I just got back from the annual Electronic Distribution Show (EDS) where I had a chance to get a download from all of our suppliers, and even a summary download from some suppliers TTI doesn’t carry as well as a few of our competitors. The consensus was that last year was, in fact, another year of no-to-negligible growth for the electronic components industry in North America. But the sun is breaking through the clouds, as most also told me that the first quarter of this year was a good growth quarter, both for quarter-to-quarter and year-over-year comparisons. Sales are up, customer counts are up, and engineering activity is up. And this theme holds true in the other regions of the world as well.
As our business expands, lead times will start to creep out—and in fact we are starting to see just that. Many manufacturers told me that they expect lead times on even commodity products to extend as demand strengthens this year. This condition isn’t likely to reverse itself, as the uptick in the market isn’t long or strong enough yet to warrant the addition of capacity.
There are many obvious ramifications for the supply chain and for customers. But bottom line, I think now is a great time for customers to “buddy up” with select supply chain partners, whether through factory-direct relationships or an engagement with a distributor.
When factory lead times are stable and reliable (emphasis on “reliable”), it is easy to think that all sources look alike and that price is the only meaningful differentiator. But when lead times are stretching and deliveries become unreliable, the picture certainly changes. The best price without parts does nothing to offset the loss of topline revenue caused by a line down due to a component shortage.
So why buddy up before things get tight? Think of your supply chain as a breadline. When things are perfect there are multiple breadlines running, all making bread at a rate that is faster than consumption. This promotes competition, which keeps prices low and drives productivity. In this setting, it is easy to jump from line to line without fear of going hungry, as there are little to no lines to wait in.
But when one lines goes down (say for instance, it is flooded), or consumption spikes, breadlines get longer. By picking a line during the stable and reliable times, and sticking with it, you secure a place at the front of that line should a long line form. This, of course, assumes that you have picked a reputable bread maker who is committed to its customers and has a long-range view of things.
Once you have picked your supplier(s), be loyal even when you don’t have to be (for example, when capacity exceeds demand) so that they will be loyal to you when they don’t have to be (for instance, when demand exceeds capacity). You might lose out on some spot savings here and there, but this is the best strategy for ensuring that you never go hungry.
Michael Knight is a 10-year TTI veteran with more than 25 years of industry experience to his credit. Recognized as a top industry thought leader he currently holds the position of Senior Vice President, TTI Americas.
At TTI, Knight oversees the Corporate Product Department.