End Markets Change the Supply Chain: LEDs

The electronic components supply chain is not one vast integrated entity. Rapid changes in end user demand, as well as vertical market needs such as technology changes, product lifecycles, and government regulations, often trigger new requirements for the production, packaging, procurement, and fulfillment of components.

This diversity sometimes makes procuring components from only one trusted source difficult, even though that is the best way for end-buyers to ensure that only legitimate components enter their supply chains. Fortunately, franchised and authorized distributors have risen to the challenge and adapted their businesses and processes to support the unique needs of end-buyers in these changing industries.

In this two-part article series, we will examine two representative industries (light emitting diodes and medical) and their impact on the electronic components supply chain.

In the past several years, the light emitting diodes (LED) industry experienced the type of rapid growth in end user demand that significantly impacts supply chains. Market research firm Strategies Unlimited sized the 2012 worldwide market for LED components at $13.7 billion, with expected growth to $15 billion in 2017. The market for LEDs expanded very rapidly due to environmental and energy concerns about conventional lighting, and the attractiveness of LEDs' lower energy consumption, no mercury content, and longer product lifespan. As a result, LEDs are making major inroads into sectors such as general illumination, mobile devices, displays, traffic signals, and automotive.

The changes occurring within the LED market, brought about by new end user requirements, have in turn driven changes in the electronic components supply chain. Players up and down the supply chain — from manufacturers to distributors to service providers — are rethinking their business strategies in order to stay flexible and differentiate to capture a share of this growing business:

    • Design expertise and value added services — The rapid uptake of LED lighting and increased demand for additional functionality and increased energy efficiency requires more complex components. The expanding range of products with varying design, requirements, and specifications brings with it a need for more technical expertise as well as systems to manage the broader array of components that have spawned to support the LED revolution. Franchised distributors have strengthened their technical know-how and built scalable inventory systems that can quickly adapt as new players and new technologies appear.
    • Warehousing and fulfillment — LED semiconductors are temperature sensitive, so the supply chain has adapted storage materials, testing, and warehouse facilities to maintain the components at the optimal temperature throughout the fulfillment process. Franchised and authorized distributors who already maintain controlled-environment facilities that meet these stringent requirements have an advantage over other distributors in pursuit of LED components business.
  • Adherence to regulations — With many countries implementing new regulations that focus on the performance and safety of LEDs, it is critical for manufacturers to understand and keep up to date on emerging standards and be ready to address regional differences. Franchised and authorized distributors, with a track record of navigating regulatory diversity and meeting standards certifications, are well equipped to ensure that the products they fulfill, manufactured in various countries, adhere to the regulations for LED products in the markets in which they operate.

New technology, new business models, and new standards continue to emerge as the LED industry continues to evolve. Throughout the electronic components supply chain, companies are driven to act, if they have not already done so, to keep pace with the rapid changes. Franchised and authorized distributors have recognized the changing requirements necessary to support the LED opportunity and are the best positioned to meet the unique demands of, and support the continued evolution of, the LED industry.

Next time: Find out how advancements in the medical industry in recent years has affected the electronic components supply chain.

7 comments on “End Markets Change the Supply Chain: LEDs

  1. kdawson
    September 30, 2013

    Thanks, Anne, for a perspective that will be new to some in the solid-state lighting industry. Many of us keep heads down and don't look around much at things like the supply chain, which in the case of LED lighting is broader than just electronice. There's crystal growth and epitaxy, MOCvD creation of chips, the LEDs themselves, phosphors, lenses & light guides, heat sinks, power supplies and drivers, etc., etc.

    I'll post a pointer to this blog over on All LED Lighting; perhaps some of the community menbers there will want to comment.

  2. Himanshugupta
    September 30, 2013

    LEDs have come a long way in last 5 years and carved a place in the consumer market. We, i think, knew that LEDs are far better solutions than conventional light source but the pricing was the sticky point.


    Today still, it looks like the growth is much lower than the rest of the semiconductor industry. In the blog, the growth in next 4 yrs is about 10% commulative. This does not sound an exciting growth.

  3. ITempire
    September 30, 2013

    It is such a risky scenario when we see that every technology gets out of market after every 2-3 years thus company needs to have a very flexible strategy. This is because when the technology/product changes, the supply chain needs new suppliers and distributors and new storage requirements, etc.. LEDs are also like every other technology. Two or three years later 3D TV would have taken over.

  4. ITempire
    September 30, 2013

    Himanshugupta, you are right about the pricing of LEDs. I am not sure whether the margins are low or not. If margins are low then we can't expect prices to decline any faster hence the customer base of LEDs to grow any faster.

  5. ITempire
    September 30, 2013

    Keith, you are right. There are much more complexities behind the end-products' production process esp when you want a product that is energy efficient, has a environment friendly design, better picture quality (ofcourse) and additional features.

  6. Hailey Lynne McKeefry
    October 3, 2013

    @Himanshugupta, it may not be as robust in terms of growth as some markets, but ten percent is nothing to sneeze at. By all accounts, the growth will be steady, which is critically more important over time.

  7. Hailey Lynne McKeefry
    October 3, 2013

    @WaqasAltaf, you make a good point. The conumer products market changes at a dramtically breath taking pace. Flexiblity is going to be critical, even more so than in the future.

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