Design engineers look to electronics distributors for value-added COTS
Military electronic parts distributors find their customers each want to tweak commercial-off-the-shelf products differently depending on their needs.
By John McHale
Military electronic parts distributors find their customers each want to tweak commercial-off-the-shelf products differently depending on their needs. Meanwhile, the same distributors and aftermarket suppliers continue to help customers combat their obsolescence problems
Design engineers continue to demand the best product at the lowest price, but electronic parts distributors are finding they do not necessarily want that product as standard right off the shelf. Instead, customers increasingly want a connector, integrated circuit, power device, or other component that meets their particular application, whether their needs involve size, weight, or power consumption.
When former Secretary of Defense William Perry first issued his commercial-off-the-shelf (COTS) edict in 1994, people jumped on the bandwagon and ordered everything COTS, says Sean Fernandez, president of electronics distributor Arrow/Zeus in Purchase, N.Y. Now things have settled down, and engineers are learning where it makes sense to use commercial parts and where it does not, he explains.
Now they find that they still want the standard product, but want it tweaked for a certain use, whether that requires upscreening, or packaging, — their needs have started to evolve, Fernandez adds.
They realized they may not need a $600 hammer but they still need the inherent reliability that comes with a military part, says Rodney Spear, director of strategic accounts for military and aerospace at electronics distributor TTI in Fort Worth, Texas. Spear says he calls the movement MOTS, or military-off-the-shelf. In other words a commercially developed and commercially available product that meets military specifications, he adds.
With few new defense programs in the works, many military orders at the electronics distributors are for platform upgrades, Spear says. Some of these platforms, such as the B-52 bomber, have been around for nearly a half-century. Their avionics are getting overhauled and they need military-standard parts, he explains.
Some parts distributors are also not seeing a lot of new military programs, but rather see a large push toward avionics upgrades, especially in the last year, says Bryan Brady, product business unit director for defense and aerospace at Avnet in Phoenix.
Trends in military electronics parts distribution are similar to those in the auto industry, says Steve Schlosser, product business unit director for Avnet Microwave Technical Solutions. Originally Henry Ford had a standard car and "the saying went 'any color so long as it's black,'" Schlosser points out. Then people started asking for different colors, different seats, and then sunroofs and power locks, and it goes on an on, Schlosser explains.
In a similar vein, electronics designers today want value added to the off-the-shelf components they purchase from their suppliers, he says.
One supplier, for example, may have six different standard semiconductor products. At the same time, this supplier may get low-volume requests for a minor tweaked version of the device. The supplier may refuse to manufacture a value-added version of the device because it may not profitable to do so, Schlosser explains.
That is where distributors come in, points out Dave Shaff, Avnet's technical marketing manager for high-rel industrial products.
Avnet is not just a distributor of product but a supplier to those third-party customers who want a standard part tweaked to their particular needs, says Phil Angelotti, vice president of defense and aerospace sales at Avnet.
The key is to establish relationships with military customers, Spear says. They are traditionally low-volume customers and this is why distributors can help them, he explains. Many suppliers will not even take low-volume orders, but distributors will, Spear adds.
Supply chain management
Distributors are not simply distributors anymore; they get involved early in the life cycles of new systems. They also work with the designers to select the best components while avoiding mitigating future parts obsolescence issues, also known as diminishing manufacturing sources, or DMS. In essence, distributors work with a customer from cradle to grave on the products, Avnet's Schlosser says.
They do this through supply chain management, Spear says. It helps customers reduce their inventory while providing them with products on demand, he adds. The distributor will enable customers to reduce inventory, carry cost, and make it easier for the same customers to manage the demand of their products, he adds.
One of the main advantages of logistics and supply chain management is reduced transaction costs and reduced cycle time, Spear says.
Companies such as Arrow/Zeus, Avnet, and TTI have technical staff at their different customer sites to become part of the procurement process.
For example Arrow/Zeus offers a solution called kitting, in which Arrow ships full parts kits to the production floor that are based on volume, complexity, franchise content, schedule, and manufacturing location.
Implementing supply chain management also helps combat obsolescence by forecasting when suppliers may render their products obsolete, then providing the customer with options that include lifetime buys, working with aftermarket suppliers, or using the distributor as an aftermarket supplier.
For example, Avnet will sometimes buy the remaining die from a supplier just before the supplier obsoletes a particular line. Then the distributor continues to sell the product until customers can migrate to a new device, Schlosser says. This not only saves the customer the cost of redesign, but also saves the supplier the cost of ramping up lines to produce lifetime buys when they would rather be making new product, he explains.
"It is also less expensive to store die than it is to store finished product," Arrow's Fernandez says.
This a fundamental issue for military customers working with platforms that last 20 to 40 years but with three to five year parts cycles, Avnet's Brady says. Each customer also has to deal differently with obsolescence because the original equipment manufacturers have not created a standard that everyone can embrace, he adds.
Not all suppliers use distributors, says Ray Alderman, executive director of the VME International Trade Association in Scottsdale, Ariz. Most single-board computer makers, for example, do not use distributors for the United States market, yet will use them in Europe where they used to have manufacturer's representatives, he explains. The practice of using reps as faded as companies have consolidated, and many of these reps have become distributors, Alderman adds.
For small companies it does not make sense to sell through a distributor, because they take a large percentage of the price of a product, but for the big guys like Motorola it takes away the stress of keeping inventory and dealing with upset customers, Alderman explains.
Distributors can also help customers with bad credit by serving as bank, Alderman adds. "For the large companies selling through a distributor is a good deal — you're basically paying them 30 percent to be a whipping boy," Alderman says.
Arrow, Avnet, and TTI also provide their customers with access to TacTech, an interactive data service that provides internally developed software and library content through a client/server format to more than 100 military and industrial customers worldwide, enabling them to optimize their product life cycles.
TacTech, located in Yorba Linda, Calif., was founded in 1987 in response to the growing need among original equipment manufacturers to address semiconductor obsolescence issues brought on by rapidly changing technology.
TacTech was recently purchased by Aspect Development, Inc. in Mountain View, Calif., which in turn about a month later was purchased by i2 in Dallas.
The TacTech acquisition is part of a four-party merger between Aspect, i2 Technologies, Supplybase and TacTech. TacTech became a part of the merged Aspect and i2 Technologies organization in June of this year. Supplybase, a leading content solution provider for custom supplier sources, was formally merged into i2 earlier in May.
The combined companywill operate under the i2 name, and the Aspect offerings will be marketed under i2's TradeMatrix product name.
When distributors do not manufacture an obsolete part they either have relationships with or refer their customers to aftermarket suppliers such as Rochester Electronics in Newburyport, Mass, and Lansdale Semiconductor in Tempe, Ariz.
Most of the two companies sales are through direct contact with customers and not through distributors.
"We have distributed in Europe but not in the United States, where we have our own representatives," says Curt Gerrish president and chief executive officer of Rochester Electronics.
Distributors are usually the last call before customers go into the surplus market for obsolete parts, Gerrish says. Rochester is working on a solution that should be announced in a few months, where they will provide a service to those customers directly through a distributor, he explains.
Gerrish declined to comment on the specifics of the deal until it is finalized.
Lansdale does have a relationship with Arrow, but mostly sells direct to customers, says Dale Lillard, president of Lansdale Semiconductor.
Aftermarket suppliers make their money by providing customers with an alternative to the costly redesign of a system, Lillard says. Every case is different, but in the end they need the one-on-one, long-term support that the original suppliers cannot provide, he adds.
Gerrish says he agrees that military and telecommunications customers need device supported for 10-, 12-, and 15-year programs such as satellites and weapons systems. Likewise, there is little call for obsolete parts in new designs, but military engineers finishing up their design phase are coming to Rochester looking for parts that went obsolete since they received the contract a couple of years before, Gerrish explains.
One thing customers have begun to ask for is traceability, Gerrish continues. They want to be able to track the part back to its design so they can get guaranteed reliability, he explains. Rochester provides complete documentation and specifications from the original manufacturer, Gerrish adds.
Often requests come in to have a part upscreened, but if the original supplier recommends against upscreening that part, "we won't do it," Gerrish says. There are too many liability concerns.
The Internet is also a place to provide customers with more extensive service, Lillard says, but they are not ready to do transactions over the Internet yet.
There are definite advantages to e-commerce, Gerrish says, but many customers need one-on-one, face-to-face relationships for their needs. Rochester is currently adding a price list to go with their product list, which is already on their Internet site, he adds.
Distributors see VME still on top, with FPGA use expanding
Distributors are finding that despite the publicity surrounding CompactPCI and its use by the telecommunications industry, VMEbus is still number one among military system designers.
VMEbus continues to be the bus of choice among military designers, while CompactPCI has not really taken hold in that market, says Phil Angelotti, vice president of military and aerospace sales at Avnet in Phoenix, Ariz. There are some minor uses for CompactPCI by military customers, but for major platforms they have not switched from VME, nor do they look like they will in the near future, he says.
Another technology trend in new designs is the increased use of field programmable gate arrays (FPGAs) from companies such as Xilinx in San Jose, Calif., Angelotti continues. FPGAs and application-specific integrated circuits (ASICs) enable designers working on upgrades to replace six or seven cards with one that uses fewer components, he adds.
Another distributor dealing in FPGAs is Insight Electronics in San Diego, whose leaders have developed a relationship with Xilinx. Insight has what its officials call an Insight Design Services group that provides design consulting services for programmable logic and LSI Logic ASICs. They have 11 programmable logic design centers throughout North America that support the Xilinx product family.
"While the use of FPGAs has proliferated based on their flexibility and the time to market value they provide, FPGAs are also being used in the system-on-a-chip (SOC) arena," says Greg Provenzano, president of Insight Electronics." Although many people think of ASICs when they hear the term SOC, the reality is that today's FPGAs have encroached upon not only the low end ASIC market, but larger density ASICs as well."
Provenzano recommends FPGA designers work with Specialist Distributors such as Insight to learn new tools, design techniques, and implementation processes to stay current with this technology.
"An increasingly important role of the Specialist Distributor is to assist FPGA designers with technical support, training, design services, and intellectual property," Provenzano says. "Taking advantage of these dedicated FPGA design services can help shorten design cycles, speed the learning process, and cut development cost for companies designing with FPGA devices"
Arrow and Avnet acquire parts of VEBA
A consortium led by Schroder Ventures' funds and including Arrow Electronics, Inc. and Avnet, Inc. has agreed to purchase the VEBA Electronics Group from Germany-based E.ON AG (formerly VEBA AG).
Under the terms of the agreement, Arrow acquires Wyle Components and Wyle Systems, and Avnet in Phoenix, Ariz., will acquire the Raab Karcher Electronic Systems (RKE) part of VEBA.
The RKE systems branded businesses will be combined to become a European business unit of Avnet Applied Computing and will be renamed Applied Computing Enabling Technologies (ACET), effective immediately.
"We are delighted that Wyle will become part of the Arrow family," says Francis M. Scricco, president and chief executive officer of Arrow. "The Wyle Components business model will complement our existing core components distribution businesses in North America quite nicely. Wyle Systems will add to our computer products business in North America on two levels: by enhancing our product offering with the addition of certain lines such as Compaq, and by broadening our penetration in North America with the addition of their sales force, which, given its predominance in the West and Southwest, will fit well with our East-Midwest focused sales force."
There will be created an Arrow/Wyle entity similar to Arrow/Zeus, says Sean Fernandez, president of Arrow/Zeus in Purchase, N.Y. However all military sales are conducted through Arrow/Zeus, he says. If a customer wants a part from Wyle, he can get it but he must go through the Arrow/Zeus arm, Fernandez explains.
It makes it easier for Arrow's customers if they only have to deal with one arm of the company, he adds. The Wyle purchase was completed last month, Fernandez says.
"The billion dollar RKE business is complementary to Avnet Applied Computing's European business strategies and brings critical mass to strengthen and grow our disk drive and other computer peripheral products businesses," says Ed Kamine, president of Avnet Applied Computing (AAC). "AAC fully intends to continue growing the RKE business and to invest in its sales, technical, and inventory resources, which will further our position as a leading distributor in the global marketplace."
E.ON will receive approximately $2.35 billion in cash, including the assumption of debt, for the VEBA Electronics Group, which reported 1999 sales of $5.47 billion. The business consists of three main groupings: Wyle Components, Wyle Systems, and Atlas Services in the U.S.; EBV Elektronik, WBC, Raab Karcher Electronic Systems (RKE), and Atlas Services in Europe; and the global Memec group. — J.M.