Product Innovation Tops Growth in 2015
More than half of the Top 50 distributors expect new products to be the number one sales driver in 2015. This has become even more evident over the past few years as component manufacturers have accelerated their next-generation product launches, and partnered more closely with distributors to get their products to market faster with inventory on the shelf. Twenty-seven survey respondents expect new product introductions will be the biggest growth driver this year, followed by value-added services (19 respondents) and new markets (19 respondents).
Emerging markets also are forecast to drive growth led by a new market category, the Internet of Things (IoT), according to 13 respondents. This is followed by energy-efficient lighting (10 respondents) and smart grid/smart meters (five respondents). In the renewable energy sector, only seven respondents believe solar will increase sales and only three expect wind to drive demand.
In comparison to last year, 14 respondents expected energy-efficient lighting to drive growth in 2014, and 11 said smart grid/smart meters would fuel growth. Only nine and four respondents, respectively, expected solar and wind to create demand.
Distributors also expect value-added services to help increase sales in 2015; however, to a lesser extent compared to 2013. Nineteen distributors said they expect value-added services to help grow sales in 2015, compared to 27 last year. The survey reveals that 14 distributors derive 50 percent or more of their sales from traditional value-added services. Eight of the top 10 leaders by sales growth reported that they earn 25 percent or higher of their business from value-added services.
Fourteen distributors say 20 percent to 49 percent of their sales are derived from value-added services. The remaining 13 distributors that responded to the survey question said value-added services account for 19 percent or less of their sales. Value-added sales totaled $1.6 billion, or 5 percent of NA revenues in 2014. This is up from $1.4 billion in 2013. However, only 41 of the top distributors responded to the question, and six out of the top ten distributors did not provide the percentage of their sales from value-added services.
The survey also finds many of the top distributors that posted the largest gains last year derived the bulk of their revenues from IP&E sales and related value-added services, including cable assemblies, connector assemblies, switch assemblies, panel builds, battery assemblies, and kitting. These distributors include Fedco Electronics, Gopher Electronics, and CDM.
Traditional value-added services haven’t changed to a great extent over the years. Distributors continue to offer services such as cable and harness assemblies, switch assemblies, connector assemblies, military connector builds, device programming, enclosure modifications, and terminal block assemblies. Related services include barcode labeling, kitting, tape & reeling, lead forming, marking, special packaging, and testing. A few distributor specialists offer battery pack assembly, configurable power supplies, and electromechanical system design.
Supply chain management is a key service offered by distributors to help their customers better manage inventory for existing and new projects. These services include vendor managed inventory (VMI), automated inventory management, bonded inventory, scheduled orders, JIT delivery, and consignment. They also provide materials planning, forecast management, sourcing services, and supply chain consulting. Some of the largest distributors also provide life cycle management, reverse logistics, and electronics asset disposition. Counterfeit mitigation services is another growing trend to better support customer requirements.
Design services are also a source of revenue for many of the Top 50 distributors. Twenty-seven distributors said they provide design services, which are supported by one to 60 field application engineers (FAEs) on staff in North America.
Quality compliance is another area that doesn’t change significantly for distribution. Of the Top 50 distributors, 39 of them have received ISO certification. Of the remaining 11 distributors who are not certified, two have plans to be certified and six have no plans for certification.