Please give us an overview of Circuit Byte…
Circuit Byte is a 14 person company located just outside of Frankfurt. The company does two things. Primarily, we are a software developer, but we are also a sales partner for Siemens; known as a Siemens Smart Expert Partner. Being a partner is the highest level of technical expertise you can get for one or more Siemens products, and this case, it’s the so-called Valor product line.
We’ve been selling Valor for 13 years as a Valor partner and we kept hearing from customers, ‘that’s really a nice product, but it doesn’t really address my biggest pain, which is quoting’ – sending quotations for an EMS company for production.
Imagine I’m an EMS company. I am Celestica and my customer says, ‘I want you to build me 10,000 of these. Send me a quote’. They then need to find the material, and how much the material and production are going to cost. They need to get this into a quote and they need to send it out. And they said, these quotes are a pain because they may only get one out of 10.
Unfortunately 9 quotes out of 10 are “a waste of time”. They are a necessary waste of time, but technically speaking, it is time that nobody gets paid for. So if people are spending a week on them, it really hurts. If we can get that down to a day, we’ve really got something. So we said to our customers, unfortunately there is no solution currently in the Valor product line. but we’ve got some pretty smart guys on our payroll so let’s see what we can do.
What did you come up with?
We ended up developing a product called BOM Connector which was very well received on the market. We got lots of customers very quickly at the beginning, mostly small EMS Companies. And then as we built up a reputation, we started to get chosen by larger EMS companies. Like for example, just a few months ago, a company called KATEK which is probably the biggest, fastest growing EMS company in central Europe. They are growing through a strategy of acquisition, so they purchased small, independent EMS’s that were barely breaking even. KATEK integrated them all and consolidated to use bulk purchasing to get better prices, turning the around and making them profitable.
BOM Connector is ideal because we consolidate the most important thing, the pricing of components. If you look at a quotation, 75% of the quotation is materials, which is huge. So BOM connector was very successful before the pandemic, because this was a pain point before the pandemic. We have now become more successful as a result of the pandemic – we’re having our best year ever now because the pain has grown substantially. The pandemic has certainly increased the interest in supply chain optimisation tools – any tool that makes it easier to find parts.
“Many years ago, I could say, I always get my Texas Instruments parts from Avnet. They supply it on time. No problem. Suddenly I’m hearing from Avnet. Sorry. We don’t have that. So, what do I do? Just stop producing? No, I’ve got to check second source, third source and even fourth source. Maybe the TI (Texas Instruments) part shouldn’t be purchased. Maybe there’s one from ON semiconductor, which is okay.
“So this is where we move from pure supply chain to component engineering. If my supply chain says, ‘sorry, don’t have it, but I can offer you this one’ then I need to make sure that ‘this one’ is good enough. I need to link other sources of data like obsolescence portals, and environmental portals, and I want one tool that can provide a result from my supply chain check. All the results need to come into one central database and that’s what we’re doing.”
Where is that data held?
Excellent question. BOM Connector is an on-premise solution. Essentially all software these days gets divided into two generic categories: on-premise solutions and cloud-based solutions. Our solution is on-premise. So as far as that goes, we are a little bit old school, and the reason we’re old school is that’s what our customers want. What our customers are buying, and who they are buying it from, how much they are paying for it and what they are charging their customer, is probably the most sensitive data in the whole company with the possible exception of employee health records.
Hence, do I really want to just stick it in some undefined cloud where the developer of the software has total access to my data? If they have access to my data, a lot of other people have access to my data, and the big tech companies have done little to allay my fears regarding security. Not only have they not alleviated our fears, but sometimes it almost seems like they’re going out of their way to stoke them.
So when I hear people say that the company’s customers are too conservative, my reply would be no, they’re realistic. They’re able to separate the hype from the reality. The hype of “Oh the cloud is great. It’s what you need.” And then the reality of constant data breaches, and which legal system is governing it. There’s this idea that European customers are just so conservative. No. They simply see things for what they are. Not everything that’s new needs to be rushed into blind.
It’s not conservative, it’s practical, Based on experience actually.
If the customer says ‘I love AWS, I totally trust them’, then the customer makes the decision. That’s our key to put his database in AWS. We don’t make that decision for our customers. It’s not our job to make that decision. Not even we, as the supplier of the software can get into our customer’s database. The customer has the total upper hand. This is a very important part of our technical model and also our business model that’s an absolute distinction, because if customers say I’m looking for a cloud-based, portal solution, we say, that’s not us, that’s not what we do. It also gives us a lot more commercial flexibility because a web-based solution can only be paid per month, pay per day, paid per use, you can’t buy it.
Customers are able to purchase our product. They want to know that we can never turn it off. A web solution can be turned off and here we get now back to the political thing. Is there anybody naive enough to say president Donald Trump would never have thought about doing such a thing? Of course he would. In the event of trade troubles with the European Union, you could totally imagine a headline that says “Donald Trump threatens to close the cloud to Europeans.”
The customer decides what happens to his data, where it goes and who has access to it. This gives another level of security and confidence.
Now to tighten out the Siemens connection a little bit. We resell Valor for Siemens. We were getting a lot of customers buying both, and it was only a matter of time before Siemens started noticing, ‘Hey, this seems to really give value to the Valor solution. Why don’t we talk about an OEM contract so that we can sell BOM Connector to our customers? We’re going to call it Valor BOM connector, but it’s the same exact software.’
We don’t have an extra special version for Siemens, it’s the same thing. Valor BOM Connector is a pure marketing name, it is BOM Connector, and that’s what they sell for us. It provides us with the big advantage of getting a footprint beyond what we, as a 14-person German company, could ever get.
We now have four customers signed on just in the last six months, new customers in South Africa. Through Siemens, we also have our first customers in China. We didn’t even know where to start, so it gave us enhanced marketing and a certain leverage to say that clearly the product is good and works, if Siemens is putting their name behind it. Also, there was a certain injection of cash, which was nice, but it had to make sense, we didn’t want to mortgage our future. More exciting for us was the injection of marketing and the fact that it is a Siemens approved solution. And their faith in Circuit Byte. It’s a very nice bi-directional arrangement. Circuit Byte sells Siemens software, Siemens sells Circuit Byte software.
When did this happen?
Last year. It’s within the last 13 months that this has happened within the teeth of the pandemic.
So tell me about that, was the pandemic a motivating part or was it going to happen anyway?
It would have happened, though I don’t think it would have happened as fast if not. I can’t say it would not have happened if I hadn’t been for the pandemic, but I doubt if we would have signed the deal when we did, because we had been talking for a while and all of a sudden it happened. I am convinced that it definitely accelerated things. It brought the issue to the forefront. It focused attention for sure.
From experience of years of doing this kind of stuff, you get a feel for it, don’t you? So what does the future hold?
We’re going to keep doing what we’re doing. It’s working. Though there is no doubt that at some point the cloud will be as ubiquitous as a wildfire so we do have a cloud strategy for the future, how we’re going to do it, and how we’re going to address concerns that customers will have. That definitely is part of the future. No doubt.
Is it fair to say that as you know about those potential fears and lack of patrol groups and security issues, that it gives you a better insight into providing a better solution?
Absolutely. I mean, if you don’t know your customer’s hopes and fears, you can’t address either one of them. We have a very big customer base and we talk to them and we work with them and we hear what they need and what they want. Now that our customers are getting more and more spread out over different countries, our viewpoint has changed from just ‘this is what the German customers want’. We now need to balance that, and find out what do the American customers want, and what are their hopes and fears?
We don’t want to be a local niche tool. We want to be more. And so that’s part of it. The distributors are improving their connection capabilities, for example, a lot of distributors, not only can you check price and availability, but you can actually send an order via API. So in one step you can say they got it, I liked the price. Buy it.
It’s really nice to speed up that whole process because it takes 48 hours to get an order process through my ERP system. If I can order it the minute I see it’s there, that gives a new meaning to just in time.
You’ve obviously got a development roadmap, presumably in your mind as to what other bits you’re going to add, because this seems to have manifested itself from something that didn’t exist?
Now it does.
And now you’ve got the Siemens tie-up. So we’ve got this huge global reach and a bit of cloud. Do you have plans to enhance the product? Are there any major milestones coming up?
One of the biggest major milestones is absolutely to say, okay, so I’m gathering a lot of pricing data – a lot. I am gathering all of this data, price, availability, etc. The BOM Connector database is getting pretty robust. I want to be able to use that data to do predictive stuff. So artificial intelligence on top of the database can allow me to make really good decisions. I always say the link to the ERP system shows me what I did yesterday, whereas our real-time links show me what is happening today. And a really interesting analysis could tell me what I should do tomorrow. For example, I think the price of product X is going to go up. So order it now. I think the price of product X is going down. So wait a couple of weeks – that would be the ultimate development in forecasting predictions and trends.
I need to know what I did yesterday. I need to know what’s going on today and that can help make my decision for tomorrow.