Is there hope for a rebound in the second half of 2001? I don't think so, at least not early in the half. Over the past three months, I've talked to dozens of component suppliers. The consensus among them now is that a rebound is expected during the latter part of the year or early next year.

The sentiment is the same among OEM customers, according to the online marketplaces and distributors that sell to them. The rebound will take longer than expected, although certain sectors will recover more quickly than others.

Component vendors don't seem to be panicking-yet-over order cancellations or deferred deliveries. Indeed, in some component sectors, suppliers are breathing a sigh of relief, using the slowdown to catch up on back orders and to get lead times under control after having struggled to keep up with demand last year.

The real question underlying the excess component inventory is why it happened in the first place. Online tools were supposed to manage inventory and forecast supply and demand more accurately all along the food chain. So why are OEMs and electronics manufacturing-service (EMS) companies sitting on huge piles of inventory?

Several factors have contributed to the ungainly surplus: overly optimistic market forecasts, weaker end-market demand, the bloodletting in the dot-com sector, and the double- and even triple-ordering that took place last year as telecommunications and networking equipment makers made desperate attempts to procure allocated or long-lead-time components to meet explosive demand for their products.

One major challenge has been a shift in business models, as more OEMs, large and small, offload more of their design, manufacturing and supply-chain management to EMS companies to lower costs and improve efficiencies.

But it does no good to point fingers, because many factors contribute to hiccups in the supply chain. Perhaps the industry needs to take a hard look instead at its highly touted supply-chain management and forecasting tools to determine how matters could have gotten so out of hand.

OEMs and their suppliers have much work ahead of them to solve the supply-chain puzzle. It will take a mix of traditional and high-tech tools to better predict supply and demand conditions, unless you have a crystal ball.

http://www.eetimes.com/