The electronics supply chain has always had a problem bridging the gap between the design of a product and the manufacturing of that design. The issue is most pronounced in distribution, where companies are rewarded by their suppliers for design wins (securing a component's position in a design). Component makers frequently compensate distributors for these engineering-intensive efforts by giving them a little extra margin on component orders when a design reaches the production stage. The problem: Not every design reaches production.
The distribution industry measures its health based on a ratio of bookings to billings. A 1:1 ratio means fulfilled orders (billings) are going out at the same rate as new orders (bookings) are coming in. Anything over 1:1 indicates growth.
Michael Long, CEO of the $21 billion distributor Arrow Electronics Inc. (NYSE: ARW), recently told analysts on a Webcast that his company has been using new product designs as a litmus test for industry health. "I used to think it was the book-to-bill that drove the industry and the backlog of orders," he said. "I now believe that the number of design wins your company grabs over time is one way to measure when you are coming out of a downturn."
It's an intriguing idea. OEMs have been squeezed like everyone else in the high-tech world, Long said. They are not wasting valuable engineering time on designing products they can't sell. "We know the economy drives business ups and downs, but a more meaningful measurement for us is 'Are your customers still designing?' Do they believe this is something they'll be able to sell in the future?"
Arrow started tracking design wins in 2009. Its measuring stick is the number of approved designs won by Arrow engineers in companies around the world. "From start to finish, it takes about six months to get a product out in the market," Long said. "So we can tell if we are designing faster than the market is moving."
His company is bullish on the future, because it is seeing an uptick in design activity, he said. "Last quarter, our design wins were in the double-digit range. It looked a lot like the last time the industry pulled out of a recession." Last year, Arrow design wins grew about 8 percent.
"When we start seeing activity in the double-digit range, we believe there is pent-up demand out there," Long said. "The question is, when is it going to come?"
Cryptoman: You make a god point. In many cases a distributor will know only about the components it secured a win for. That's why distributors are trying to design more of the board--not just key components but surrounding parts as well. The more of the design they capture, the more sales they are likely to reap down the road.
Using design wins as a success metric sounds like a suitable method to measure performance. However, as most OEMs prefer to keep the details of their product portfolio and the designs confidential, it is hard for the distributors to know which components are used in which designs/products of an OEM. This will cause the design wins to fail as a metric.
When I was working for an SME, we used to get frequent visits from distributors who were keen to sell as many electronic components as they could during our meetings. While doing that, they would ask detailed questions on the product, the design, market and the volumes etc. which we would find annoying due to the confidential nature of the products. We would be extra careful in order not to provide such details. After a successful sale, the only information the distributor would have was the number of a particular component that our company would buy from them. The distributor would have no idea on where the components supplied by them were used in our products.
I think many OEMs work on similar principles regarding their designs. As the competition gets tougher each day, the level of secrecy on each product increases.
We also use design wins as a metric but it is sometimes a bit nebulous in that not all design wins translate into real sales. It is obviously dependent on how the end product takes off and what the second source situation looks like.
Its always tricky for distributors to understand and track the progress of the project with OEM's. In some areas like aerospace, medical and defense it could take more than couple of years for the product to actually come into production. I do not think design activity is the right measure for the production orders.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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