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The electronics market and independent distributors

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13/10/2020
The electronics market and independent distributors

Let’s face a myth: are we really sure that big companies offer their products at the best prices? Absolutely not.

For example, if you are looking for a microchip:

  • 128Kb 2.5V SPI Serial EEPROM TYPE 25LC128-I/P
  • KEELOQ® Code Hopping Encoder AS HCS300-I/SN
  • Digital Potentiometer ICs 256 Step SPI 50kOhm MCP41050T-I/SN

you can assume that by purchasing it directly from the parent company you will pay a lower cost than that proposed by the intermediary retailers. The truth is very different and is rooted in the way companies control the prices of their products. In fact, relying on any AND ONLY large company to bear the cost of components is a bad idea that no high-end retailer embraces. So what matters more than the qualities of your supplier? Three factors dominate the choice of your independent distributor:

  • the background of the services offered
  • consulting to define the achievement of the client’s objectives
  • the total expenditure of a given commodity
  • the specific volume that is purchased
  • the pricelist

The price offered by independent distributors is usually separated according to the volume of orders. In almost all cases this price reflects the price suggested by the manufacturer. The latter can only suggest resale, but the distributor is always free to adjust the margin as it sees fit. The distributor’s prerogative is also the possibility to customize the price for you, adjusting its margin. In addition, the sale price also includes after-sales services that allow you to buy in total safety.

The “broken” or stock price

In competitive offers, the manufacturer may agree to “break” the accounting cost paid by the distributor. Since the distributor has already purchased the inventory at list cost, the manufacturer issues an accounting adjustment called “debt” so that the distributor can acquire the special lower cost. This system is called “shipping from stock and debt” or “debt”.

For example, suppose a distributor has 100 pieces of a Microchip product, for example, 8-bit Microcontrollers – MCU 1.75KB FL 64BR 6 I/O CLC NCO 10-bit ADC PIC12F1501-I/MS at the list price of € 0.504 each. The unit prices displayed online could be € 0.603 for 1-24 pieces, € 0.558 for 25-99 and € 0.504 for 100 and more. The distributor requests an offer for 500 pieces by contacting the manufacturer, proposing to break (stock) the price of 500 units. The manufacturer accepts and issues a “charge” to the distributor. The distributor applies the margin at 0.50 and sells the microchip for € 0.66. In this way, the price you are going to pay will surely be lower even if you have used an intermediary.

The direct price

This is the price indicated directly by the manufacturer to the non-distributor seller in situations where the manufacturer has agreed to sell directly.

Component manufacturers tend to base their pricing decisions on the prevailing market (supply/demand) for the particular component being quoted, and distributors tend to base their pricing decisions (how much margin to apply) on the value of their relationship with the customer or contract manufacturer.

Are you still sure you should buy the electronic components you need directly from the manufacturers? If you want to explore this topic together, please contact us. We can arrange a consultation, assess your needs, and provide you with the best possible service.

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