Marc Barnhill, CEO of Smith & Associates, shares his decades of industry knowledge in this Executive Perspectives episode as he provides insights into how his company has navigated the tumultuous cycles of recent memory and how to prepare oneself for the cycles to come.
This interview was edited and formatted for clarity.
Tyler Fussner, Managing Editor, Supply Chain Connect
Good morning, Marc. Thank you for joining us today.
Marc Barnhill, CEO, Smith & Associates
Thank you for having me, Tyler. I appreciate it.
If you could please introduce yourself to our audience and tell us a little bit about your company.
I’m Marc Barnhill. I’m the CEO of Smith and Associates. We’re the world’s leading independent distributor of semiconductors. I’ve been with the company for almost 34 years and have been in charge of most of the sales efforts for the majority of that time. And I was recently promoted this summer into the CEO role, which I’m very excited about.
Well, congratulations on your promotion!
I think it’s more of a lifetime achievement award, Tyler.
Excellent. I also understand that Smith is coming up on its 40th anniversary.
It is. Early next year, we’re going to celebrate in early May, we’ll have our 40th anniversary. I’ve been here for most of that time. It’s funny when you look back how quickly that time passes. I met Bob and Lee Ackerley, the owners of Smith, in the fall of 1989. So obviously, I must have met them when I was four years old, because I can’t be that old—can I? But it’s funny. We were a small company. We had one office and I think I was the 12th employee. And in my second year, I think we did $11 million in sales. And last year, we did $4.8 billion in sales. It’s been quite a journey.
Wow, that sounds like it. And having those decades of experience in the industry must have taught so many lessons. And after this industry has recently gone through such a turbulent cycle with the COVID-19 pandemic, can you look back over the last 40 years and soak it all in? Tell me, what are the lessons learned through all these various cycles that must have taken place?
It’s funny, when you’re going through this journey, sometimes it’s right in front of you and you don’t see it. But the one thing that we’ve had the good fortune of is to have Bob and Lee Ackerley, our owners, who were always in it for the long haul. When you’re a young kid in your 20s, it’s just a job. No one’s thinking career; we’re just thinking, “Are we going to show up and get paid?” And Bob and Lee were always thinking about long term relationships with customers.
I’ve been probably through 15-plus different shortage situations, and we came out of those shortages always more prepared to regroup and rebuild and get better. And it’s really funny because 2021 and 2022 were obviously the most chaotic time I’ve ever seen in the electronic supply chain. And yet, here we were, we came out of it because of our 40 years of experience as clean as we’ve ever come out of it. We came out of it with new customers. We came out with very little inventory issues. And we came out of it the most highly capitalized we’ve ever been. And right now, as the market settled, we’re in a reset, currently.
We had an Elevate Summit earlier this year. And we’re behind the scenes doing everything we can to improve our company and to make Smith ready for the next wave of business, which we know is coming. Because no one ever knows when it’s coming, we just know it’s coming. Because there’s always disruption in the supply chain. It’s not perfect. We feel very confident. As we understand, some of our competitors are currently laying people off and shuttering offices, and we’re currently hiring and opening offices because that’s how confident we feel about Smith and our future.
And having that experience, you touched on how you have got to lean into that preparation, understanding that your cycles are going to happen again. This is nothing new. But maybe the last cycle that we did come out of certainly seemed to shake things up. Coming out of that cycle, what were the biggest takeaways for your company? For the industry at large? More specifically, what is different in the industry today that wasn’t the case just two years ago or so because of this last cycle?
I think a lot of our customers are in the mode of “never again.” And by “never again,” I mean “Never again will I be this unprepared for a situation like this.” And so, what we’re offering to our customers now is the partnership that we’ve already engaged with several of our larger customers, which is, “Let us be there for you for inventory assurance.” And by inventory assurance, I mean don’t get caught like this again. Take your biggest high-dollar components and let us manage the inventory for you. It’s kind of like how you don’t want to be owning a coastal property with a Category 5 storm out there. And when a Category 5 storm is forecast, it’s too late to get insurance. So, by the time you’re in an upside-down supply chain, it’s a little too late to run in and go, “No, no, no, we need to be prepared for this.”
You’ve got to prepare now. It’s a mindset change. There are some companies that are embracing that mindset change and they are using us and working with us and planning with us and strategizing to make sure they’re never caught in the same situation that they encountered in 2021 and 2022. But some of these companies are old and established and it’s hard to change the mindset there. It’s like, “This is the way we’ve done it for 50 years.”
But any amount that would be paid to us to manage your inventory would pale in comparison to the drastic overages that were paid in 2021 and 2022. These companies… I can’t imagine what the total overages spent were, globally. It has to be in the billions.
It certainly was something that I think a lot of companies had never seen before, even though like we had been touching on, there are certainly cycles that have happened in the past. But this seemed unique. In that vein, I’m curious: How does Smith address the cycles with both their customers and those involved in the supply chain? You just mentioned inventory management. Have you made any other recent developments in your offerings or your practices after having come out of 2021, 2022?
Well, it’s interesting because as much as all these companies are in the same sector, they all have their own DNA. They do things differently. You have to tailor your programs to fit their needs. Some companies are very flexible and they’re ready to go all in. And some companies are a little more hesitant and they may put a toe in the water and see how that goes. But what we’ve done is make ourselves available.
Smith is the most highly capitalized we’ve ever been. And we have the resources to do anything our customers need. It’s how the company was built. If you look especially on the operation side, everything we do operationally is customer driven. That’s who Smith is; at our core, we’re a customer-driven, focused company. And what we try to do is be there and address all of our customers. It’s not a one size fits all world.
And certainly now, there’s a lot of uncertainty out there, especially between the U.S. and China. And that’s providing the opportunity for a lot of people to rethink the way they’re doing business, where they’re positioning their inventory. And we’re trying to be there for them. We recently opened up a warehouse in Singapore, because if China does go upside-down, having one of our main hubs in Hong Kong, we might need to reposition most of the operations to Singapore.
It’s just being out in front on issues. For years, Smith, in its infancy, was more of a reactive company. We were sitting here waiting on the next shortage. That’s just not who we are anymore. We’re out in front. Yes, we know how to perform in a shortage. Don’t get me wrong, we didn’t do $4.8 billion in sales because we weren’t the army waiting on the war. But what we are now is post-shortage, in a normal economic situation, we’re still a very profitable company, thriving, because we’re not one note. We have a lot of irons in the fire. We have inventory management; we have ITAD solutions; we have our core business. We break ourselves out—those are the three main ways we look at our sales numbers every month. And every month, all three of those are generating substantial revenue for Smith. I’m proud because we didn’t get there overnight. It took time to build these programs and these relationships. And back to my original tenant, which is that’s all attributed to Bob and Lee. They were always in it for the long haul.
We were always thinking, “What are we doing five years from now? Where are we going to be 10 years from now? Where do we want to be 20 years from now?” And as an employee of the company, that can be frustrating because sometimes we felt like we were really succeeding, and they were always pushing us for more. It took me a while to really jump in and partner with Bob and Lee on that and help grow the company. Because you have to always be pushing. At Smith, there are no victory laps. It’s always next. Next. Next. What can we do better? How can we improve? What are our customers’ needs? What can we do internally to be better?
I’m really proud of what we built. But I’m also very excited. Five years ago, I stood up at a Smith event and told everyone the next five years would be the best five years and everybody was feeling pretty good about themselves at that point, and they looked at me cross-eyed. I was like, “Guys, look at us. We’ve never had this many talented employees. Our global reach has never been better. We have more offices, more talented people.” And our mantra now is to hold on to our people; retain all the knowledge we have and continue to improve internally and get ready for the next big run.
AI, we think, is going to be a big driver. The memory market right now appears to be gurgling as if there’s going to be some shortages in memory. We’re starting to see that. We’ve gotten our first substantial orders this week. And so, we’re very excited. I’m anxious to see what we can do.
Years ago, I’ll tell you a funny story, there was an SSD shortage and hard drive shortage. And we had our first $90 million revenue month. The mantra here had always been, “Can we be a billion-dollar company?” I did 90 times 12 and I went, “Well, if you can do $90 million a month, you can be a billion-dollar company.” People didn’t really believe it at the time, and then we rolled off three, four, five years in a row of $1.5, $1.6 billion years. Then in 2021, we exploded up. Then last year, it was $4.8 billion. Now, revenues will be down this year as the market is not as strong, but that’s okay because we have a history of regrouping and resetting after the big runs, and then we come back stronger. And I don’t know what stronger is going to be. Maybe we’re going to be an $8 billion company in the next run. Maybe we’ll be a $10 billion company. But I know this, Bob, Lee and I are convinced that sometime in the next decade or so Smith is going to be a $20 billion company and we’re doing everything in our power to make that happen.
It must be such a rewarding feeling to have that forward thinking perspective pay off and come to fruition. And with your closing statement there, it hasn’t gone away. It seems like it’s been further ingrained into the company’s identity and culture.
No one ever wants to go backwards. That’s not a good feeling. And right now, even though our sales are down, we don’t feel like we’re going backwards because we’re behind the scenes doing everything we can financially, from an IT perspective, operationally, to make sure that we’re the best version of ourselves when the next opportunity arises.
I just can’t tell you what it’s like to wake up almost 34 years in and to be just as excited as you were when you were a little junior buyer. I started out here buying components. That was my job; get in here and quote parts and buy components and also, by the way, go grab lunch for everyone. I laughed with Bob the other day, I was like, “Of course this was my plan, Bob. I was going to get hired in 1989 and one day we’d be a multi-billion-dollar company, I’d be the CEO.” No. But, here’s the thing: At Smith, that’s the path that’s there for everyone. If you come to work at Smith, and you give us effort, and you show up every day, and you pay attention and you just do what’s asked of you, you can go from an entry-level buyer position to the CEO. And that’s the thing I’m proudest of, because when I moved up this summer, there was a whole trail of people behind me that moved up. In my previous role, it was kind of like, here’s where we are and here’s where everyone’s at. But once I moved up, a lot of people in the trading side moved up and I’m happier for them than I am for me. I’m in the twilight of my career; two, five years. I’m an old man. If this was video, you’d see how many grays this place has given me.
But at the end of the day, we’ve got so many talented smart people in this company, across the board, in every department. And I told Bob when he approached me about becoming CEO, I was already a little overwhelmed just being Chief Trading Officer. Because when we have the summits and we bring people in from all over the globe and you sit there in the room and you see the knowledge and the intensity and the effort and just the sheer talent that we have internally at this company, to think that you’re in any leadership position is intimidating. And then to be told, “Oh, we’re going to put you in the ultimate leadership position.” I told Bob I was a little scared. Am I even up for this? But Bob was very confident, and Lee was very confident that this was the right move at the right time. And so, I took it and I’m only three months in, but it seems to be going well.
It isn’t as if it’s a whole new dynamic. The senior team at Smith has a very close working relationship, and not too much of that has changed. We’re not here micromanaging people. Everybody knows what the task is. And we’re all focused on it, and we get it done every day. And I think that’s been a big differentiator for us is that our people know what to do. We know when to have fun. We also know when it’s time to work, we work. That’s what I’ve done over my career is set the tone; somebody’s got to set the tone that it’s time to work. And now, maybe, it’s time to play. We know how to do both. We also know how to take care of our customers. And we know how to do business correctly and ethically. That’s what I’m most proud of. Listen, I’ll pass the torch one day. We’ve got a line of people that are certainly just as capable as me to take my role one day—and if any of them listen to this, don’t try to take it too soon.
Marc, it seems that Smith is in a great position to be excited about the future. But I know that there are certainly companies that came out of this last turmoil with some hard lessons learned. And speaking of the preparedness that we had touched on earlier, maybe they’ve changed their mind. Maybe they want to be prepared now. They have to do something differently, and part of that strategy is looking to Smith and partnering with Smith. What does that process look like? How does a company engage with you guys? How do you help better prepare them to handle any uncertainties that may come up in the future?
First of all, people can spin this business in any way that they want, but at the end of the day, it’s clearly a relationship business. The deeper the relationship we have… and it doesn’t have to be a long-term relationship. If you look at the volume of business that took place in 2021 and 2022, that was 40-years’ worth of business in some cases. So, there has to be a relationship and there has to be a level of trust, because someone on our customer’s team is going to have to champion that partnering with Smith is the right thing. Sometimes what you find in corporate America, especially, is people just want to stay in their lane. Nobody wants to take a risk and for lack of a better term try to be the hero. But if you partner with us, we’re very receptive to what works for you. No two of our programs look alike or run alike. They’re all customer centric. We like to think no matter how large we’ve gotten that we have stayed as flexible and as nimble as we ever were when we were one office and 20 people.
When you have what we have at our disposal to service a customer, if the customer wants to engage with us at any level, it will be a very positive experience for them. Because we only have one mission—and that is to make our customers happy. When you don’t make a widget that somebody needs and you’re a customer service, information and logistics company, your customer service needs to be through the roof. And that’s what we pride ourselves on. We pride ourselves on being there for our customers in any way, shape or form they need us. A lot of our customers take great satisfaction that if there is a problem, there’s a big company to come back on. As I referenced earlier, I think that’s one of the things we’re proudest of, after coming out of this tremendous run, is how cleanly we emerged from that.
Now, we didn’t emerge from that cleanly because there weren’t issues; we emerged from that because of all the experience we had in previous shortages of dealing with these issues. And Bob, Lee and I were very keen on, “It will end.” No one ever knows when it’s going to end. I heard through most of 2022 how this shortage is going to run through 2025. I did a bunch of eye rolls and went, “Yeah, okay, right. If you know when it’s going to end, then you take my chair.” Because no one ever knows when it’s going to end. And when it ends, it ends quickly and it’s over just like that.
I remember an early part of this year thinking, “Well, it’s slower. We’re in Chinese New Year, but there’s going to be a big bounce out of Chinese New Year.” That was the word we kept hearing in the industry. “It’s going to bounce after Chinese New Year.” It didn’t bounce. If anything, it got flatter. But that’s the beauty of this industry. It’s a Catch-22. When it’s busy, you have to be here to execute and take advantage of it. And when it’s slow, you have to be here to execute and take advantage of whatever opportunities are out there. And that’s the thing I love about this business because you go to bed on a Tuesday, and you think you’re in a normal market; you wake up on a Wednesday and everything’s broken loose and you’re in high cotton.
But you have to be there. The thing we preach to our employees is you have to be here. You have to be paying attention. We show up every day. We pay attention to our customers. We listen to what our vendors say. We provide accurate real-time market information. Even if you’re not supplying parts, you can supply real information. You’d be surprised how many times we get calls before people are meeting with manufacturers who were always painting the best-case scenario for themselves in terms of, “You need to take all these parts and let me tell you why.” And we get calls and people go, “Hey, this is what OEM X is telling us. What are you seeing?” And we’re like, “Well, we don’t see that. We got your back. We can fill the gaps.”
Listen, it’s fun being a niche company. If it’s a shortage, we thrive. If it’s an excess market, we thrive. What we try to do here at Smith is thrive in every possible market situation. We’ve got people and groups of people around the globe that are paying attention. We have people that all they do all day is focus on the CPU market; all they do all day is focus on the memory market; we’ve got people that all they do is focus on Texas Instruments, different commodities. It’s like being a kid in a candy store in a lot of ways. We’ve grown this thing to a size where now we get to play in all the arenas. And that’s the most exciting part because when we were a smaller company, and no one likes to gloat or talk about this, we couldn’t always do all the deals. We didn’t have the capital. I remember turning deals away. I think you can tell by how long winded I am that I’m a sales guy at heart and I don’t like to turn any deals away. We’d like to take all the business that is out there that makes sense for us and our customers. That’s our strength right now is we don’t have to do any deals, but we can do any deal. That took decades to get to that point. We used to feel pressured to take deals, deals that were maybe a little riskier, and we were like, “Maybe that’s not good business. Maybe this is a bit too thin of a margin; too much money.” Now, we just walk away from those deals. What we do is we do solid deals for our customers that also make sense for Smith. If it’s a win-win, we’re all in.
Marc, you said it yourself. No one really knows what the outcome of these cycles are going to be, when they’re going to end, what the future looks like. But I’m curious, are there maybe cycle signals or things that you can look out for as an organization that can indicate some changes are on the horizon? What should you keep an eye out for?
Absolutely. Right now, like I mentioned earlier, the memory market is starting to gurgle. It looks like we may be headed toward a shortage. We got our first speculative buys this week. And we’ve been hearing and the notes we saw were people started saying, “Hey, the factory won’t deliver more than was allocated to us.” And they were like, “Okay, that’s a good sign.” And then you hear that certain manufacturers aren’t accepting any new PC memory orders. And you’re like, “That’s a good sign.” And then you go out there and you hear, “Hey, they’re raising the prices in the fourth quarter.” And you’re like, “Wow, that’s another good sign.” All signs point to memory allocation.
This company was built off commodities. We did a lot of CPU business, a lot of memory business, a lot of hard drive and SSD business. And some of that business has been tougher because a lot of companies have now taken the commodity business and they’ve got them in inventory management programs, and it is a smart way to handle it. That way, you have the assurance of supply. But with the amount of business we’ve done in the last three to four or five years, and think there hasn’t been any significant shortages in some of the commodities… This last shortage, the thing that was unique about it was how many different manufacturers were affected. But not only that, was how quickly the prices increased.
I remember talking to one of our purchasing managers and it was literally day three of the shortage and he’s like, “I’ve never seen this in my life. Parts that were 40 cents two days ago are now going for $20.”
Normally, there’s a creep; there’s a price creep. This was an explosion. That’s what caught people more flat footed than they’d ever been caught. Normally, you have a chance to read and react. This was game over quickly. And you’ve got to now address some of the most severe overages you’ve ever faced in the supply chain.
And hats off to our customers. I think most of them handled it as well as it could have been handled under the circumstances. But I always woke up every morning going, “Thank God my job isn’t to get 150 board level components in the door to get something manufactured.”
We always felt as if we were helping. We’re here. You’ve got three parts you can’t get; you’ve got 147 of 150. We’re going to bridge that gap for you and get you the three parts. Yeah, there’s going to be overages because we don’t make the market, we exist in the market. As I always tell our employees, you can’t control the market, but you can control your effort. That’s what we’re never short on here at Smith is effort.
Marc, you’ve touched on the memory market a couple of times and I’m curious, looking ahead, what are the verticals that you see the biggest growth potential in? It sounds as if maybe the memory market may be a little stagnant, but do you see any growth potential in certain verticals? Do you see any decline potentials in certain verticals?
That’s the beauty of our business; it’s hard not to sit here and just be optimistic. Computer chips are in everything! With the electric vehicle market expanding, that’s going to be a huge opportunity for Smith. AI—the amount of hardware that’s going to be needed to support AI, I mean, my goodness. We really feel that AI will be as big a disruption as maybe cloud computing was years ago.
There’ll be winners and losers. What we try to do is engage with everyone and provide the same level of support, so no matter who wins that we’re engaged with them. And if people lose, then it’s unfortunate, but that’s just the nature of a competitive marketplace. Certainly, electric vehicles and AI seem to be two of the things that are out there on the horizon that we’re excited about.
Marc, the counterfeit issue is massive. And I know it certainly causes trepidation in every stakeholder within the industry. But I’m curious, how does Smith navigate the counterfeit market and how do you provide assurance to those that you partner with?
When you’re out in the open market, your biggest fear is counterfeit. Counterfeit used to be a word that nobody wanted to use, and we embraced it. We actually were the first company to go out there and go, “Hey, yeah, counterfeit is a real thing, and you need to be scared of it. And it’s one of the reasons you need to be coming to Smith.”
We’ve invested millions and millions of dollars in testing. We have four warehouses and all of them have huge testing capabilities. Not only do we do due diligence in trading on the front end with our vendor rating system where we don’t just buy.
You’d be surprised, with Google—everybody thinks they have the supply chain at their fingertips. A lot of these companies aren’t real companies and these aren’t legitimate products. We know that from 40 years of experience. But if you’re sitting there and you’re desperate for a part, and Google says Company ABC, who’s not even a real company, has it, it’s real tempting when you’re behind the eight ball to go, “Hey, can you go buy these from Company ABC?” Then we have to explain, “Well, Company ABC isn’t a real company, and these aren’t real parts. They may be remarks,” or whatever.
We’ve embraced the whole idea that—yes, it’s a dangerous world out there. That’s all the more reason to be engaged with us because our quality controls on the front end, before parts are procured, and on the back end, once they come in the door and they’re tested—there’s not another company in our industry that comes close. We always love it, we always encourage people to come take tours of Smith because once you’ve walked through and seen our capabilities… Boy, good luck if you’re our competitor, because we know what they have and they don’t have anywhere near. We have world class testing.
Marc, I’m curious. Having decades of experience in the industry, Smith has learned and acquired so much knowledge. How do you share that knowledge and experience with your partners?
When you’re a logistics and an information company, it is market intelligence. We’re out there on the frontlines every day interacting in every way, shape and form and we put together a market intelligence report that we send to our customers that I can only believe is very helpful to them. Because they don’t see what we see. They’re in their lane; they’re dug in; they usually have one commodity that they need or one thing they need to be worried about.
We’ve got hundreds of people around the globe that are paying attention all day. We take all that information globally and we compact it down into the CliffsNotes version, and we provide it on a regular basis. We have customers come to us going, “Hey, can you follow the lifecycle of these three parts and let me know if you see an uptick?” And the minute we see an uptick, we let them know. Oftentimes, they’ll go, “Alright, that’s what we thought was happening.” And they’ll do a speculative buy to provide themselves a little insurance. There’s no one who knows more about this market than Smith. And there’s no one who can take better care of you in terms of quality control than Smith and those are big differentiators for us.