Let's chalk up another tough year for the components distribution industry. Industry growth began to falter in 2000, and it still hasn't begun to recover from the beating it took from a severe glut in inventory and optimistic forecasts two years ago. Many distributors have seen double-digit revenue declines and record-low profits. And the outlook is still a little hazy.
Component orders were flat in October for the fifth straight month, according to the Electronic Components, Assemblies and Materials Association. And there are no clear trends for recovery. Yet, research firm iSuppli Corp. predicts that after a flat first quarter in 2003, the semiconductor market will see double-digit annual growth of 14.9 percent.
Where does this leave distributors? Some key issues they face are China's growing dominance as a high-volume manufacturing region, the trimming of supply rosters by OEMs and electronics manufacturing services (EMS) companies, and a trend by OEMs to outsource design and manufacturing.
One thing distributors are good at is reinventing themselves to meet current market demands. This year, for example, many distributors have focused on value-added services and on beefing up their Web sites and subscription-based services. And some larger distributors have headed for Asia, where a growing number of their customers are seeking sales, logistics and warehousing support.
Supply chain collaboration also took center stage with a move toward sharing design and supply chain information to improve communication, speed up the design cycle and bring product to market faster. Despite weak component demand, distributors made IT investments to drive real-time communications, like RosettaNet standards.
Over the past year, OEMs have struggled with who has control over the supply chain as they outsource more of their designs and manufacturing. Some industry players say EMS companies will gain more control over their customers' supply base. And as business picks up, EMS companies will likely emphasize their design, manufacturing and repair services instead of logistics and inventory-management programs.
Looking ahead, we'll likely see many distributors returning to their roots in logistics support and inventory management. Some are already bulking up on service-oriented programs, ranging from consignment to vendor-managed inventory programs to support requests from OEM and EMS customers. The challenge will be to support their customers globally as those inventory-management programs gain in importance.
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