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Stocking up to Meet Consumer Demand

Feb. 17, 2022
How electronics distributors are stocking up in order to be able to service their customers better in the midst of uncertainty.

Central links in the world’s supply chains, electronics distributors source and distribute products for business buyers around the globe. As their industry continues to grow, the distributors operating in it face challenges like increased costs, lower margins, new competition, ever-changing customer requirements, labor shortages and pandemic-driven supply chain disruptions.

Whether they are generalists that offer a wide range of goods or specialized distributors that focus on a particular customer or product segment, distributors are very good at aggregating demand while also ensuring that their manufacturing partners don’t have to manage small orders and the complex logistics associated with those orders. And, by placing physical inventory closer to customers, distributors ensure faster delivery and better product accessibility in any market conditions.

Of course, these aren’t just any market conditions that companies are dealing with right now. From logistics snarls to labor constraints to component shortages, buyers are working their way through a “perfect storm” of issues right at a time when both economic activity and demand are picking up.

Increasingly, distributors are being called upon to help fill in the gaps left behind by the pandemic-driven supply chain disruptions. With procurement professionals focused more on getting the materials and components they need on time—versus haggling over every last dime spent on those goods—distributors are reading the room and stocking up on items that they know their customers will need to be able to run their businesses.

The Congested Supply Chain

In January, the U.S. Commerce Department reported that, adjusted for inflation, gross domestic product grew at a 6.9% annual rate in the fourth quarter. That was significantly stronger than the third quarter’s 2.3% and ahead of the 5.5% that economists had predicted, The Wall Street Journal  reports. In response to these and other trends, businesses have replaced their just-in-time, lean inventory management techniques and instead are stockpiling inventory to ensure that they have enough on hand.

At the heart of the problem is the congested supply chain, which is slowing down imports all over the country. “Ports are blocked up, transportation costs are skyrocketing and shippers are even having trouble finding containers to ship goods in,” Justin Ho writes in “Why business owners are stocking up on inventory.” In some cases, they are doubling or tripling their normal order sizes in order to create a buffer for any future delays.

This is a far cry from the just-in-time procedures that companies have used to become leaner by ordering parts only as they are needed—an approach that helps cut down on waste, minimizes costs and improves efficiencies. However, the pandemic highlighted the fragility of global supply chains that rely on the seamless movement of materials between suppliers and buyers.

“Shipping delays and lockdown restrictions, plus exceptional demand for some goods, have led to shortages that have left manufacturers unable to obtain critical items, delaying production,” HSBC observes. “Semiconductor shortages are particularly acute. Bottlenecks related to COVID-19 have been exacerbated by Chinese stockpiling ahead of US trade restrictions, severe weather in Texas, drought in Taiwan, and a fire at a Japanese chips plant. Chips shortages have forced car-makers to delay deliveries.”

More Capital Investment, Better Rewards

While it may require more capital and effort for electronics distributors to take this route, the returns are enviable for two key reasons: They’ll have the components when a valued customer asks for them and they’ll be developing stronger, long-term customer relationships. Distributors like Quest Components, for example, maintain a large, available to sell inventory, as well as obsolete and hard-to-find components.

Whether they’re ordering ahead from their suppliers in anticipation of future orders, keeping inventory on hand for specific customers (who are ordering via blanket PO, for example), or simply keeping their warehouses more stocked up than they usually would, electronics distributors are filling a real need both for their customers and their manufacturer-suppliers.

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