The supply chain after-shocks due to the loss of once-reliable PC cycles, among other variables are forcing a refocusing of supply chain strategies. Underscoring the shift in the electronics industry is the high mergers and acquisition (M&A) rate this year, adding further volatility to pricing and sourcing. The competition is heavy and the margins thin, demanding agile and customizable supply chain solutions.
As the third quarter of 2015 rolls out, the industry is looking for demand uptick that has been lagging so far this year, particularly in light of 2014's gains and the promises that 2015 was supposed to hold but has yet to offer. Concerns continue to weigh as the once reliable refresh cycle for PCs has dissipated, and now is coupled with weakening tablet sales and gnawing concerns for continued smartphone growth. Complicating the picture further is the issue of a high rate of consolidations and mergers and acquisition M&A activity. Sourcing strategies and product availability are key but how to achieve balance as market changes and cycles accelerate but predictability decreases.
In the wake of these market dynamic shifts, supplier strategies are refocusing because procurement departments are demanding extended services of their distribution partners. For example, global distributors, both franchised and independent, are actively extending their service offerings to diversify their own market opportunities while meeting their customers' needs. Their customers' needs focus around increased efficiency, streamlining, and cost savings. No longer is the demand focused on getting to market the fastest, or expansion strategies, rather the motivations are more simple and center on core procurement issues that support agility and protect margins – a tall order in today's tight market.
Distributors are responding to their customers' demands by extending their network of vendors, leveraging their existing strengths and capabilities to provide a growing range of dedicated services. To learn more about these market strategies, EBN spoke with Mark Bollinger, vice president of marketing for Smith & Associates:
Extending services to meet the broader market demands of our customers defines our own strategic diversification. At Smith, we have long understood that customized solutions are vital. There are very different specialized requirements that need to be met based on the type of customer we are working with. For example, a large multinational OEM or EMS may have a focus on inventory management and cost savings especially, while a smaller customer, or industrial customer with lower volume and higher mix might need often focus on testing and quality intensive services as well as EOL support.
When future demand is questioned and consolidations in the industry increase uncertainty of product availability, distributors get creative in their solution offerings. Knowing that inventory on the balance sheets continues to be a real issue, the popularity of Vendor Managed Inventory (VMI) solutions has grown. Consignment and hubbing are, of course, now standards, but how to leverage the additional needs – the extended services – around these core inventory solutions is a critical battleground among leading distributors.
“Market leadership among distributors under the current market conditions is best understood as the ability to provide the right range of service solutions targeted to meet the specific demands and needs of a similarly wide range of customers,” Bollinger said.
Franchised and independent distributors alike are looking to leverage their existing infrastructures, both their brick and mortar operations and their IT platforms. The digital platforms that were built to handle distributors' business needs are now being extended to increase data and business intelligence to customers' strategies. In this manner, we can understand a new phase of outsourcing of sorts to be underway.
While businesses along the semiconductor and electronics supply chain turn their focus inward to improve internal operations, efficiencies, and margins, they are also demanding that their supply chain partners provide similarly aware services in order to give businesses the most agile and leveraged market position. Bollinger said:
Distributors are leveraging all of our capabilities, and especially our digital technology infrastructure to give our customers leverage in the market place. We support customers in more diverse ways and provide more diverse data and analyses in addition to extending traditional VMI, PPV, hubbing, and similar services.
He concluded by commenting, “Today, distributors must have the ability to meet all of our diverse customers' needs. This market situation presents the perfect chance to grow and extend naturally as our customers' look for new and more efficient solutions across their markets.”
Let us know the challenges and opportunities you see in this space in the comments section below.