Texas Instruments terminates distribution agreements with three major distributors by the end of 2020. What actions should you take to secure your supply chain?
In October 2019, Texas Instruments announced the termination of distribution agreements with three major distributors. Effective Dec. 31, 2020, Avnet, WT Microelectronics, and WPI Group will be cut loose, dealing a blow to the distributors who rely on TI for a sizable portion of their sales (Avnet: 10% of fiscal 2019 sales; WT: 20%; WPI: 22% for fiscal 2018). Let’s look at why and what happens after Texas Instruments terminates distribution agreements with these distributors.
Texas Instruments had planned this shift for a long time…
The change is the result of TI’s planned remodeling of 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. TI has simultaneously been encouraging customers to apply for samples directly through its online platform, myTI, and to place orders directly on the TI Store.
The result? TI can collect first-hand customer information, such as part search history and demand levels. TI now has access to 80% of its customers’ profiles in addition to assigned sales reps for customers with relatively large order histories. TI also expanded its offline 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.
Texas Instruments isn’t the only one making this move…
Other global original chip manufacturers (OCMs) are also changing their distribution models. In 2015, after Avago bought Broadcom, the company reduced its distributors in China to only four. After ADI and Linear Technology completed their merge, they pushed out all distributors and kept only Arrow as the global distributor. The wave of mergers and acquisitions in the semiconductor industry between 2016 and 2018 put significant pressure on OCMs to adjust their distribution models to be more profitable.
In contrast, pushing for digitalization is another route OCMs are taking to boost profitability and gain wider access to customer data. In addition to TI, Microchip, Maxim Integrated, and TE Connectivity all have online stores and other OCMs are likely to follow. Some industry experts have already projected e-commerce and D2C (direct-to-customer) will be future distribution trends in the electronics industry.
However, the success of Texas Instruments’ distribution agreement terminations and 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.
How can you prepare?
Here are a few factors to keep in mind:
- Review your scheduled TI orders with suppliers and confirm component availability. There may be some fluctuations in TI availability since the termination takes effect by the end of 2020.
- Identify alternative TI suppliers in your supply network to secure supply for future TI orders. This could help you avoid an unnecessary gap in coverage and ensuing supply chain disruption.
- Small and medium-sized businesses: Identify an established distributor with a strong global sourcing network and supply chain service capabilities. Such a partner can take the lead on component sourcing in the ever-changing global electronics industry and provide supply chain services such as VMI, cost-savings, and bonded inventory.
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