1. Ukraine has been one more speed bump in a chain of disruptions in the supply chain. Talk about the specific challenges you’ve dealt with in recent months and how your customers are adapting.
Avnet is closely monitoring the devastating news coming out of Ukraine. We are first and foremost focused on the safety of our team and partners in the region, and we hope that diplomatic and non-violent efforts can help resolve the situation soon.
That said, the last two years have in a way prepared us for the current constraints resulting from this international crisis. We are dedicated to working alongside both our customers and suppliers to leverage our supply chain capabilities and offer visibility, transparency and agility at both ends of the process. Part of our strategy is to build in flexibility where possible into the designs and services we offer customers in order to adapt when constraints arise.
At Avnet, we have continuously adapted to be agile in the face of supply chain disruptions by securing Foreign Trade Zone authorization for our McKemy Distribution Center in Chandler, Arizona. The benefits of this for Avnet and our customers include greater global logistics efficiency by avoiding formal customs entry clearance into US commerce at the time of receipt of the products. Additionally, this authorization helps mitigate the financial impact of international supply roadblocks and tarrifs by enabling the deferral of payment of tariffs and duties on foreign products imported until they exit the zone and are shipped to US locations. In turn, this reduces the need for tariff recovery processes and fees for our international customers.
2. What changes have been implemented in the last two years that have helped untangle the supply chain backlog? How does your company feel about your ability to weather storms going forward?
Like many others across the world and in all industries, the COVID-19 pandemic has required us to stay extremely nimble over the past two years due to the continuously uncertain operating environment that has shifted the typical seasonal and cyclical trends. However, even given the difficult circumstances, we are positive about our ability to continue providing our customers and suppliers with the solutions they need while moving our own business forward. Our whole model is about variability, which enables us to adjust to whatever market conditions we face as needed.
Currently, we are competing favorably across the board. We are pleased to see continued improvement in our Americas business, where strong demand and expanded supply chain orchestration opportunities helped us grow revenue by over 40% year-over-year and achieved our fifth consecutive quarter of operating margin growth.
3. Talk about technology. How have you implemented IoT and AI strategies to improve distribution? What other technologies have proven helpful in addressing the supply challenges?
Distribution has been increasing its role as a consultant as more and more customers turn to their distributors to provide them with visibility into the supply chain, design recommendations and operations expertise. We are making continuous investments in various areas to improve distribution, including data enhancements, shareability, and automation (e.g., robotics and AI). These tools allow us to react to changes in real-time and share new types of data with our customers. We have been honing our high-tech supply chain competencies since the launch of Avnet IMS (integrated material services) in 1993.
Due to ongoing shortages, some products are less available than expected. However, we are mitigating any issues by working with our suppliers to forecast additional shortages and providing alternative options to our customers.
4. What are your customers’ pain points right now? How are they positioned to grow in a post-crisis era? How have all the events of the last three years changed their outlook?
Our customers’ #1 focus is continuity of supply, which is the value Avnet brings. We act as an extension of our customer’s business, thus improving their visibility into the supply chain during a time when that is critical and ensuring that our customers have a healthy supply chain. While raw material challenges still exist, the industry as a whole has improved, and we’re managing backlogs very tightly. We’re pleased with our inventory levels and are continuing to work closely with customers to manage forecasts and mitigate supply chain risk.
5. In all the geopolitical discussions around trade and supply chain, there seems to have been a great deal of resolve on the part of business leaders to solve their own supply chain issues. What are some of the key understandings that have come from all of this chaos? And is the industry better for it?
We are seeing significant opportunities in supply chain orchestration as business leaders understand the importance of internally prioritizing supply chain strategies. Design engineering, sales, operations, finance, and even IT can contribute to and influence the development and execution of a strategic supply chain solution.
Design engineers, in particular, are asking for improved collaboration and promoting alternatives for products that are not promptly available. Speed is becoming an additional form of currency in the industry. As a distributor, we’re an aggregator of information and building bridges between these other functions to optimize efficiency and profitability. We work with our customers to provide them with product alternatives to get them their components as fast as possible.
In addition, we’re seeing a movement to broaden manufacturing and logistics regions outside of singular regions. For example, Avnet recently opened new manufacturing and logistics facilities in Germany in order to further expand our footprint and ensure global continuity for customers and suppliers alike. These kinds of actions are intended to not only expand Avnet’s global reach, but also add flexibility and regional agility to our customers’ supply chains.
