"At Memec we developed a system of knowing and grading suppliers", says Dick Skipworth, founder and first Chairman of Memec, which became the third largest distributor in the world,.
"One of the mistakes you can make in a business like this is you can invest in it to provide services for which the suppliers and customers are not prepared to pay", says Skipworth, "that's exactly what you don't want to do."
"Gross margin is inversely proportion will to the number of distributors who have the line. If you are exclusive you can maintain the same margin much better than if you're one of six."
"Motorola's Dedy Saban (former worldwide marketing boss) pushed us like mad to take on the line but, in the end, Ed (Ed Sturmer, Memec co-founder) stopped it and he was quite right", says Skipwoth, " because Motorola already had too many distributors and the more they have, the less you can invest up-front in design-in services and the less you can invest in fulfilment services (i.e delivery, inventory etc). Ed was right, he said: 'You can never make money out of these people'."
"So we decided we would have different categories of product lines: 1, 2, and 3. And we had a table which gave different characteristics. Category 1 was where there was only one distributor. Category 2 was where there were two distributors. And Category 3 was for where there were two or more distributors."
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Comments (2)
Hi David,
You didn't comment on the latest 10% layoffs declared by Freescale, and 500 by ST-NXP-wireless.
I was hoping to read your analysis on them.
rgds,
Steve.
Posted by Steve Baker | November 7, 2008 4:39 PM
Posted on November 7, 2008 16:39
I know, it's tragic. East Kilbride going. So much of NXP's manufacturing base going. It's the inevitable consequence of having $700m a year debt-service (Freescale) and $500m a year debt service (NXP) strung round your neck by these wretched private equity people.
In effect the private equity people have taken all these companies' profits for the next 20 years up-front and put them in their own Wall St coffers and left Freescale and NXP with massive debts they can never pay off.
That great companies can be made to carry such terrible handicaps seems to me to be simply wicked.
Hopefully companies will realise never, ever, to get involved with private equity - if they can avoid it.
Posted by david manners | November 10, 2008 12:51 PM
Posted on November 10, 2008 12:51