B2B Reimagined: Ep 17 | Electronic Components Distributors Face a Changed World

Even before COVID-19 changed everything, distributors in the electronic components industry were dealing with seismic shifts. The dawn of 5G, the explosion of IoT and the ever-shortening product lifecycle combined to create complex business challenges and new opportunities to capture. The pandemic put many plans on halt, as supply chains in Asia and then Europe were drastically disrupted. With a second wave of COVID-19 seemingly imminent around the globe, what will that mean for supply chain, pricing and inventory strategy?

Steve Wilkins, head of pricing solutions at Standav Corp, joins the show to examine these hurdles and dish on reimagined solutions for the industry’s new normal.

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Featuring
Steve Wilkins

Steve Wilkins

First what we do is we go in and look at what are you doing now? And what do you want to be when you grow up? It's my easy way of explaining that every company has a different vision for what they see as their end goal.
- Steve Wilkins

Episode Transcript

Lindsay Duran: [00:00:00] Welcome to B2B Reimagined. My name is Lindsay Duran, and I will be your host for today's episode. Joining me here today is Steve Wilkins, head of pricing solutions at Standav Corp. Steve, thanks so much for being here.

Steve Wilkins: Thanks for having me on the podcast.

Lindsay Duran: Before we dive into our topic for this episode, why don't you take a moment and introduce yourself and tell us a little bit about your background.

Steve Wilkins: Sure. In my past, I've been a pricing practitioner. I worked as a pricing software consultant. I formed my own pricing consultancy practice. Then most recently have been leading the pricing software solutions for Standav, which is an SI company. To give you a little bit of what we do at Standav, we help clients with finding value in what they're currently doing. We work on developing best practice processes for [00:01:00] pricing and CPQ solutions. Then we also help them with selecting and implementing both pricing and CPQ technologies.

Lindsay Duran: Excellent. Thank you for that. So today, I think this is very appropriate given Standav's focus, we're going to talk about electronic components distribution. Specifically, the challenges facing that industry, as well as the opportunities that lie ahead. We'll talk about pricing and some pricing strategies for that industry in particular. But before we dive into that, you spend a lot of time with customers in that the industry, and certainly Zilliant does as well. I know that, especially with COVID and the global impact that it's had, companies in this space have had a really difficult time with supply chain disruptions, inventory, and certainly with 5G on the horizon, [00:02:00] that's adding a whole new element of challenge for these companies. Steve, can you talk a little bit about the challenges in this particular industry, as well as what is working in their favor in terms of industry dynamics?

Steve Wilkins: Sure. From the supply chain side for a high-tech electronics distribution, the main thing that they've had was, if you went back to 2019, there was actually a start-up increase in inventory. Then 2020 came along, and the pandemic started slowing down that inventory. As such, you have that supply and demand issue. A lot of those distributors had a surplus in the beginning, but as companies were starting to buy up inventory during the start of the pandemic, not knowing how long it was going to take, it quickly depleted what that inventory was. If you can think of a lot of the electronic [00:03:00] distribution, the manufacturers are coming out of the Asia region, and the first ones to get hit was there. So, that really slowed down inventory coming in and made it a really difficult time for these guys to look at adjusting price, knowing what they should do, and then it led to impact inside of their distribution centers as well with employees getting sick with COVID and allowing them to actually stay open. There's a lot of, you were saying, disruption that's going on. If I move on to the 5G space, had a lot of similar impact from that. But if you think of infrastructure, so the AT&T's of the world, they started building out really well in the last couple of years. You've seen this year that they're now announcing 5G and most of the common carriers. But for the smaller devices that will be working on [00:04:00] 5G, it definitely got delayed throughout all of the manufacturers, at least through the first half of the year. Speaking with the distribution companies, they have seen an uptick, starting and the end of the second quarter, beginning of the third quarter of companies working on designs for those 5Gs. So, that's a very good sign leading into the fourth quarter here in the first quarter of next year.

Lindsay Duran: That is a good sign. You mentioned Asia not being a source of supply chain disruption. The next wave of COVID really hit Europe. I know that certainly it was much more difficult to transport product. If companies were used to sending things more cheaply on passenger planes as cargo versus dedicated cargo planes. Certainly, you had much less in the way of passenger planes going between the US and Europe or between the US and Asia. [00:05:00] So, it really makes you think about how interconnected we all are, and one disruption in one country can really have global impact for everyone.

Steve Wilkins: It started in Asia, it went to Europe, and it came to the US. Now, it's starting that same circle all over. So now you're getting Asia with spikes, Europe announcing close downs, and the US 20-plus states. It was on the news today, they've had the highest record, even all the way back through beginning of the pandemic. So, we're almost seeing a second wave of this come around. That's a hard thing to look at because what will that do for the supply chain again, as we were talking about, and then what will that do for price? Because it is supply and demand. If these companies are working on new products to come out with, and you have old products in inventory, all this distribution, and if you have too much of a leg there, what are they going to do? Do they try [00:06:00] and refit that product with old components? Or do they wait to bring out the new products until those new components can get into the distribution market?

Lindsay Duran: Right. I think you're touching on another key dynamic that we often see at play, and that's the lifecycle of products. A lot of these products that are sold having a very short lifecycle. They're only valuable for so long before they're there out innovated by the next generation. Is that something that you typically see as a challenge for companies in this space?

Steve Wilkins: It is. So, if you think of the semiconductors, the wireless, the IOT, they have a really short lifecycle. With that, these new companies, of what we're thinking 5G, they're looking at bringing the newest components to go inside of that. So, that's even pushing that faster. One of the things that we're also seeing with that is that manufacturers are working on putting out end of life notices [00:07:00] to try and keep up with it. It's making it very difficult for the distribution that works to say, "What do I stock in these challenging times?" Do I limit the amount of inventory that I keep, so that I don't have products that become obsolete? And if I have obsolete, do I fire sale? What do I do? Because if I have that inventory, and I know it's going to take a while for new ones to come out, is that still the better bet? They're doing some, not gambling, but a serious consideration of which way did they hedge. Keeping some of those IOT stuff a little longer than they would normally because of this? Or do they try and go the other direction and keep smaller amounts? Then you also run into the ones where people have customer-specific products, and it's unique to them. Then another case like where how much do you keep for that customer?

Lindsay Duran: Absolutely. Those dynamics I think present a fair number of pricing challenges. What are [00:08:00] some of the key challenges that you see companies in this space looking to solve when it comes to pricing and quoting?

Steve Wilkins: There's a couple of them. One of the good things of the pandemic has been people having more free time because of not driving back and forth to the office. They're thinking of how do they address inventory availability. A couple of them that I worked with in fact said they've developed some APIs, so that when clients come to their websites, they can do a price and availability check. Or it's going out to the pricing engine, or to their, if they don't have a pricing engine, going out to their SAP or whatever it may be, and checking availability, checking their specific price, and giving that back to them on that basket of goods in an instantaneous format. What that does is forces these guys to work on best practice of keeping the records up to date because in the past, somebody would call into the office and that person would be in the office checking the computer and [00:09:00] saying, "Oh, is that right? Maybe the computer's off. This is what it should be." And they're checking records. But if you're now going to a more real-time price engine, you're going to have to make sure that you've got your process in place, and your prices are correct. The other things they're looking at, as some companies are saying, that's not right and it's off. So, what do I need to do? I need to look at a pricing software solution to make sure that I have all my prices in line. Some of them in doing this have found out that when they're looking at components, that as the size of the components increases, you would normally think that price should scale up. In some cases, because they buy a higher amount of some of those skews, because it's a higher runner, they get a better discount on that. A lot of them are selling at a cost-plus strategy, leaving that so it isn't a pronounced increase. We've been talking with them about that and saying, does this make sense? Are you getting a better discount because you're buying potentially [00:10:00] in volume, and your competitors are not? Should you be continuing to give that additional discount off to the market? There's a lot of different things in play right now. Companies are looking at are they doing best practice? Is there a better way to price their products? A lot of them are still doing cost-plus, it doesn't make sense to start looking at technologies to help them with that. Then how do they serve their customer best? Because now their customer truly is looking at digital versus talking with somebody in a lot of cases.

Lindsay Duran: Right. Removing a salesperson as a filter between whatever the system price might tell you the price should be versus what the customer actually ends up paying. Not having a salesperson there to handle that negotiation, I think creates a whole lot of complexity for companies. This space always strikes me as being one where it's really hard to manage pricing, set pricing, simply due to the [00:11:00] fact that they have massive numbers, SKUs. A fair number of deviated costs that they're constantly dealing with. You might have some customers on contracts. You might have some customers with spot buys and certainly a no high rate of churn. I think all of those business dynamics really make the approach of setting prices with more manual or spreadsheet-based methods and using a cost-plus approach really problematic. When you see companies implement a pricing solution, Steve, what kind of value and benefits do you feel like they derive?

Steve Wilkins: Every one of the software companies gives a different number to what kind of value of that can be. But I've seen that anywhere from a two to 10% increase. The reason for that, your increase in profitability, is because there's errors. Anytime you're doing this with an Excel file, you [00:12:00] have a lot of errors, and I'll give you a real-life example of a company that I dealt with. They were using SAP. They did an update using their Excel file, and one of the equations was off when they copied down the formula. So, they thought they had it right. Everybody approved it. They uploaded it. They didn't realize that it was off until they started getting reports of negative margins. Because when the updated SAP, it erased history, they didn't know what their old prices were. One of those things inside of the pricing software solutions is you have your history in it, so you can go back and quickly fix what it was if you had an error. Then you're not going to have that Excel problem as well with the pricing software. But that is one real life story. I couldn't say how much they lost, but we'll just say it was a lot of money to go back and try and dig up old spreadsheets to fix it because they didn't have a pricing solution.

Lindsay Duran: Steve, as you're [00:13:00] advising your clients on what they need to do to improve pricing performance, what is the end-to-end process that you look at as you're evaluating what type of software, technology, or even process change that they might need?

Steve Wilkins: First what we do is we go in and look at what are you doing now? And what do you want to be when you grow up? It's my easy way of explaining that. Every company has a different vision for what they see their end goal. I explained to them that never is the goal, you are always going to want to improve. But where do you see yourself in three to five years from now? We usually start by looking at what is it? Where do they want to go? And how do you get there? Getting there is the process. So, I believe you look at process improvement first. If you get the processes in place, you'll be able to understand what is the strategy do you want to do for pricing? You might've been using cost-plus. What is it that you want to go to? Depending on the industry you're in and how commoditized it is, those are different processes you will [00:14:00] go through. But once you decided on what the strategy is you're going to work with, then you start looking at how am I going to automate this process? Because now I know what I'm doing, and the automation comes on as you're selecting a vendor. Is it a vendor that does CPQ or pricing or both? Are you working with Salesforce? What are the different avenues you were looking at? So, we help them go through and select based on their needs, what is the best one of those options or combinations to implement? Then we help them actually go through that process and do the implementation.

Lindsay Duran: Steve, I think you touched on something there that a lot of people are confused by, or maybe don't necessarily think about in depth. That is the term CPQ stands for configure price quote. So, I think sometimes people head down the path of saying, "I need a CPQ system," and they assume because the word price is in the name [00:15:00] that that CPQ system is going to solve all of their pricing challenges. How do you typically differentiate to your clients that the difference in terms of functionality? Who's going to use the system? What the goals are of the systems between a CPQ solution, and then what's available in price optimization and management solutions?

Steve Wilkins: If you look at it from CPQ, it's configure price and quote. The way I always look at it, you have a C, a small P, and a big Q. The configure and the quote is what you're thinking of a salesperson. So, they're going to configure what they're looking for and the quote that comes out of it. The middle part in the CPQ, I call small P. That is usually, in most CPQs, no different than that Excel spreadsheet that you're doing on your own. It's a loaded list of prices based on that configuration option. To make that an [00:16:00] intelligent CPQ solution is where you're now adding in one of the pricing engines. Then it becomes a big P in the middle. So, now it looks at all of those attributes in that product when you're configuring it and figures out where you fit in the segmentation and comes up with a more accurate estimate of what that price should be. This is based on customer product, comparable transactions in the past, and several other different attributes of that customer, and the configuration that they're doing to get the right price for the client when they're in real-time putting in their configuration. One of the good things is if you're just doing it off of a spreadsheet, you're going to come up with this average price for everybody. If you want to close deals quicker, you want to have an intelligent price built into your CPQ engine. How you know where it's winning prices that have sold in the past [00:17:00] for like types of configuration.

Lindsay Duran: Absolutely. One thing I might add to that distinction is I often think of CPQ as being the salesperson facing tool and price optimization management being more of the corporate or back office facing tool. You might have a pricing person or team focused on using that specific tool. But certainly, those two need to be seamlessly connected to help salespeople make the best possible pricing decisions.

Steve Wilkins: Completely agree with you. If you could think of configuration, that is a sales tool to get the right price. That's a combination of salespeople working with the pricing engine and the pricing team that is building the pricing engine - how it's coming up with that right price. So, if you have to have both teams working together, it can be really effective.

Lindsay Duran: Beyond the financial benefit, so improving pricing, what are some of the [00:18:00] operational or customer satisfaction benefits that you've seen from companies that embark on these types of projects?

Steve Wilkins: I would say experience of the customer when a customer calls in, and if you just think of without the CPQ, just a pricing engine. If it's a pricing engine that somebody's calling in, and they want to get a price on something. Sometimes that person, if it's a sales guy, the sales guy or lady is saying, "The price, let's see. If you have to configure this, I'll get back to you." It may take an hour to come up with a price because they may have to go through and find out what the costs are. How much they're making on it and do all these calculations and come up with a price. If we have this inside of the pricing solution, it's a much faster turnaround. The time to quote reduces. You get half your customers more accurate price after your customers. Then, you get a better chance of winning the deals because the longer it takes you to turn around and price, the [00:19:00] less chance you have of winning the deal. So, that's one thing that we look at. The other thing is just internally how quickly you can manage a price change and do that internal process of approval. It's never just a one and done when you're looking at pricing. When you're going to do a price increase, you're going to have to send this through multiple teams to look at different scenarios of doing an increase. That process, if you don't have a pricing tool, takes a long time, and it's very iterative. If you can do it inside of the pricing tool, you're sending out to people to review and approve different scenarios. Then once you have it, you can quickly go back and publish that out of what that new price scenario, list price, net price would be.

Lindsay Duran: Gotcha. Excellent. We certainly see, with our customers, that the speed of quoting [00:20:00] drastically improves when you're giving salespeople the right price out of the gate. Or that you are simply enabling your customers to self-serve through a digital portal or an eCommerce platform and making sure that they get the prices that are market-aligned and relevant to them and their relationship with the supplier right away. So that you're removing that friction from that the quoting process. When you combine that speed with accuracy of prices, that's really where companies can begin to see a lot of both commercial, operational, as well as financial benefit. Let me ask you this, Steve, what trends do you see heading into 2021 in the pricing and CPQ space, as well as the electronics distribution market?

Steve Wilkins: What I see going into 2021 for the high-tech electronic industry and [00:21:00] distribution specifically is an increase in manufacturers looking at new designs. We've seen a definite uptick in that causing new products to be developed for the 5G space and other components like that. We've seen an increase in, and this has been going on all throughout the year even with COVID, medical supplies. We see, for the components needed for the machines in that, a very high increase in demand. The one thing that we did see in the last couple of weeks in medical is some of the companies that bought huge surpluses asking for some RMA return stuff. We think that's just a blip in there, but with COVID picking up again, we see that there's going to be large demands for all of those types of devices that are out there. Then, if I look at [00:22:00] pricing spades, the companies that I've been working with are definitely starting to look at this. They're trying to see how do I better serve my customer, and especially with a different way of technology and not sales being involved. That's really going to push into leaning for more pricing software and CPQ solutions, which will see a benefit to those companies as well as the overall industry as everybody moved to a more quick response. A more accurate response to clients with something that is more fitted for them. For that application, for that customer, what is a winning price?

Lindsay Duran: Excellent. Steve, how can people get in touch with you or learn more about Standav services?

Steve Wilkins: You can look me up. Steve Wilkins on LinkedIn. Otherwise, if you look at Standav.com, we have everything [00:23:00] about the company there. Specifically, if you're looking to get ahold of me, it's just Steven dot Wilkins at Standav.com.

Lindsay Duran: Perfect. Steve, thanks so much for joining us for this episode. We appreciate it, and hope that you'll be back next year to talk with us about the trends in this particular space and in pricing and CPQ more broadly.

Steve Wilkins: Thank you very much for having me and looking forward to next year.

Lindsay Duran: To learn more about Zilliant you can visit us at Zilliant.com. I'd also encourage our listeners to check out Benchmark.Zilliant.com for an interactive experience where you can plot yourself against our recently released 2020 global benchmark report data. That URL has benchmarked on Zilliant.com, and we will also add that to the show notes. Thank you so much for joining us for this episode, and we hope to see you on the next [00:24:00] episode of B2B Reimagined.

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