The Changing Face of Distribution

We sat down with Arrow Electronics chief executive Mike Long to get his take on the distribution industry, today and into the future. We also asked him to shine a light on how Arrow is evolving to meet the changing demands of the industry.

Arrow Electronics is a giant in the distribution space with with 2013 sales of $21.4 billion. The distributor maintains a global network of more than 460 locations in 58 countries. Long, who joined Arrow in 1991, has been at the helm of the company since 2009.

Mike Long, CEO, Arrow Electronics

Mike Long, CEO, Arrow Electronics

The distribution business has evolved radically, with customers expecting support from first design through end of life. How does Arrow's acquisition strategy play into supporting growing customer needs in a more global environment?

For sure, things are changing, and they are changing pretty fast. Our acquisition strategy has, too. We've had 25 acquisitions since 2010. The real driver behind that is that our customers are seeking a lot more than just fulfillment. They want solutions to help them bring their products to market faster. During that time, we've also built pretty robust Internet activity that really has an online design component. Engineers can go on, create designs, and get help picking the right components. Also, they can get a line on hard-to-get and obsolete parts. Customers used to look for delivery of a product. That's now expanding out to everything from helping the customer with terms and conditions to helping them get the product to market, get parts on time, and even helping the customer come up with what they are trying to do. In essence, we are really committed to supporting their evolving needs. On top of that, we want to reach new customers in adjacent markets to get them to come to us.

More than halfway through 2014, the recession is now firmly in our past. How does visibility into market demand look for 2014, and how is that affecting inventory holding strategy?

This is one thing that hasn't changed over the years. Buyers have always expected inventory to be instantaneously available and shipped in 24 hours. It's the nature of the business. Our customers really know what they want a little over 45% of the time. We have not only to anticipate their needs but also to deliver to them on time with very limited information. We are constantly managing on a daily basis a million SKUs and how those SKUs are moving, to make sure we have the right amount for our customers globally.

We've been able to come up with some big data and analytics to make life easier for the customers we have. That will be evidenced by the reality that most customers were able to go through economic downturn, upturn, and stagnation without a huge change in their inventory strategy. That's been our role and the channel's role for as long as I can remember. On-time delivery was a huge value-add 10 or 15 years ago and something everyone strived for, and now it's something everyone expects. They want to know how you are using technical expertise to make them smarter and how you can make information available to them on a daily basis. Big data is a super hot topic right now, but the true value of big data is if you use it to get insight to make better decisions for the customer.

During Arrow's first-quarter call, you noted, “At different times, different regions pick up and have a good quarter.” How are you seeing that affect 2014's stress on demand and capacity operations?

When something picks up and something else goes down, you end up with a leveling effect on your business. The seasonality activity happens year-on-year unless there is some sort of economic impact that changes it. We try to take economic growth projections for industries that we service and use by region in order to get predictability on inventory, as well as the types of products we think we'll move. The accuracy of our own data has become better than some of what we purchase on the outside, and that's a testament to big-data programs that help us take aggregation of all our customers worldwide and understand what parts will be in demand. It's definitely a changing time for the business. But, all in all, from our point of view, things seem to be settling down and starting to stabilize, and we, like many people, think it will be a decent year.

Are there any specific markets or industries you see as ripe with opportunity right now? Are there any that present specific challenges?

I still think there's this whole wave of computing that we have yet to see, where you are seeing software really bring out huge benefits in the computing industry. They are causing appliances to be built, and more things to converge again on the datacenter. Internet of Things will create an absolute explosion of the business. We are still seeing networking along with automotive has come to life over the years, as more and more electronics get into automobiles. It's going to be an exciting five years. There's a whole world of things being worked on today that no one thought of five years ago, and that bodes well for the industry.

In 2011, Arrow joined the United Nations Global Compact, the world's largest voluntary corporate responsibility initiative. Why, as a global distributor and electronics supply chain giant, is such a commitment important?

I would say that the UNGC was really a nice fit for us and our social responsibility approach. Basically, we didn't change our approach, but rather our approach fit into what they are doing. We are quite happy to demonstrate to our customers, suppliers, and investors that we are committed to basic principals of human rights. We want our costumers to know that our products are meeting the national and international standards from cradle to grave. We want to maintain things from a sustainable way into the future. The next level will be a broader interpretation and conversation between design engineers and people who are trying to make those things sustainable for the environment.

— Hailey Lynne McKeefry, Editor in Chief, EBN Circle me on Google+ Follow me on Twitter Visit my LinkedIn page Friend me on Facebook

We are a ways away from that.

This story is part of the Special Report: Top 25 global electronics distributors on EDN, a sister site. Read more from this report, including coverage of the evolving market, the supply chain, and the impact of big data and the IoT.

2 comments on “The Changing Face of Distribution

    June 3, 2014

    Everyone seems to think that auto electronics is a booming market. Many semicon companies for example are promoting this part of their portfolio a lot more these days. I like the IoT too as that is obviosly a massive opportunity for everyone once the interoperability issues are resolved.

    June 3, 2014

    Everyone seems to think that auto electronics is a booming market. Many semicon companies for example are promoting this part of their portfolio a lot more these days. I like the IoT too as that is obviosly a massive opportunity for everyone once the interoperability issues are resolved.

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