CASE STUDY

A TALE OF TWO ELECTRONIC COMPONENTS DISTRIBUTORS

THE TWO COMPANIES

AESCO
Bill Feth Jr. , President

ESCI
Ike Aubrey, CEO

Family owned electronics distribution in Akron, Ohio

Sterling, Massachussets based electronic distributor

INDUSTRY OVERVIEW
A $23.1 billion industry in US and Canada.
Product Mix Semiconductors, Connectors, Cable assemblies, electromechanical products, passive components etc. Experienced double digit growth over the last several years. Factors of growth: Growth in demand for electronic products and component manufacturers desiring to stick to their competencies. Added functions from component manufacturers required distributors to become more technically capable. There was no Typical Distributor.

AESCO - Introduction
Founded as Akron electric supply company in 1954. Provided electronic components for radio and television repair. Bill Feths father purchased the business in 1957.

Bill Feth joined the business in 1975.

Was restructured as an industrial distributor serving OEMs after a devastating fire in 1979.

Transformation from serving MROs to OEMs was complete in 1996.

Had some 70 people on payroll.

Main location was in Akron and a sales office in Columbus, they covered five states out of Ohio.

Bought from 40-45 different manufacturers, stocked those products, broke the quantities down and reshipped to their end customers.

AESCOs BUSINESS MODEL

Bill believed in balanced growth.

Provided value in four ways: Time place distribution, Assembly and kitting services, Extended attractive payment terms, Sales calls on behalf of the manufacturers.

Shipped smaller order quantities, Provided JIT delivery in narrow time frames, acted as One stop shops for OEMs a and also shipped emergency shipments needed by OEMs.

OEMs subcontracted labour intensive tasks that required lower skills to AESCO.

Provided credit to small OEMs that had insufficient working capital.

Augmented traditional manufacturers salesforce by making calls on behalf of manufacturers who franchised them.

ORDER PROCESSING AT AESCO

EMPLOYEE SELECTION AND TRAINING

Not many of the 70 + employees had a college education. Bill Feth was the only person with formal education in business.
Most new employees were exposed to sufficient training by the help of senior employees. Most employees were on hourly wages and payroll costs represented 1216% of sales. AESCO offered group incentives in the sales dept. based on achieving both sales and gross margin targets.

RELATIONSHIPS AND ASSEMBLY OPERATIONS

Relied on repeat business from its loyal base of customers. Company went out of its way to provide superior customer service. Many aspects of the relationship e.g. pricing and reacting to competitive threats were based on trust.

In case of divided loyalties. AESCO remained neutral.

Assembly operations were based in a 3,000 square foot area attatched to the warehouse.

40 workers were there in the assembly area.

Orders received for value added assembly was routed through engineering department.

Had flexible work rules in its assembly area.

Peace of mind was the greatest benefit that AESCO provided.

ESCI - Introduction
Ike Aubrey started his career as a materials planner in electronics business in 1970. Later he became a manufacturers representative for Elmo Semiconductor. Some customers in the Northeast required him to carry more parts than those currently offered by Elmo. Recognizing this as a business opportunity Aubrey went into electronics distribution business and founded ESCI in Massachussets in 1981. In 1995, ESCI had sales of $4.6 million and 12 employees and the customers were mainly in the defense contracting business.

ESCIs BUSINESS MODEL

Specialized in procuring low volume, hard to get components.

ESCI served a niche market with very specialized needs.

Had four or five competitors throughout the country but it was the only one to carry a broad line of active and passive components.

Sourced parts from its network of vendors who were dispersed worldwide.

Carried $1.2 million worth of inventory which enabled it to provide quick service to customers.

Two of the companys 12 employees were family members.

ORDER PROCESSING AT ESCI

MANAGING RELATIONSHIPS AND THREATS

Stressed the importance of good relations with both buyers and suppliers. Fair pricing was crucial to maintaining these relationships over the long run. Overall , profits before taxes averaged close to 10% of sales. Did not view recent trends like consolidation and internet as threats since the company sold extremely specialized products and services to a niche market. Ike played a crucial role in many aspects of the business. His close relations would have been hard to replicate.

INDUSTRY TRENDS

INTERNET

VALUE ADDED SERVICES

CONSOLIDATION

DILEMMA

Bill realized he had to make tough choices as threats from large distributors and technological trends were not to be ignored.

He considered alliances or partnerships as the way to go.

Ike wondered if it was the right time to expand and carry a greater variety of components.

Questions?
Would AESCO survive and sustain its growth rate in the future or be bought up by a larger industry player?
Should ESIC stick to its current comfortable niche with a smaller turnover or explore options for expansion?

PRESENT CONDITION
AESCO
On January 12, 2012 AirBorn Inc., a Texasbased manufacturer of electronic components and provider of value-added solutions for multiple industries, acquired AESCO Electronics.

ESCI
Expanding its product offering in 2001, ES Components was contracted by Kimball Microelectronics, formerly Elmo Semiconductor, to market their residual inventory assets, an extensive inventory of obsolete and hard to find products.

AirBorn, a leading manufacturer of electronic components for the aerospace, avionics, defense, energy, medical and automotive industries, acquired AESCO in a strategic move towards growth, diversification and increased offerings and capabilities

Today, ISO 9001:2008 & AS9120 certified and ITAR registered, ES Components continues to implement innovative technologies, strategic partnerships and revolutionary inventory management methods in order to streamline its customers' production process