Let's chalk up another tough year for the components distribution industry.
Industry growth began to falter in 2000, and it still hasn't begun to recover
from the beating it took from a severe glut in inventory and optimistic
forecasts two years ago. Many distributors have seen double-digit revenue
declines and record-low profits. And the outlook is still a little hazy.
Component orders were flat in October for the fifth straight month, according
to the Electronic Components, Assemblies and Materials Association. And there
are no clear trends for recovery. Yet, research firm iSuppli Corp. predicts that
after a flat first quarter in 2003, the semiconductor market will see
double-digit annual growth of 14.9 percent.
Where does this leave distributors? Some key issues they face are China's
growing dominance as a high-volume manufacturing region, the trimming of supply
rosters by OEMs and electronics manufacturing services (EMS) companies, and a
trend by OEMs to outsource design and manufacturing.
One thing distributors are good at is reinventing themselves to meet current
market demands. This year, for example, many distributors have focused on
value-added services and on beefing up their Web sites and subscription-based
services. And some larger distributors have headed for Asia, where a growing
number of their customers are seeking sales, logistics and warehousing
support.
Supply chain collaboration also took center stage with a move toward sharing
design and supply chain information to improve communication, speed up the
design cycle and bring product to market faster. Despite weak component demand,
distributors made IT investments to drive real-time communications, like
RosettaNet standards.
Over the past year, OEMs have struggled with who has control over the supply
chain as they outsource more of their designs and manufacturing. Some industry
players say EMS companies will gain more control over their customers' supply
base. And as business picks up, EMS companies will likely emphasize their
design, manufacturing and repair services instead of logistics and
inventory-management programs.
Looking ahead, we'll likely see many distributors returning to their roots in
logistics support and inventory management. Some are already bulking up on
service-oriented programs, ranging from consignment to vendor-managed inventory
programs to support requests from OEM and EMS customers. The challenge will be
to support their customers globally as those inventory-management programs gain
in importance.