For some compaines, distribution is just about holding stock and processing orders. While these are two very important roles in the manufacturing chain, they certainly do not represent the most that a distributor can do.
Manufacturers want their distributors to create a market for their product too. This means finding new customers and explaining to them how they could gain benefit from using its products rather than someone else’s. When it comes to component distribution, that means talking to designers and getting them to build their product around your component. The designer has to think not just about what the component does, but how easily it can be supplied into its own manufacturing facilities, together with a guarantee of supply for the design life of what they are making.
The services associated with distribution are usually referred to as ‘value add’ and can range from technical support to application engineering. At Pacer these services have been taken one step further still with design capacity and even management of the entire manufacturing cycle.
As a distributor, it still has at its heart a desire to move product for its suppliers, but nothing moves a component faster than the right package of services around the component that makes it a reliable and trouble-free choice, provided of course it does the job.
Pacer was started in 1988 by Chris Tassell, who had spent his working life in electro optics having worked for RCA and Norbain. He started out working from home, selling electro optic components, and he built the business up to have a turnover of about £10m. The foundation of the company was contracts with Optek and Perkin Elmer, which are still important accounts.
Perkin Elmer has awarded Pacer a worldwide contract and it even represents the manufacturer in its home turf of the US. Tassell ran the company until about six year ago, when he handed the reigns over to current managing director Graham Rothon. Tassell remains majority shareholder and chairman, but he is semi-retired.
Graham Rothon
Rothon had previously worked for Nokia and was managing director of a US displays company, Planar, in Finland. When he joined, Pacer had a very solid financial position despite the capital intensive nature of distribution and it was ripe for expansion into new areas.
Rothon says: ‘We are a distributor and I guess we always will be, but we try to differentiate ourselves. We have broadened the product offering of the company, but we have kept that niche profile. We do electronic displays now, we do lasers, detectors and opto, but we are only going after niches, we are not going after high volume consumer business.
‘The niches we tend to focus on are around applications. We pride ourselves on our ability to understand the technology and what it can do for the customer in terms of application and that is the way we go to market. We go into a customer who needs to do something with opto components or a display and we believe our knowledge and our product line-up is what matters. We can add value through things like our design centre, and we can even do manufacturing. We offer the complete package.
‘We try to get in at the concept definition stage with the customer and work with the design team to offer them the best solution. We do not go out with armloads of catalogues of what we can do; we listen to the customer and try to understand the problem that they want to sort out, and then match it on to our portfolio.
‘What we are finding is that there are two schools of product supply. There are the very broadline and catalogue distributors, and then there are very niche and highly specialised companies like us.’
Rothon says that a typical customer is a design engineer who knows everything about the application, but does not know about the intricacies of opto components. The major markets in which Pacer is active are security, medical (particularly bioflourescence), general industrial, high-end instrumentation and military. Some customers, for example those buying high-end lasers, are just making a few OEM devices a year, but there are other customers who are making many thousands of products per year.
Rothon says: ‘Our sales people are specialised to particular products and markets. Some of the product cycles can be quite long. One order we took recently was for a military customer we have been working with for eight years. In other cases we get a call on a Monday to deliver on Wednesday. Some customers hold our stock and tell us when they use it. Some of our customers are manufacturing in the Far East and we are soon going to open a warehouse in Hong Kong to supply China. A lot of components are made in the Far East anyway and there is no point in shipping them back here first.’
Aculed and OptimalX are high power LEDs, as distributed by Pacer.
The UK is widely regarded as a great centre for design and typically it is the UK-based design engineers who are choosing which components are put into a final product, even if it is made in the Far East. Pacer is interested in the ‘designin’ sale at the beginning of the process, rather than competing for commodity business at the end of the cycle.
Rothon says: ‘We recognised some years ago that this is the way things are going. The UK is a great design centre and then the manufacturing is moving to China. We can supply worldwide. The world has changed a lot. If you had told me, 10 years ago, that I would have consignment stock in several places around the world, I would have been horrified, but now that is what you need to do to support customers.’
About 18 months ago Pacer recruited its team for a move into the display market. Rothon had considerable experience in displays, but chose his moment to move very carefully. It now has a range of displays, running from the smallest watch display, through rugged industrial displays, to high definition TV systems.
Rothon says: ‘It complements our components business beautifully and it is feeding applications through to us all the time. In the display market you have to be focused, because everything you pick up these days has a display in it. What we have done is focus in on certain markets, roducts and applications, but we have all the available display technologies and we can have a good go at almost all applications.’
This year Pacer moved into the design arena with its own design team. Rothon is clear that he has no intention of competing with his own customers, many of whom are design houses. He said the idea of offering a design service actually came from a customer and is designed to be a service to customers who do not have the technical skills in house, for example, to design a motherboard with opto components.
Chris Tassell, Graham Rothon and David House outside Pacer’s Pangbourne office.
The design centre pitches itself as adding bandwidth to the customer’s own design team. He says: ‘We don’t intend to become an OEM, although we do plan to produce our own Pacerbranded products ourselves. We have manufacturing partners in the Far East and we are offering this capability to our customers.
‘We have dedicated people looking after our relationships with manufacturing partners and we manage those relationships closely. We produce the test equipment for a project at our design centre, so we know that when the application comes back, it has been tested to our specification. We are talking to our partners daily, and there are people from Pacer out there working directly with them. There are many horror stories about working with Far Eastern manufacturers.
‘Customers value what we are offering. We have tens of projects out there at a time, while a customer may only ever have one. We also have a mind-share with our partners, because we are putting a lot of business with them.
‘We have one customer where we do the entire box build and just ship the finished product to them. Letting us handle it all is very cost-effective for the customers.
‘Our major push is to add more and more value and take on more for the customer – and that is exactly what they are asking us to do. We are there to complement what our customers are doing; it is simply a service that is available if they choose to use it.’
Adding design and manufacturing services does not mean that Pacer has forgotten about its role as a distributor. Rothon believes these services are a natural extension to that role. The key relationship is with its manufacturer suppliers and, by offering a design service, Pacer is creating a sustainable market for their products.
Getting design wins is part of what companies are looking for from a distributor. Also, the closer the relationship is between Pacer and its customers, the more opportunities it can generate for Pacer’s suppliers.
The key supplier relationship for Pacer is Perkin Elmer, which has the exclusive distribution contract for sensor products. This means that Pacer has to make the market for Perkin Elmer as well as providing all the technical support for the UK. This means it is representing Perkin Elmer at trade shows and generating sales literature for it.
The relationship has grown to the extent that Pacer is doing fulfilment of referral business around the world. Recently the supplier awarded Pacer a contract to operate on its home turf of the US. Perkin Elmer is already represented by broadline distributors in the US, but it wanted a company to come in with more technical expertise and create new opportunities for its products in niche markets.
Rothon says: ‘They wanted someone in the US to complement their broadline distributors. They wanted someone to target customers and support customers and complement their direct sales force. We have opened a US office, but we are not just selling Perkin Elmer; we are also selling our display products. We are supporting the Perkin Elmer representative network and are adding in other products including our value add services.
‘The distribution model is not quite so well known in the US, where they are used to dealing directly with a manufacturer. We are finding a lot of interest from customers who want someone to do something with a component or who want to have a single supplier, which is something a manufacturer cannot do.’
The question clearly arises as to whether Pacer will also start expanding into mainland Europe. Rothon believes his business model would work in Germany in particular, and there are many suppliers who he believes would want Pacer to sell in mainland Europe. The big opportunity is in taking its value added services to, for example, Germany, but there would have to be careful negotiations with suppliers who may be quite content with their existing channels through Europe. Rothon admits he would not be happy if Perkin Elmer’s German distributor started muscling in on the UK. The next stage of expansion is into Pacerbranded products. Rothon is not ready to say exactly what these products are going to be except to say they are ‘a piece of instrumentation’.
He is at pains to point out that it will not compete with any current products he represents, but he clearly believes he has found an opportunity. He says: ‘When we got the design centre, we suddenly had the chance to make things. We have a couple of ideas and we think we cold introduce it to a few of our own customers who could sell it for us. There are a few software changes that are needed and it will be there. It will be unique on the market.
‘It is just one idea and we can have more. Now that we have the full cycle of capability we can design, manufacture and distribute worldwide. We think the Pacer name has a lot of value, but it is possible that we might offer it as a white label product so that our customers could badge it and offer it as part of their range.’
The target for Rothon is to climb from its turnover of £16m this year to £25m in five years’ time.
He says: ‘When you look at the infrastructure we have in place, it all depends on what happens in the US, but I think that we could be that size of company in a few years’ time.’