@mfbertozzi: maybe you are putting too much expectations in that part of the world? I don't see it. They still have a long way to go and don't seem to be learning any lesson. Oh well, In the meantime, it was nice to talk with you again.
@SF: ;-) well, it wasn't my feeling; I am thinking rare and nano could represent all together an innovation which will impact electronics in terms of productions and end users features. It is only an individual opinion...
@ Lindsey, since the product surplus soon become obsolete does that not necssitate the need for companies to allow the supply chain managers help with their inventories. Or expand company collaboration with similar manufacturing for product recycle and exhanges?
User Rank Supply Network Guru
Great discussion folks, and I hope we have been able to add some insight and help in planning for the next business cycle. Please feel free to continue this discussion on our message boards or on our home page. And many thanks to Lindsley for his time. I know things are crazy out there...
One point which I didn't get to earlier is the use of the internet. Please be careful on using this as a sourcing tool. They is a lot of bad product out there and the web gives the greatest access for those selling bad parts. Always make sure you qualify your sources and make sure you have full traceability.
Case in point about electronics manufacturing relationships aiding peace and stability in sometimes-conflict parts of the world. Years ago, Israeli telecom companies started to outsource electronics manufacturing to assemblers in Jordan. I believe that "trade" like this helps to build peace (these countries are at peace).
@mfbertozzi: "Argentina for rare elements" <-- I don't understand this. --Argentina is not a good place for investment at this very moment. Too chaotic and unstable. Soon they are having elections and who knows what will happen there. It's not a stable economy.
@Lindsley, $20 billion in excess inventory this year alone? That's a huge figure. It's going to hurt the supply chain next year. I would have put it much lower but if your source is accurate that means the industry may be in for a turbulent ride next year.
@pjoygordon, Thank you. Northern and sub-Saharan Africa can use the business and the explosive expansion of consumer electronics into the region is a major draw for OEMs and telecom services providers. The issue of stability in the region can be overblown. The current turmoil will dissipate soon enough and business will resume its upward swing. Forecasts from the IMF and other international bodies indicate these are fast-growth countries.
eJabber. Great question. We expect excess inventory to be around $20B this year. Much of this product is never used. It flows to the broker market at pennies on the dollar. We do attempt to help customers move this product to customers with demand. This balancing action is difficult at times given the magnitude and number of parts.
@Lindsley, "The next China" is "deeper into China." Great portions of the country is yet untapped for production and companies like Foxconn are already shifting from the coastal cities to deeper inside the country. The advantages of a well established supply chain cannot be overcome as easily by new players.
Lindsley - Given the consensus that forecasting customer demand in these times is next to impossible and that these times seem to be the new ‘norm’, does this open up a new opportunity for distributor to help their customers with stranded inventory, after all isn’t my stranded inventory potentially someone else’s shortage?
User Rank Stock Keeper
@pjoygordon, What do you think is the reason for the OEMs' desire to invest in French-speaking North Africa? I assume proximity to Europe is one reason but is lower-cost a factor? If it is, is Eastern Europe not already serving this purpose or do they see production in North Africa serving as an entry point to sub Saharan Africa?
Not all companies can afford to tie down inventory through committed ownership. Perhaps this is why the industry cannot manage inventory optimally. I would say one possible solution is to have multiple supplier relationships (which can itself result in double-ordering) or have a frank, open relationship with a couple of distributors. The partners must be able to engage each other truthfully because one party's future may depend on a second party honoring their commitment."
Great points here!!!
@Lindsley/Bolaji/Barbara (and all, of course): We have told about economy recovery, I believe we are quite close to a new steps forward in terms of innovation: nanotech. Russia is a leader in the sector. Could FE Inc. and distributors in general need to review their market strategy in order to be prepare to face with success that event?
@jbond, Distributors usually feel the heat last when a recession is on the horizon and it also comes out of it last. That's the pattern historically. I don't know whether it has changed. Perhaps Lindsley, Bolaji or Barbara can comment on this.
@tirlapur-Regarding Brazil,Russia and India -For sure all these countries can be a source of not just Demand but also great products in the Semiconductor Industry in the years to come.Only problem-Atleast as far the next 5 or so years ,we have more than enough capacity already in the Industry(especially in China);so no new Supply will be needed.Why would a manufacturer make the massive investments needed in this situation(especially if Global Demand continues to be so uncertain)????
eJabber--great question! I've found that size is a relative term--maybe you are a small customer to some distributors, but a significant customer to others. As Lindsley says, size should not matter. But consolidating your buy from fewer distributors might help
@eJabber, My point exactly. Not all companies can afford to tie down inventory through committed ownership. Perhaps this is why the industry cannot manage inventory optimally. I would say one possible solution is to have multiple supplier relationships (which can itself result in double-ordering) or have a frank, open relationship with a couple of distributors. The partners must be able to engage each other truthfully because one party's future may depend on a second party honoring their commitment.
The size of your company Nemos should not determine whether a distributor bonds or not. If you cannot get the appropriate level of bonds, then I would bring in enough inventory to cover your lead times (make sure you manage lead times closely and get multiple sources.)
Nice one "Lindsley, as a small business owner I’m not afford the luxury of bonded inventory from my distributors, what can I do to offset the challenges of an uncertain market and my potential for being stuck with stranded inventory?"
I think the potential in India is phenomenal. As we know, India has been a strong IT development and engineering market for many years. I believe they will emerge as a serious player in electronics manufacturing over the next decade.
@Barbara (private/public): whatching posts' flooding on the board, I am wondering if major impact on financial crisis and then "recovery" come (and now are coming) from private of public customers, in general, for a distributor as FE inc., is.
@Lindsley, Great, practical suggestions on the issue of bonded inventory. But this is not a new idea. We've had this in place for years and yet the industry continues to fumble the inventory management situation. What is behind this and are there any antidotes to the cycle of over-supply and shortages?
@Lindsley: Yes, I totally agree. A misinterpretation can cost fortunes at he end. I would really emphasize video conferenciang as a plus to enhanse communication with the customers in a way that saves time but is closer to a real meeting in terms of eye contact and body language, the lack of these in email resulting in miscommunication and misinterpretation mentioned before.
To secure supply, customers should audit the bonded inventory of their supply. Make sure it is really in place and reserved for you and not a pooled bond for many customers. Also, make sure the bonds are in line with your demand and forecasts. Be careful on suppliers who pipeline meaning they bring in product just before you need it.
@saranyatil: that's the point, then coming back to my previous post, Internet could play a key role in the business and what happens for example when messages service doesn't work as per RIM blackout we are experiencing worldwide?
@Wale Bakare, If I may comment on your question, forecasts are being constantly reviewed by research firms and companies like Future are also always matching "forecasts" with actual market demand by checking at end markets, etc. The current predictions for 2011, for instance, is for sales -- even for semiconductor -- to be flat for the year versus high single digit one year ago.
Tech4people--I don't we will see distributors go private. The public companies are too well entrenched. But I wouldn't expect to see private compnaies go public, either. TTI is another company that is largely private although the are part of berkshire Hathaway. They are private becuase they want to control their own destiny
To expand further on Lindsley's comments, companies like Future have spent a lot of money on IT infrastructure to support their operations over the years and pride themselves on being able to monitor market demand as well as sales and supply conditions on a constant basis. Their viability depends on their ability to respond swiftly to market conditions. If any segment of the market is able to do this, it is distribution. They sit at the junction of inventory flow and know when a slowdown or a pickup is happening.
@Barbara-I agree,Privately Held companies have a much better and much long-term foresight when it comes to the issue of holding Inventory.Do you think this is a major catalyst to ensure more Distributor firms go Private???
@Lindsley / all: How Internet could support an important distributor as Future Electronics in planning for example right stocks to move and provision? How is important also in procurement process just to ensure best price for both supplier and final customer?
Future has over 900 employees in marketing and commodity management organized by technology. We speculate when we see trends of undersupply and we quickly react when we see trends of oversupply. Timing is critical. This level of market intel combined with our ability to invest in inventory provides a higher level of supply assurance to our customers.
"Do less in emails and have more conversations. Also, I highly recommend buying only what you need." @Lindsley: Do you mean replace most of the virtual communication (email, video conference) by phone calls and real meetings? What would be the impact on this with the tight schedule everyone has today?
Hi Ariella--I can take that one. The short answer is yes--publicly held compnaies answer to their shareholders. I sit on conference calls where analysts hammer distributors on inventory. It does affect how they stock and where they stock products.
@mfbertozzi, I have no doubt Lindsley is correct in saying this is a general slowdown. Even though there may be country-specific issues, the market is too globalized for one pocket to completely avoid what is happening in other sectors. Asia may face a higher amount of excess inventory problem because that's where production has been taking place but the owners and holders of the inventories might also be Western companies.
Lindsley,What I meant basically with my question was this-Do you think that maybe some firms have turned too cautious so as to possibility neglect exciting oppurtunities for expansion???[What with all the Gloom and Doom headlines abounding everywhere]
Lindsley said, "As a privately held company, we do not have to worry about the Street or ROWC metrics." Should we infer from that statement that publicly held companies would have to follow a different path because they do not have the same freedom?
Lindsley / Bolaji / Barbara, could you outline better most important reasons which allow to state market recovering? I really think it depends country-by-country and region-by-region and in general, market's labour is still facing difficulties and strong situations to solve.
Lindsley, I am opening the floor to our readers now. I hope you are ready for the flood of questions. Please join us in this conversation. As usual, please feel free to weigh in on some of Lindsley's prior answers and respond to questions. EBN editors will also join in.
Future's approach is different Barbara in that we see inventory as an asset. As a privately held company, we do not have to worry about the Street or ROWC metrics. We can turn our inventory two to three times and hold more product for customers than our competition.
Lindsley, Thank you. The issue of the flooding in Thailand also brings up the susceptibility of the industry to natural disaster. In your opinion, has the market completely recovered from the March Japan earthquake or are we still seeing remnants of the effects?
Great question Bolaji. I think the best message is for customers to continue to manage their procurement processes as they have been managing them up until now. Continuity of supply is critical. Although excess is being built today, we still see pockets of shortages. As we write, there is concern over the floods in Thailand and the impact to the supply chain. If the worst case scenario presents itself, then it will be a great buying market....but why risk waiting if you need parts now. So, please keep the flow of what you need coming in today.
Just to follow up on Barbara's last question, a few industry observers have warned about worst case scenarios and others have said the situation is overblown. Since we cannot really determine what we are facing or what lies ahead, what are you suggesting to your customers?
I don't think the supply chain is prepared for the worst case scenario. Currently, business is not as bad as it might sound. This is of concern. Prudent actions are certainly being taken to control expenses, reduce output and keep customer lines running, but concern looks if we fall into a deep recession.
Yes, they are adjusting their output. The industry is much more mature today versus ten years ago and component manufacturers do a much better job at slowing down production. Having said that, we still see a significant build of excess inventory.
I want to ask everyone to again hold your comments and salutations until we've opened the floor for comments. Thank you. This will be in about 15 minutes. We would like to give Lindsley Ruth the opportunity to set the stage for what is happening in the industry. Thank you."
I want to ask everyone to again hold your comments and salutations until we've opened the floor for comments. Thank you. This will be in about 15 minutes. We would like to give Lindsley Ruth the opportunity to set the stage for what is happening in the industry. Thank you.
Hello everyone and thanks for joining us. I'd like to introduce our guest, Lindsley Ruth, executive vice president of global distributor Future Electronics Inc. Before we begin, a few housekeeping items: for the first portion of our chat, EBN Editor in Chief Bolaji Ojo and I will be setting the stage for our discussion and posting the questions to Lindsley. Please hold yours until we open for Q&A.
Now, some background: Market research firm IHS iSuppli reports that semiconductor inventory levels in the electronics supply chain are approaching pre-2008 levels—in other words, an oversupply. As a global distributor, Future Electronics has a broad-based view of all types of inventory. Lindsley, is this consistent with what you have been hearing from your suppliers and customers?
Merci Susan. Barbara will initiate the discussion in a few minutes but let me welcome all our readers to today's Live Chat. For those who are joining us for the first time, this is a very informal chat and questions fly around all the time. Lindsley Ruth will be answering the questions but may not be able to get around to all of them. EBN editors will chime in whenever necessary. We'll be starting in a few minutes.
Just a reminder for all of us: we have to hold our questions and comments for about 20-30 minutes (Bolaji will confirm this) until the EBN editors Barbara and Bolaji finish with the questions to Lindsley, EBN guest presenter in today's chat. Let wait then to Barbara and Bolaji's instructions. :)
EBN Dialogue / LIVE CHAT
Live Chat 10/30: Top 10 Metrics That Enhance Procurement Performance
Join us on Thursday, October 30, at 2:00 p.m. EDT
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