Not All Doom & Gloom

Judging by the headlines, the electronics supply chain would be hard-pressed to point to any bright spots on the short-term horizon.

Today in the US, President Obama's ambitious jobs bill was rejected by the Senate, and Europe continues to debate the bail out of some of its member nations. On the other side of the world, China is seeking to lower the yuan, and Thailand is experiencing devastating floods. And that's just the macroeconomic picture: within the electronics industry, the supply chain seems to be on the brink of too much product and too little demand. (See: Supply Chain Turmoil Looms.)

While there is clearly reason for concern, supply chain executives point out that electronics is a global industry, and there are regions and markets that continue to grow. “Forecasts have not come down as much as people think,” said Lindsley Ruth, executive vice president for distributor {complink 2164|Future Electronics}, in a live chat with EBN readers today. “Business is somewhat down to flat right now.” Geographically, Brazil is a bright spot, and Russia continues to make progress. Solid-state lighting — a market that's relatively new to the electronics supply chain — continues to evolve, and demand is strong, Ruth said.

Inventory in the channel is high, Ruth says, because demand dropped off without a corresponding slowdown in supply. Component manufacturers have begun to pull back, although no one can say for sure when an inventory “correction” will happen. In the meantime, customers can take a number of steps to lessen the impact of a slowdown.

“I think the best message is for customers to continue to manage their procurement processes as they have been managing them up until now,” Ruth says. “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.”

Ruth is one of a number of people who believe the supply chain, overall, is better shape than in the past to weather a downturn. (See: Why the Supply Chain Is Stronger.) “The industry is much more mature today versus 10 years ago, and component manufacturers do a much better job at slowing down production,” Ruth said. The key, he says, is better and more frequent communication among all partners in the supply chain.

15 comments on “Not All Doom & Gloom

  1. AnalyzeThis
    October 12, 2011

    I attended the live chat and agreed with Lindsley's assessment: at my company at least, her “down to flat right now” generalization is accurate.

    And I think this was a really good summary of the chat overall, although I also found her comments about why Future Electronics is perhaps better able to manage inventory than some of their competitors very interesting as well.

    As for the overall health of the supply chain, I do believe that the combination of natural disasters and the downturn in the economy overall has indeed left us way better off today than 10 years ago. Much better off. I don't think anyone here would disagree?

  2. Mr. Roques
    October 12, 2011

    Are redundant supply chains unheard of? Is it to expensive to be ready for a Thailand flood and have another company, somewhere else, on standby?

  3. Daniel
    October 13, 2011

    I think again the world is going to witness for another global economic crisis. Its symptoms are started from Greece and spreading gradually to other European nations. On the other end, natural calamities in Japan and Taiwan are adding fuel to the burning fire. In totally, its smells something bad for the semiconductor industry.

  4. jbond
    October 13, 2011

    @Jacob, I agree with your comments about a global economic crisis. Right know you have the richer EU Countries trying to salvage the problem countries. There are a few members who have already voted no to a Greek bailout. That could spell disaster. The U.S. Congress has yet to deal with the countries debt load. And these frequent natural disasters are always throwing a wrench into things.

    The supply chain running rather flat right now is actually a bright spot considering what’s going on around the world. If the analysts’ predictions are correct by stating it's not as bad as it looks, then hopefully we won't see too much disruption within the supply chain.


  5. SunitaT
    October 13, 2011

    Are redundant supply chains unheard of? Is it to expensive to be ready for a Thailand flood and have another company, somewhere else, on standby?

    @Mr. Roques I feel redundant supply will be very expensive for the company to handle. Companies should invest heavily in building infrastructure, hiring people etc if they plan to operate the supply chain from multiple places.

  6. SunitaT
    October 13, 2011

    The supply chain running rather flat right now is actually a bright spot considering what’s going on around the world.

    @jbond, I totally agree with you. We should be happy that supplya chain is “down to flat” and not “down and out”. Supply chain is showing lot of resilience this time around. Lets hope things doesnt deteriorate from here.

  7. eemom
    October 13, 2011

    @jbond and @jacob

    I reluctantly agree with your assessment for a global economic crisis.  It is really scary to think about but given all the facts, hard to avoid.  What really concerns me is that the US is in a political campaigning state and everyone is doing what they need to be elected vs. doing what is need for the country.  Unfortunately, this will go on for a long time until the next president is in office.  What about all the cash larger companies are hoarding?  How will that come into play as the economic situation worsens?

  8. Daniel
    October 14, 2011

    “Right know you have the richer EU Countries trying to salvage the problem countries” Jbon, I won’t think European countries can always be in economic stability, the recent news saying the crisis is carving other EU countries slowly.

  9. Daniel
    October 14, 2011

    Eemom, the recent mass movement in Manhattan ”Occupy Wall Street” is a normal reaction from common peoples. This can be happens, when minority portion accumulating more wealth and the opposite in other side. As per the study 60% of US wealth is accumulated in 1% of the population. I agree that its common in other countries also. Any way the agitation is started in US and it may be slowly spread over other countries.

  10. jbond
    October 14, 2011

    @Jacob, yes it's true that you can't always have every member of the EU in stable positions, but in light of the financial collapses that have been going on over the last few years, there is concern on whether the EU will stay together. Why should some of the richer countries suffer when their poorer members aren't trying to solve the crisis rather than stay afloat? What is Spain and Greece, to name a few, actually doing to try and turn things around other than asking for a bailout?

    This could also be applied to the U.S. and its debt crisis. None of that has been solved, all Congress did was push the time line back further at a reduction in credit rating.


  11. jbond
    October 14, 2011

    @eemom, I don't think the hoarding of cash by these larger companies is going to change much. I don't feel the companies are going to go out and use this money to hire or invest in their own company unless they see the global economy taking an upswing instead of a downturn. Even if some of these cash hoarding companies have to reduce their forecasts, they still have stockpiles of cash to show their board and investors that they are soluble.

  12. eemom
    October 14, 2011

    @jbond – I do believe you are right, although the companies being overcautious in investment and hiring is feeding into slower economic recovery.  If the unemployment rate is high, people will be too afraid to go out and make luxury purchases which in turn causes week demand for the product.  I know this is only part of the problem, but the solution has to start somewhere.

  13. Barbara Jorgensen
    October 14, 2011

    Readers–thanks for bringing up the Occupy Wall Street movement and corporations sitting on cash. These are two important factors in the big picture, which I agree continues to look grim. Uncertainty is the 800-lb gorilla in the room and it will continue to make companies cautious. I was able to re-read Ann Young's blog on uncertainty yesterday, and was happy to find that someone–McKinsey & Co. — is trying to figure out how to apply uncertainty to forecasting. I'll admit it get a little high-level for me, but at least someone is trying to account for the effect all of this has on our day to day business.

    On the not-so-good news side, the WSJ reported CEO salaries went up again this year–Occupy doesn't seem to be having the desired effect

  14. Mr. Roques
    December 8, 2011

    Well, I think the EU is not stable enough and I don't think its sustainable. I doubt that Germany wants to continually carry Italy and Greece on its shoulder.

    Regarding Asian disasters, there's no way around it. Until another country in another region can overtake that market, which is not going to happen in the next 5-10 years.

  15. Mr. Roques
    December 8, 2011

    Well, they could identify which products are critical in their supply chain and they must have some sort of backup plan. 

    Though, I don't think there's a wide enough backup plan that accounts for natural disasters.

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