Gartner: 85% of Logistics Leaders to Boost Outsourcing Budget
by 
Brian Ellison, president, America II
In terms of the general global economy in 2016 it’s hard to identify many coherent overall trends. The broad economic picture has felt fairly flat as reported by most industry associations, with neither astronomic growth nor considerable decline. While there have been minor ups and downs, concerns around major slowdowns in the US, Asia and Europe have so far largely failed to materialize. As was the case last year, the BRIC nations continue to grow rapidly in their economic potential. However, overall, I think it’s largely been ‘business as usual’ for the global economy in 2016.
In terms of the overall trading conditions and trends for distributors we’re seeing higher overall design activity in the market, with a clear increase in the number of quotations coming through the door. On top of this we’re seeing an increase in the amount of high value scheduled business (usually booked around six months in advance and beyond).
Our customers also seem to have been holding themselves to more ambitious targets in 2016. Hardly surprising, as there’s plenty of supply in the market and short lead times. Many of the shortages of standard products seen in the market last year are now largely a thing of the past as a result of lead times being around 10-12 weeks. Overall it’s a buyer’s market.
Lead times seem to have generally been stable across the board in 2016 for all standard products, (with a few exceptions). For example, we’re seeing the price of Flash and DRAM products go up as lead times increase.
Interestingly, we’re also seeing several design-intensive manufacturers of electronic components announcing imminent price increases. Our interpretation is that this is intended to drive their customers to commit to design-in of their leading edge technology parts before the price increase takes effect, suggesting that companies have perhaps been a little noncommittal over the integration of complex parts in new designs in 2016.
We’ve also noticed a distinct rise in End-of-Life activity within 2016 (and particularly within the past three months). It’s likely that this is as a result of the considerable number of OCM (original components manufacturer) mergers and acquisitions, creating product duplicity, as well as shorter component life cycles as they relate to end customer product life cycles.
It seems likely that, moving into 2017, the high amount of M&A activity will continue to have substantial effects on the market, although exactly what these effects may be is not yet fully understood. As a reaction to this, I would recommend that customers work now to create proactive EOL programs with distributors as a means of avoiding coming up against potential component shortages next year.
As well as this increase in M&A and EOL activity, looking into 2017, we expect to see lead times remain stable. Disparity between component lifecycles (which have been getting ever shorter across 2016) and product lifecycles are likely to continue or increase, creating potential problems. Issues with availability of Flash and DRAM are also likely to continue due to constrained availability at least through the second quarter of 2017.
Overall, many of our customers are reporting that they anticipate that sales will increase across 2017. This is partly due to a wide number of anticipated new product introductions. However, another interesting contributory factor is the fact that so many of our OEM customers are ‘reshoring’ back into the domestic Americas EMS market.
Based on direct customer discussions we’ve had in the third quarter of 2016 (planning for 2017), we also expect to see an increase in customer demand for supply chain programmes (VMI, CMI, EDI, Bond/Reserves, etc.).
Overall, across 2016, America II has continued to respond and adapt to the increasingly complex needs of the market, as well as the increasing geographic diversity of its customer base, and the increasing demands of ‘mid-tier’ customers for an ever-richer mix of services.
Many of America II’s developments continue initiatives we began last year. As well as increasing our on-the-ground presence across mainland Europe, in 2016 we also opened a new Hong Kong distribution centre to support our increasing activity in-region. At the same time, we have continued our evolution towards offering a broader portfolio of franchise lines.
2016 has seen significant growth in our Sustainable Supply Chain, and we now have over 400 Franchise and Direct Manufacturer lines, allowing us to deliver a much greater amount of reliable, long-term scheduled business. And we have also advanced our e-commerce program to a test environment, with a live version due to come soon.
Perhaps the most interesting development for us across 2016, however, has been in the further expansion of our capabilities beyond what you would term the ‘traditional’ distributor’s offering. In recent years, as customers have increasingly looked to partners for assistance in their development process, America II has recognised opportunities for synergy between different capabilities; supply, design, analysis and testing, manufacturing, etc.
Although we have not yet formally announced these additional capabilities, across 2016 America II has been providing engineering design services and factory-level FA support to its customers through partners. We have also provided Custom Products and Build-To-Print Solutions, as well as overseeing raw PCB supplies for customers.
America II is currently in the process of formalizing these capabilities, as well as a number of other value-added services that would more normally be associated with bigger distributors, and which have largely not been available to mid-tier customers, as part of an expanded ‘Products & Services’ offering. When this is formalised, America II will be unique in the market as the only distributor to offer these services at a price suited to all customers, with a particular advantage provided to mid-tier customers.
Overall the headwinds in the distribution industry have been positive in 2016, and look to continue in 2017. In order to succeed, any distributor must be able to read the constantly-shifting signs in the market, and adapt its model in a dynamic manner.
Brian Ellison is president of America II Electronics.
Related posts
