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Uncertainty Spurs Order Surge

Distributors that specialize in hard-to-find components are seeing a significant uptick in orders, supporting reports that the supply chain could be beginning a round of panic buying.

“Companies that would normally order 10,000 components from us are now ordering 80,000 or 90,000,” says Todd Ballew, executive vice president and general manager for independent distributor World Micro.

Prices are also increasing. Uncertainty over the supply line from Japan is being exacerbated by wild fluctuations in the yen. Buyers are placing orders now in the hopes of locking in current pricing. “The Japanese government is pumping money back into their economy and that was driving the value of the yen up,” says Ballew. “It has since cooled down, but if that had continued, you'd see an additional increase in prices.”

“We are getting a lot of calls checking on price and availability,” says Rick Kauchak, sales director, North America, for independent distributor America II Electronics. Customers do not seem to be double-ordering, he says, but many want to confirm that outstanding orders can be filled.

Independent distributors source parts from components factories, from other distributors, and from manufacturers' excess inventory. On the buy side, World Micro and America II are reaching out to their sources of supply for information and to check availability. “For the most part, our open orders are intact,” says Kauchak. “But I have seen some disruption.” On the sell side, most of the activity is coming from existing customers that want to make sure the distributors can fulfill forecast demand.

Another concern is pricing, and that is more likely to fluctuate in the coming weeks. In the case of an extreme supply/demand imbalance, companies could conceivably get into a bidding war over hard-to-get devices.

“We always compete against other companies in the open market,” says Ballew, “but we try to avoid getting engaged in a bidding war. It doesn't benefit you in the long run, especially if you want to maintain long-term relationships. Companies that we already have a relationship with are confident we are quoting them a fair price.”

On the open market, prices of commodity components have increased by as much as 25 to 30 percent, distributors say. “Nobody wants to get caught in the lurch,” says Ballew, “and we are seeing some pretty unusual orders.” Kauchak says, on the buying side, product that had been available on the open market one night was gone the next day.

There is additional concern about the long-term impact of the earthquake. According to IHS iSuppli, semiconductor facilities in Japan that had suspended manufacturing activities after the earthquake cannot truly commence full production again until the aftershocks cease. Earthquakes ranging from 4 to 7 on the Richter scale will make it impossible to fully restart these fabs until they stop happening with such frequency, IHS iSuppli research indicates — every time a quake tops 5, the equipment automatically shuts down.

“This is going to be long term,” concurs America II's Kauchak. “The things that we are talking about now will not change in the next two weeks.”

7 comments on “Uncertainty Spurs Order Surge

  1. eemom
    March 19, 2011

    I have no doubt that it will take a long time to re-build fabs and for business to go back to normal after the devastating events in Japan.  I understand why companies are trying to stock pile products but in the end, it will cause even more issues in the industry.  More product shortage would be felt and higher prices will be the result.  Larger companies with large amounts of cash will be able to exercise their power and obtain the products they need.  What will happen to those that do not have the high level of cash reserves, remain to be seen.

  2. Ashu001
    March 19, 2011

    Especially when its your job on the line…

    Most Senior Execs who are double/triple ordering now are doing so just to protect their jobs ;they would rather be caught with excess inventory today than be short[And neither do I blame them;what with the disasters gripping Japan as well as most of Middle East and North Africa region up in flames];everyone would rather double order today.

    Lets face the facts,most senior Execs watch TV everyday and the News right now seems like a barrage of Disasters and Wars(one after another).

    All these Senior Execs just need to detach themselves from the news channels and tune into EBNONLINE.COM !!!!

    They will get a much better and more realistic perspective& handle on the situation on hand.

    I particularly liked this post from Marc here(& it very nicely captures the essence of the problems at hand )

    http://www.ebnonline.com/author.asp?section_id=1098&doc_id=204926&

    Regards

    Ashish.

  3. Ashu001
    March 19, 2011

    EEmom,

    Very rightly put-Many of the smaller companies will go out of business.No disputing that fact.

    Or they will shut shop atleast until a modicum of certainty returns to the picture.They don't have the unending credit lines(which are open to Large Corporations) so they have to be more careful with their cash management.Thus,it makes more sense for them to stop operations until things get back to normal.

    Regards

    Ashish.

     

     

  4. Tim Votapka
    March 21, 2011

    I agree w/ the idea that senior execs should detach themselves from the news, at least the general media or “merchants of chaos” that is. The trade media has always proven its ability to be closer to the industry it covers. I think a survey would verify that.

  5. Ariella
    March 22, 2011

    Hi, Ashish,

    I agree that watching the news gives one the impression that we are just facing one disaster after another. As a result people can think that acting out of panic is really rational.

  6. hwong
    March 22, 2011

    Shortages will definitely be a problem for the next couple months. Irrational behavior is inevitable. Everyone would like to protect themselves. A funny example is that the folks in China started a craze in procuring Iodine Salt. The housewives and men would rush to the store to buy them in bulk because rumors has it that taking that in your body would help to dodge the radiation. As a result people are hoarding up unnecessary items and driving price increase and shortage of iodline salt.

  7. Ashu001
    March 23, 2011

    Ariella,

    Maybe most of those Senior Execs should just switch Channels and watch

    Tom & Jerry;after all what do they have to lose??? If the world is going to pieces atleast you can go down laughing!!!

    Or they could go ahead and implement my essay in the earnest.

    http://www.internetevolution.com/author.asp?section_id=1155&doc_id=201292

     

    Regards

    Ashish.

     

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