AI interviews Ron Hayes, Director of Automotive Business Development at Area51-ESG

Area51-ESG, Inc. prides itself on being one of the most proactive electronic parts distributors in the country. The company has offices in California, New Mexico, Arizona, Massachusetts, Michigan, and soon will be in Florida and New York. Area51’s services include worldwide electronic parts inventory access, an electronic components search engine, sourcing hard to find and obsolete electronic components, offering industry leading customer service, knowledgeable technical support and inventory management.

The company is a federally recognized Section 8(a) disadvantaged minority distributor. “Area51 was created with an understanding of providing our customers with service and solutions. Our evolution has been well planned and our growth rate excellent. Our proactive response allows us to continue to build our market share within the electronics distribution industry. We have built strong customer and supplier relationships, maintained flexibility to support our customers’ ongoing needs, and developed name recognition as we specialize in current, trailing edge, obsolete and discontinued type products,” says the company

Distribution of automotive systems application components is an important business for Area51. The company says it is more than a local distributor since it has strong overseas alliances, which allow it to source and purchase components from across the world. “Area51 is currently supporting serial production of automotive infotainment products at a major Tier 1, in support of its customers’ minority/diverse business initiatives.” says the company.

The company offers just-in-time deliveries, scheduling and product allocation to OEM Fortune 500 companies. Its warehousing procedures include one hundred percent traceability with ESD preventative handling. Area51 has its proprietary software that ensures every customer order is fulfilled as requested.

Area51 has factory direct lines with automotive electronic component manufacturers and is specifically approved to both develop new business and to supply to automotive companies.

“As a reporting member in excellent standing with both the National Electronics Distributors Association (NEDA) and the Electronic Resellers Association International (ERAI), we understand the specific needs of the OEM marketplace.”

Our trade references, financial stability and worldwide supplier base affords us the edge we need in this true service industry. We at Area51 make supply chain management easy, delivering product worldwide when it is needed most, always there with accurate precision and time to spare,” says the company president.

Area51 also says it is constantly adding product lines and keeps scouting for new franchise opportunities to better serve our partners. The new Detroit operation is strategically located to both build relationships with component manufacturers and to directly service the automotive sector. The company has plans to add sales application engineers and a geographic distribution center in the Detroit area as its automotive business grows.

Automotive Industries spoke to Ron Hayes, Director of Automotive Business Development at Area51-ESG Inc. Prior to joining Area51 last year, Ron has held automotive procurement and supply chain management roles, including several years at Mitsubishi Motors and Harman/Becker Automotive Systems. In the mid 1980’s, Ron mentored the startup of minority-owned MICO Industries, owned by Christina de la Garza. While at Mitsubishi Motors, Ron struggled to create opportunities for minority/diverse suppliers within his responsibility for electrical/electronic systems in vehicles such as Galant, Eclipse, and Endeavor.

AI: Please tell us a little about the owners’ (Steve Shammah and Peter Nguyen) vision for Area51-ESG when they started the company.

Steve Shammah, President/CEO is no stranger to component distribution. Since 1979 he has provided several major OEMs with component solutions for shortage and production quantities of hard to find allocated components. Steve continues to promote government/industrial minority spending and the success of small disadvantaged businesses. He has structured Area51 to service and advise commercial, automotive/industrial and military type clients, resulting in significant long-term business relationships with many Fortune 100/500 companies.

Peter Nguyen CFO came to the United States after leaving Viet Nam in 1975. His family was helped by the goodwill of people in Iowa. Peter graduated in 1992 with an MBA degree in finance and accounting. His banking relationships over the years have made it possible for Area51 to solicit and attract multi million dollar contracts with some of the largest OEM’s in the country. He believes management is responsible for maintaining a system of controls that ensure assets are safeguarded and every transaction is authorized, recorded and reported properly. Under Peter’s leadership, Area51’s accounting principles and practices ensure all aspects of our business are visible and controlled, eliminating any financial risk to our suppliers or customers.

AI: What are the opportunities Area 51 has enjoyed as a Section 8(a) minority distributor?

Area51 has enjoyed a multi-year aerospace contract as a direct result of our 8(a) status.
Our performance throughout this contract has rewarded us twice with an NMSDC minority supplier of the year nomination.

The automotive industry started promoting the growth of business with minority and diverse companies in the 1960’s. Over forty years later, much of automotive’s multi billion dollar purchase of materials and services from minority/diverse business does not involve electronics. Innovation was needed to qualify and mentor an existing certified
minority-owned company into one very capable to supply any automotive customer.

Any supplier to automotive must be approved after meeting the due-diligence financial, quality, and operational criteria of the customer. The same is true for approval of distributors by electronic component manufacturers. Although cost is important, avoiding business risk is paramount in automotive. Area51 has succeeded in every evaluation of our component manufacturer partners, as well as our automotive customers.
Our 8(a) disadvantaged, certified minority business status would be meaningless to automotive if our company was not risk-free.

Our automotive business is now developing as more companies understand the innovative value that a certified minority-owned distributor can provide to the supply chain. Area51-ESG is actively working to educate, creating future opportunities for growth of minority/diverse companies like ours.

We have several authorized semiconductor lines and are in discussion with several more companies. We have initiated a discussion about a ‘cooperation’ with a private franchised automotive distributor. While we explain our reasonable cost, exceptional value business model to many Tier1 companies, we are formulating near-future expansion in metro Detroit and other areas of North America.

Area51 is in its second year of successfully maintaining a supply of components to an automotive Tier1, a business which will expand as we simplify their supply chain for formed/trimmed leaded devices from several component makers. Our standard automotive business model includes maintaining a two week FIFO safety stock, being flexible in our supply to meet the needs of the customer, and ensuring no part is at risk due to concerns about placing firm orders months in advance.

AI: How has being a minority-owned company changed the way you do business compared to your competition?

Area51-ESG is first and foremost a very well managed, financially secure, and highly successful business. Being minority-owned has not changed the service we provide our customers, the quality of our products, or our reasonable cost. Our operations and business practices are based on sound principles. We fully understand the financial challenges of distribution in automotive and are able to succeed. Unlike many similar companies, we have already implemented a succession plan, which ensures our certified minority status for many years. Our customers have learned that Area51-ESG presents very low risk as a supplier.

Like any other well-managed business, we ensure that we follow practices that are important to our customers. Our quality management system is certified to ISO9001:2000 with aerospace AS9120. Although there is no standard within TS-16949 that is applicable to a non-manufacturing distributor, we are TS-16949 compliant.

We offer the same essential services that the big global distributors offer. We assist automotive customers with PPAP or ISIR, IMDS, APQP, and other requirements. If one of our suppliers has a problem, we fully utilize the 7D problem solving process. Should our customers need added services such as tape & reel, lead forming, inspection, or programming, we have sub-contractors who are experts in their field. For our customers, we actively manage the supply chain, reducing the customers’ need to monitor several different component makers and reducing the customers’ costs and risks.

In automotive, the lack of understanding of the need to promote and support minority/diverse business in the electronics component industry has resulted in Area51’s status as the ONLY certified minority-owned distributor which is authorized to create new business and to service automotive companies. As we grow and build relationships, we open doors for other minority/diverse companies.

We also embrace diversity in our company. Currently, more than 50% of our employees are considered minority/diverse. As we grow our business, in turn we create more employment opportunities for minority/diverse people.

AI: Please tell us a little about your worldwide electronic parts distribution – how does it work and what kind of alliances do you have?

Areas51 is no longer a regional solution to supply chain management but an international solution. We are constantly developing key partnerships to address the concerns of our worldwide OEMs and contract manufacturers. Due to our competitive pricing we are shipping pallets of wire products into tech centers in the Asian markets. Area51 also participates in emerging markets such as South America and India.

Our European sources offer solutions on products that may be allocated here in the United States but are readily available in Europe.

We are moving forward on an innovative ‘cooperation agreement’ with a large distributor. Each of our companies will lend value to the alignment, enabling each of us to expand our business. Through this agreement, Area51 will position itself as a fulfillment partner, delivering components to North American operations of non-US Tier1 companies. We will ensure the same local service that the Tier1 enjoys in its home country. Our minority status then adds positive value to the relationship.

AI: How much of your business is accounted for by the automotive sector? And how do you see this sector evolving?

In 2007, about 20% of our sales were to automotive customers. Although we expect that it may grow significantly in 2008, the challenges the industry faces in the US may impede that plan. As we grow our automotive business, we plan to diversify with several customers who do not supply within the same vehicle system.

With the exponential growth of electronic systems in the automotive industry, the potential growth for Area51 is very significant. As we grow, we are very cautious that we don’t grow so quickly that we put existing or future customers at risk. Our reputation with our customers is critical to success.

The growth of our business and the growth of companies similar to ours can be greatly helped by the readership of Automotive Industries, by:
a) Vehicle Manufacturers and Tier1 companies recognizing and emphasizing the need to include the electronic component industry in their diversity targets and communications;
b) Inspiring Tier1 or Tier2 customers of large distributors or direct customers of component manufacturers to thoroughly investigate the option of supply using a certified minority authorized or franchised distributor;
c) Encouraging electronic component manufacturers to embrace the value of minority/diverse supply options within automotive and coordinate dialogue between large franchised distributors and emerging minority/diverse distributors.

Area51 will continue our own efforts to enable each of the 3 tasks above to be implemented. It would be much easier and expedient if more people in our industry would assist in this important innovation in supplier diversity.

Area51-ESG will become much more visible in the industry during 2008, through our attendance at important events such as the biannual SAE-sponsored Convergence in Detroit. We will continue to participate in various NMSDC regional supplier diversity events, as well as specific OEM events such as Chrysler’s MatchMaker and Toyota’s OpportunityExchange.

On behalf of my colleagues at Area51-ESG, we greatly appreciate the opportunity to share our story with Automotive Industries and your readers. Please direct any inquiries to ron@area51esg.com.