Current industry trends—what’s happening?
The year 2020 brought out the best and worst in distribution due to the global pandemic. Perhaps relating 2020 to the five stages of acceptance with a medical diagnosis is helpful to reflect what we did with our businesses.
The first stage is denial. The business model we adopted was, “The illness we read about will never impact my business.”
Denial led to anger, and distribution had to change the way we did our job. In Southern Florida, we already had a basic Hurricane Preparedness procedure; why not practice our countermeasures for the virus by pretending there was a hurricane approaching? Could we work from home? Who was responsible for ensuring business did not suffer?
The third stage is depression, and I’m sure everyone regularly wanted business to return to normal.
The fourth stage is bargaining or negotiating. Larger distributors protected their business by “buying” market share in non-traditional market segments, and OEMs who were impacted by the commercial aerospace downturn emerged as direct competitors to traditional distributor business.
The response from distribution was to protect their business at the expense of price. Essential businesses were protected because the mil/aero business continued without being impacted for larger program funding changes.
The fifth stage and final stage is acceptance. Distribution has learned to accept the new norm, and budgets have been reset based on the business level they win and markets they serve.
How's business?
Microwave Components, as a smaller distributor, was able through hard work, planning and complete employee support to overcome the challenges we faced in 2020. MWC had a successful 2020 despite the many challenges that confronted us. Heading into 2021, our focus continues to expand the business by focusing on new markets, new products and the addition of new complementary suppliers.
The variable that provided the greatest unknown was the impact of a new administration and a majority congress of the same party. As a result, we’ve experienced program cancellations and push-outs. Through four months of 2021 we have continued our execution of our plan, and we remain buoyant 2021 will bring stability to the markets and customers return to their work sites for face-to-face engagement.
What are the key challenges, and how are distributors addressing them?
As described in our response to the current industry trends, distribution has had to defend their business sockets, take a tougher look at margins and encourage their organizations to offset business challenges with new business. Microwave Components adopted the strategy to expand our footprint by selling additional products from our franchised lines that we had not sold previously.
Business continues to evolve and become more challenging, driven by younger engineers, de-centralized supply chain organizations and increased competition vying for fewer opportunities at the present time. Importance of business relationships have decreased and the emphasis is now placed on price, lead-time, inventory and a robust digital media presence.
These factors continue to be compounded with customers’ work-at-home and hybrid environments. Expanding our footprint with existing customers became an easier strategy than trying to win new customers when those could not be visited. We have learned to accept customer response times are slowed because so many buyers are working from home and their leadership did not invest in cell phones and extra office equipment they have access to from their normal businesses. Communication is predominantly via email.
What new opportunities, markets, customer segments, etc. do you see emerging?
Microwave Components is working diligently to capture business in the usual areas—5G, space, smaller-sized products, ganged and hybrid technologies—and is promoting our value-add capabilities. What is inspiring to me is to see the innovative ways the Field Sales Team approach customers to win business.
What’s the outlook for the next few months?
What 2020 has taught us is that there is a “new” normal, one that will never be quite the same as the pre-pandemic normal. The distribution segment needs to continue to evolve to embrace the market changes to ensure our viability in this new normal world. The market is in an unstable condition presently: Government program funding is being evaluated by the new administration. 5G deployment has been delayed as OEMs have worked with skeleton crews, or engineers had to work from home.
Commercial aerospace is rebounding and passenger miles are increasing, but the supply chains have been disrupted and time is needed to resume their flow while the glut of inventory is consumed before pre-pandemic business levels resume. The automotive market is limping due to available semiconductor chips that delayed more progress in the launch of electric vehicles, and overall R&D investments are deferred.
Fortunately, Microwave Components has a strong, loyal customer base because we have supported them faithfully over the years and celebrated successes with them and worked with them when times were tough. Customer satisfaction levels have remained at an all-time high. The outlook for the next few months will be difficult, but business will emerge stronger as we arrive at 2022.
