Maintaining Hard-To-Find Inventory Is Paying Off In Big Sales Growth For Component Distribution Superstar Semi Source Inc.

Component distributor Semi Source Inc. is racking up double-digit sales growth year after year by doing what traditional franchise distributors are refusing to do: holding inventory of hard-to-find end-of-life components.

"A lot of distributors today are afraid to take an inventory position. We aren't," said John Lund, founder and CEO of Hingham, Mass.-based Semi Source. "We have more inventory of select components than 90 percent of the distributors out there. We get calls every day asking whether we have product in stock, and four out of five times we do."

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Trucks move new inventory into the three Semi Source buildings with nearly 100,000 square feet of space several times a month. Ninety percent of the products that make it into those buildings come directly from Fortune 500 OEMs."Those are long-standing relationships we have built up from 15 years in the business," said Lund. "You are only as good as your vendors. You can't take chances in this business."

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When Lund started in the components distribution business 25 years ago, distribution behemoths viewed holding inventory as a competitive weapon to gain share. Today, those same distributors view rapid inventory turnover as their biggest advantage. That has left a gaping opening in the market for Semi Source.

"We're old school," said Lund. "We are doing what the franchise distributors were doing in the '80s and '90s, taking on inventory to save customers time and money. You have to stock product to be successful in this business."

Semi Source Inc.

That hard-to-find inventory on components as diverse as memory, processors and ASICs has made the company a preferred vendor of customers in the telecommunications, industrial, consumer and medical markets.

One top procurement director for a medical equipment manufacturer that has been buying components from Semi Source for a decade said it is the company's sterling reputation for delivering original boxed parts in a market rife with counterfeit goods that sets Semi Source apart from other component brokers.

"It's getting tougher to find good parts," said the buyer. "There are more counterfeit parts than ever before on the market. What Semi Source provides me is the confidence that I am getting original parts. We know the parts we buy from Semi Source have been tested and validated. We are extremely careful because we are regulated by the FDA (Food and Drug Administration). We use only one independent component broker, and that is Semi Source. I put all my requests through Semi Source because I trust they will give me good product and I won't be burned."

That trust in Semi Source has paid off many times saving the medical equipment maker millions of dollars in sales. Just last year, Semi Source was able to deliver end-of-life components on a product that sold more than double the original sales forecast, said the executive.

"If we didn't get those parts we would have had to shut down the manufacturing line and redesign the product," he said. "That would have cost us millions and millions of dollars. Semi Source saved us big time! Semi Source plays in a part of the market that is too small for some of the bigger distributors. Those big players want to turn inventory. Semi Source wants to hold inventory. They are serving a piece of the market that is not satisfactorily being covered by the big distributors."

With counterfeiting on the rise in the global component market, Semi Source has doubled down on a stringent anti-counterfeiting policies aimed at making sure every component it buys and sells is an original manufacturer part that has not been altered in any way, said Lund.

Semi Source has a 60-step process that amounts to a CSI-like forensic analysis which includes everything from visual marking and serial number inspections to specialized tests to determine if a component has been altered.

Of course, long established ties to Fortune 500 OEMs that are selling original boxed parts is the first line of defense against counterfeit goods, said Lund. Those vendors view Semi Source as a trusted partner ready to come to the aid of customers looking to extend the life of a product or IT solution.

Lund said Semi Source's long track record of bailing customers out of a tight jam with end-of-life components has him more optimistic than he has ever been about the future of the business.

"We keep growing, and we keep taking bigger inventory positions, getting more and more repeat business year after year from Fortune 500 companies," he said. "They know they can trust us as the distribution source for their end-of-life component needs."