Distribution world – Hopes of growth, the euro and obsolescent components…

Distribution world – Hopes of growth, the euro and obsolescent components…Gary Kibblewhite
In global terms, the component distribution industry could see explosive growth within just three years! A study has been published in the US by Bear Stearns, the highly respected investment house, which indicates that the distribution sector’s share of the world component market will double from the current level of around 20 per cent to over 40 per cent by 2002!
According to the study, the prime driving factors for this are the changing purchasing practices within both the major OEMs and contract manufacturers. It suggests that, as each year passes, it is becoming progressively more cost effective for even the major component users to source from distribution.
We have all seen the gradual shift of UK customers to “just in time” purchasing methods which have an enormous effect on the supply chain. The trends highlighted are already apparent in the UK and it will be fascinating to see if the global influences are further replicated across Europe.
In the short term, however, the situation is not quite so rosy.
In its electronics industry forecast published last November, the Association of Franchised Distributors of Electronics Components (AFDEC) predicted that the current problems endured by both the electronics manufacturers and distributors are unlikely to start evaporating until towards the end of the current year. The new millennium, it was suggested, will see the start of real pound notes growth.
AFDEC’s fourth quarter ‘98 statistics indicated that the year as a whole declined by 5.2 per cent against its forecast of minus 5.7 per cent so the prediction was not far out! At the moment, there appear to be no reasons why AFDEC should change its forecast of an overall distribution market decline of around 9 per cent over last year.
This does not mean that we will not see quarterly growth starting soon, however, as there has to be a growth on Q4 ‘98 even to achieve the forecast 9 per cent market decline!
AFDEC warns that the predictions currently being made for the UK by other forecasters and industry personalities are optimistic – even at their lower end – and believes that the fundamental problems of price erosion and over-capacity are not going to go away as quickly as some now believe. The component distribution markets in France and Italy grew in ‘98 but declined in the fourth quarter, a possible indication of tougher times ahead in continental Europe. Opportunity in obsolescence
An area that is gaining in importance for distributors is that of obsolescent components. There was a time when it was felt that the rise in commercial component quality would counter the need for Mil-Spec type products with full traceability.
Now, however, the defence market is becoming paranoid about comparatively new products suddenly disappearing from distributors stocks as well as the problem of trying to source much older obsolete items.
AFDEC has got together with the Components Obsolescent Group (COG) to find a solution to both the lack of warning when components are withdrawn by their manufacturers and the tracking down of obsolete products.
The current thinking is that, as a long-term objective, component manufacturers will input all obsolete/obsolescent product notices onto a web site for all to see. However, there may have to be email related compromises spearheaded by both manufacturers and distributors in the short term The euro will make an impact
On the question of pricing, the introduction of the euro will certainly make an impact. Semiconductors have been priced globally in dollars for many years and the transition to the Euro should accelerate the trend towards global pricing. A benefit will be that price comparisons can be made more easily but other product areas such as electromechanical have actually had a better time than most of the others in the UK. As a result, some manufacturers may resist both the euro and global pricing to protect their profitability.
A big plus area is that the customer base is fast changing its views about the nature of distribution. In particular, customers are becoming increasingly aware that the ability of distributors to handle kan-ban type shipments and provide technical support are becoming essential elements of their own cost reduction programmes. These are services in which distributors are making an increasingly heavy investment and the growing recognition of their true value is greatly welcomed!
Gary Kibblewhite is chairman of AFDEC

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