Different Channel, Same Challenges

How do you improve value-added offerings, address supply chain issues, and be successful against significantly larger competition?

Looking at how a non-industrial distributor tackles challenges related to inventory management, value-added services and a changing marketplace offers some unique perspective.

Founded in Houston in 1984, Smith & Associates (www.smithweb.com) is a leader in the independent distribution of semiconductors and components for electronic devices. Their inventory will include specific parts for products that range from computers to smart phones, with suppliers that include the likes of Intel. Their customers include OEMs such as Hewlett-Packard and Apple, as well as high-tech contract manufacturers and assemblers.

Privately held and employing more than 300 people worldwide, the company has garnered a reputation for fulfilling orders that can become particularly challenging during widespread supply chain shortages, as was the case following the tragic events in Japan this past year.

Although the company doesn’t operate in the industrial distribution realm, their chief operating officer, Matt Hartzell, offered some interesting insight for any distributor during a recent interview. The takeaways from his comments offer some keen perspective on how to improve value-added offerings, address supply chain issues and be successful against significantly larger competition.

Interview by Jeff Reinke, Editorial Director, Industrial Distribution

Industrial Distribution: You serve a marketplace where products are constantly changing and evolving to meet an extremely demanding customer base. What market trends or dynamics do you pay attention to in order to ensure you’re always ready with what your customers need?

Matt Hartzell, COO, Smith & Associates

Matt Hartzell, Chief Operating Officer, Smith & Associates: Demand, pricing, and availability of the commodities we distribute are the vital signs we monitor throughout the day, every day, all around the globe. Our internal systems and communications feed that information to each other in order to match excess with shortage and availability with demand. 

To maximize our market intelligence, we have developed in-house Commodity Managers who follow market trends for key commodities. These experts analyze current market data to identify longer-term changes in availability and demand, including open market shifts, shortages and excess situations. Thus, they can provide a current overall view and identify trends.  

ID: What is Smith’s overall approach to competing with much larger, franchised competition?

Hartzell: Our approach to competing with any distributor is to listen closely to our customers’ needs and offer services that are specially tailored to meet them. These services can be as simple as special packaging or labeling for components or as complex as a global Vendor Managed Inventory program to support multiple products based on the customer’s forecasts. While some of our competitors may be very large, we’ve demonstrated that our size and our lack of bureaucracy allow us to act quickly to tailor programs for our customers.  

ID: Are there any value-added services that Smith provides which are not directly related to selling or distributing products?

Hartzell: Smith offers a range of value-added services under its CycleIT Asset Disposition program that promotes sustainability. A certified E-Steward, Smith provides hard drive wiping and shredding, e-waste recycling services, and asset re-marketing services that allow customers to safely and securely dispose of IT assets in an environmentally friendly manner. Smith also provides testing services for customers’ products.

ID: Whether it’s the Thailand floods from November or the tsunami in Japan earlier in 2011, Smith has been able to fill gaps in the supply chain that were created by these natural disasters. At some point in the company’s history, steps were taken to put Smith in such a position. What were the most important of these steps?

Hartzell: The pursuit of two objectives has positioned Smith well to support customers during sudden supply chain disruptions. First, through prudent management, re-investment, and mutually trusting relationships with local financial institutions, Smith has achieved a line of credit over $100 million. 

This line of credit arms us to act quickly to secure parts in a rapidly changing market and to finance large scale purchases. Second, we’ve continued to expand our global footprint to manage the risks associated with concentrating assets in a limited number of geographic markets and to expand on the benefits of unfettered access to the open market.

From that strength, Smith's longstanding customer and vendor relationships play a tremendous role in our ability to fill the supply chain gap. Coupled with our financial strength and our global reach, Smith's vast network of suppliers includes leading electronics manufacturers, vendors, and distributors around the world. 

Built over the last 27 years, Smith's longstanding relationships have allowed us to establish a solid network of trusted suppliers that we can count on to help fill the demands caused by market fluctuations, natural disasters and changes in component availability.

ID: In times of scarcity that could not have been forecasted or foreseen, does your pricing change?

Hartzell: Scarcity pretty reliably results in jumps in market prices. Since we source our product from the open market, our costs are higher during shortages, so our pricing will usually reflect that.

ID: What do you feel has is the primary reason you’re still in business after 25 years?

Hartzell: I think we can attribute our longevity to a consistent focus. The founders of Smith, Bob and Lee Ackerley, continue to own and run Smith. We continue to strive toward the same goals that we were founded upon, to provide high quality product and superior service to global manufacturers. 

Reinvestment, a good workplace atmosphere, continuing to foster the entrepreneurial spirit of designing programs around customers’ changing needs (VMI, service programs, testing, life cycle management); these are all factors, but above all is the consistent focus to remain responsive to customers’ needs.