Recently, Texas Instruments’ global authorized distributor Avnet, as well as Asia authorized distributors WT Microelectronics and WPI Group, received termination notices of distribution agreements from TI. The termination will take effect on Dec 31, 2020 for all three distributors.
Considering TI accounts for 10% of the company’s sales in fiscal 2019, Avnet’s stock dropped 9% when the news became public on October 4th. It’s estimated TI supplied about US $2 billion of products to Avnet. The other two Asia distributors also experienced stock falls as TI accounted for about 20% of sales for WT Microelectronics and 22% for WPI Group’s fiscal 2018.
Ultimately, this change is a result of TI’s long-term planned shift in its distribution network to “better align with our strategy to establish closer, more direct relationships with our customers.” In 2016, TI took demand-creation in-house and started using distributors as fulfillment agents only. Meanwhile, TI has been educating customers to apply for samples directly through their online platform, myTI, and encouraging customers to place orders directly on the TI Store. By doing so, TI can collect first-hand customer information, such as part search history and demand levels. TI reportedly now has access to 80% of its customers’ profiles in addition to assigned sales reps for customers with relatively large order histories. Additionally, TI also expanded its off-line network in 2011 by building the first distribution center located in the Free Trade Zone of Shanghai and extended its sales and support network to third-tiered cities in China.
TI is not the only OCM pushing for digitalization - Microchip, Maxim Integrated and TE Connectivity all have online stores as well. Overall, it’s believed other OCMs will follow the same trend as TI. Some industry experts have projected e-commerce and D2C (direct to customer) will be future distribution trends in the electronics industry.
However, the success of TI’s change in distribution strategy can only be evaluated by its customers in the coming years. With the complexity of today’s global supply chain, it will be a challenging task to support customers with different demand requirements, logistic services, payment terms, etc. Not every OCM has the resources and capabilities to successfully follow TI’s new supply chain model.
For OEM and EMS companies, it’s important to review scheduled TI orders with their suppliers to confirm component availability since there may be fluctuation in TI’s product’s availability due to the change. For small to medium size companies, it’s also important to identify an established distributor, such as America II and Advanced MP Technology, with a strong global sourcing network and supply chain service capabilities as a partner. This will help with component sourcing in the ever-changing global electronics industry and provide supply chain services such as VMI, cost-savings and bonded inventory.