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Reproduced here with the kind permission of the Editor of Aerospace Manufacturing
Article in July 2024 issue of Aerospace Manufacturing. View pdf of the article here
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What is the difference between a distributor and a value-added reseller, and just what is the nature of that value? James Hilken, Sales Director with Solid State Disks Limited, provides an overview.
The electronics supply chain is renowned for its complexities, not the least of which is the famine or feast situation that arises when there are components shortages and surpluses, respectively.
Before exploring these and other issues, it is worth justifying what qualifies Solid State Disks Limited (SSDL) to speak with authority on the subject of supply chains. SSDL is both an OEM of products (solid-state replacements for legacy data storage devices, for use in aerospace and defence applications, for example) and a value-added reseller (VAR) of components (memory cards and modules, cameras other peripherals). This makes the company extremely empathetic to the needs of those drawing from and feeding into the supply chain. So, let’s start.
Shortages impact the buyer as components will be priced at a premium and/or most likely unavailable within the desired timeframe. They result largely from unanticipated high demand or supply chain disruptions. The latter includes things like geopolitical tension or natural disasters in the countries in which the components are made or from which raw materials are sourced. Also, shipping might be disrupted by accident (the Suez Canal being blocked in 2021, for example) or piracy.
Component surpluses on the other hand impact sellers and arise from overestimating demand or missing the window of opportunity for volume sales. The latter is not surprising in light of the rate at which technological changes are taking place in the electronics industry.
Understandably, demand comes from the end of the supply chain (the end application) and drives activities at the start (see Figure 1). Note: fear of having surplus stock in the market caused many manufacturers to cut their production rates for 2024, resulting in longer lead times and higher prices. In essence, fear of surpluses can lead to shortages, and vice versa.
Figure 1. Any of the links in the supply chain (including the demand) can break for any number of reasons.
The fundamental famine or feast nature of the electronic component supply chain was experienced during and for a year or so after the Covid-19 pandemic. The lesson learnt: the supply chain needs to be more agile and resilient.
Regulatory Compliance
The electronics industry as a whole is having to comply with a variety of environmental regulations. For example, the use of mercury in components is now banned in many countries because it is a bio-accumulative, toxic pollutant that can enter the food chain.
Also, the use of lead-tin solder is, under RoHS European Law (as of 2026), banned in most of the electronics industry, though the aerospace and defence sectors are still allowed to use it because it contains less tin; where the metal can, over time, result in the growth of tin whiskers that can cause short circuits. In addition, component materials must be sourced responsibly as metals such as tungsten, tantalum, tin and gold are considered ‘conflict resources’ because they are mined in regions where war has been raging for years.
Lastly, counterfeiting is strife within the electronics industry and, for example, costs the US-based semiconductor companies more than $7.5 billion per year according to the Semiconductor Industry Association. It is more than the loss of sales experienced by those making the genuine parts though as, once counterfeit components are used, there is the cost of repair/rectification when the discovery is made, plus there is the cost of mitigating against the counterfeit components being used. More importantly, if used in a safety critical application, counterfeit components put lives at risk.
In addition to the above there is the backdrop of fluctuating inflation and exchange rates and skills shortages. Also, most aerospace/defence programmes require significant upfront and ongoing investments in order to make systems that are highly reliable and which must provide decades of service.
A People Business
While in the ideal world it would be great to always get the highest quality components as quickly as possible and for a low price that is not possible in practice. Also, for aerospace and defence applications, long-term availability needs to be part of the mix too.
Here, technology is helping in the form of big data, the cloud and digital twins. Parts can be designed in not only based on their availability but will influence (help guarantee) their availability. Also, according to multinational strategy and management consulting firm McKinsley & Company, the effective use of AI in inventory control can achieve up to a 20% reduction in inventory carrying costs and a 50% decrease in stockouts.
However, while AI is helping improve efficiency within the supply chain, striking deals and building long-term partnerships are things only humans can do; and it is here that we must distinguish between a distributor and a VAR. A distributor will simply sell what they have in stock and the onus is on the customer to make sure they are ordering the most suitable components for their design and in the right quantities for production.
A VAR on the other hand provides far more support to design engineers and those in manufacturing. For instance, a VAR will seek out the most appropriate components. Granted, this typically means having an NDA in place to understand the customer’s application and design, but a VAR’s involvement early in the design process generally derisks the project.
A VAR will also negotiate the best price and formulate a delivery schedule; as the production schedule might be best served through (say) monthly deliveries. Also, there may need to be flexibility around the quantities delivered each month.
In this respect, a VAR does much more than a distributor. Indeed, it is the practice of distribution that is becoming increasingly automated and enhanced by AI. However, the role of the VAR cannot be automated, as building trust and forming long-term partnerships is not something AI can do.
In aerospace, the customer at the end of the supply chain wants systems that will (once certified) not change in their design or construction. That means locking down bills of materials. In turn, unless someone in the supply chain is prepared to buy enough components for the product’s entire lifecycle (including repairs), the component manufactures will need to lock down the construction of their products. This is effectively asking them not to take advantage of fabrication process improvements taking place in the semiconductor industry. That’s a big ask, but something a trustworthy VAR will do. It is one of the many ways in which they add value.
