, customers have no worries. "For a non-listed company of Future Electronics, there is no need to face the scourge of financial reports of listed companies. It is extremely relaxed in terms of credit lines and financial terms, helping customers reduce the pressure on capital turnover." In addition, the sensitive perception and judgment of the market trend makes the original factory and Future Electronics' cooperation transcends the commercial level and truly becomes a partner that advances and retreats together. With the understanding of component market demand and supply to further evaluate the market, Future Electronics allows component manufacturers to make appropriate adjustments to market trends to achieve a balance between market supply and demand.

“I think the right to speak is very simple. The size of the power is determined by strength, and the other is the scale. The key is to see what kind of service and value you bring to customers and the original factory,” Tan Rongxi explained with a smile,” We are not selling products, but value-added services, including solutions. This is our core business."

Bonded Inventory Management (BIM) is one of Future Electronics' value-added services. . The BIM plan means that Future Electronics prepares 3-4 months of component usage for customers in advance, and waits for customers' delivery instructions at any time. When the electronic components were out of stock in 2010 and the Japanese earthquake in 2011 disrupted the supply chain of electronic components, customers who participated in the Future Electronics BIM program were guaranteed. In addition to safe supply, the prices of components purchased by these customers from Future Electronics have not risen due to market price fluctuations, thus effectively ensuring that customers' products enter the market as scheduled.

In addition, Future Electronics will have a unique focus on certain product areas, such as LED lighting, solar energy, smart grid, wind power and so on which are more popular now. Tan Rongxi revealed, "In fact, as early as more than ten years ago, Future Electronics paid attention to high-power LED lighting. Today, Future Electronics has a very leading position in the lighting industry, thanks to the investment and vision of the year, We also hope that such a successful model can be replicated in other industries, so that we can understand the dynamics and trends in different areas of the market, and feed the information back to the original manufacturers, so that they can design better and more suitable products for the market.”

"In the end, it is necessary for the entire industry chain to have a healthy turnover. If one party has been losing money or making no profit, it will be detrimental to the entire industry." This is what Tan Rongxi thinks of a win-win situation.

Future Electronics is a successful, global distribution agency in the industry. "We will provide services from the perspective of customers and the original factory. Of course, we also expect reasonable returns for the value and high-quality services we pay. We need the market, and the market also needs the services of distribution agents like Future. It's a process for the whole market to get a balance." Tan Rongxi said.

Case of automatic supply chain solution provided by Future Electronics for a customer in Shenzhen

An enterprise in Shenzhen is an EMS processing enterprise, the annual output of each project exceeds 500,000 pieces, the total number of materials exceeds 8,000 items, and the purchasing styles are diverse Few types. Each buyer needs to contact many suppliers to gather information on raw material lead times and thereby pre-schedule long-term orders. When production schedules or raw material forecasts change, buyers need to spend more time re-planning orders, or even pay extra to purchase raw materials in advance.

Fulong Electronics provided this processing plant with a set of Bonded Inventory Management (BIM), which reserved a 3-month safety stock (equivalent to 25% of annual consumption) for them to provide timely material sent. The implementation of this program is managed and maintained solely by Future Electronics, and these inventories are reserved exclusively for this customer. For generic parts in stock, even if the customer reduces demand or even stops purchasing demand, they are not responsible.

BIM provided the processing plant with a stable and guaranteed source of material supply. At the same time, Future Electronics also provides a set of material replenishment solutions (MRP Share with Embedded Release) that achieve immediate delivery through shared MRP (Material Requirements Planning) plans, thus providing a truly complete supply chain solution. BIM not only provided the processing plant with maximum flexibility in material planning, but also ensured on-time supply and significantly reduced inventory.