EMS Providers Speak Out on Tariffs, Part 1
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Avnet Inc. Is mending. It is not hale and hearty yet, though, and as it revels in recent financial wins, the distributor confronts a new challenge: shaking off the impression that it has fallen into an inescapable restructuring corkscrew. The perception that Avnet is perennially retooling operations clashes hard with the image that CEO William Amelio wants to project of an enterprise nimbly responding to changing market conditions.
Avnet began the ongoing reorganization five years ago – during the fiscal year ended June, 2013 – with layoffs and the closure of facilities worldwide. It has been “realigning” since then, capped by the sale last year of its Technology Solutions division and the acquisition of Premier Farnell. It has spent years sorting out a mangled Enterprise Resource Planning (ERP) solutions rollout in North America and dealt recently with the loss of some suppliers. The situation has improved but cost-reduction is still happening.
The dangers inherent in being cast as a “serial re-organizer” may not have occurred to Avnet executives who want to convince shareholders, suppliers, customers and employees they are turning the company around. Oblivious of the fact that these audiences might be weary of the endless restructuring exercises, executives talk often about sorting out challenges related to “supplier program changes,” the ERP snafu, cost-reduction, acquisition integration and the sale of Avnet TS. They carefully lay out plans to “shore up our margins,” as Amelio said, during a conference call on January 25 to discuss the fiscal second quarter financial results.
“The combination of the divesture of technology solutions and the acquisition of Premier Farnell and supplier program changes required us to reconsider how we both run and support the business across the enterprise,” Amelio said. “We expect to realize $120 million of annual savings by streamlining our structure, eliminating redundancies and centralizing certain function. And we are also in the execution phase on several initiatives.”
That Avnet has been plagued with major challenges is old news. What its varied audiences want to know is when the restructuring would end and when the company can begin relaying a new, more positive message.
A Shared Problem
Avnet, despite its recent challenges, is still a huge company and a leading player in the electronics distribution market with fiscal 2018 sales projected between $18.5 billion and $18.9 billion. Therefore, the entire industry feels a pinch when an enterprise of Avnet’s size and market position gets into trouble. Rival distributors that may be benefitting from the company’s stumble should take heed; the absence of a virile competitor can lead to apathy, dulling innovations. Suppliers, too, can expect reduced service options. This is particularly problematic for semiconductor vendors because of ongoing consolidation pressures.
Turning an enterprise of its size and market position around will not be easy but Avnet’s weakness should not be cause for celebration by anyone. Avnet kept top rival Arrow Electronics on its toes, and vice versa, till the Phoenix-based company slipped. Now, Arrow must find other enterprises against which to match itself. Fortunately, this won’t be a problem because of the foray of non-traditional distributors into the sector.
Still, it is not the responsibility of the competition to champion Avnet’s revival. That task belongs to CEO Amelio, his executive management team and the company’s board of directors. The fiscal second quarter results show the company is on track. However, “almost” does not win a race. The financial results weren’t all positive; There are glaring problems in North America and a slight slowdown in EMEA. The company also hasn’t completely gotten over the ERP issues that ignited some of the current challenges.
These problems have dominated discussions about Avnet for far too long. The restructuring, especially, has become nauseatingly repetitive. Avnet needs a new narrative and CEO Amelio needs to initiate a new messaging campaign for the company. He should set a firm deadline for sorting out the ERP problem – if there isn’t one already, internally – announce this publicly and nail its implementation. The ERP story has turned into a sordid story. It needs to be buried.
Secondly, Avnet’s restructuring should be swiftly concluded before the senior executive and managers get addicted to restructuring. Today, every Avnet presentation includes segments on its reorganization activities and the “four pillars of Avnet’s business strategy,” as Amelio noted during the latest conference call. This has been repeated so many times that it can be assumed a “restructuring” mentality has gripped the entire company, putting the brakes on innovative ideas that should flow up from the shop floors. With cost-cutters on patrol, who would dare propose a capital-intensive project notwithstanding its profit potentials?
Avnet is not in the business of “business reorganization.” What Avnet is all about – services and products – should be the core of its messaging, henceforth, so that suppliers, customers, employees and investors can begin to see it as a “normal” company once again. The objective of restructuring, after all, is to make the company stronger, competitive and racing with the best again. That is the fifth pillar of Avnet’s future.
Bolaji Ojo is editor-at-large of EPSNews. The views expressed in this blog are those of the author alone who promises to base his sometimes biased, possibly ignorant, occasionally irrelevant but absolutely stimulating thoughts on the subjective interpretation of verifiable facts alone. Any comments should be sent to the author at bolaji.ojo@epsnewsonline.com.
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