Earlier this year, Global Purchasing caught up with Steve Martin, executive vice president of sales at Components Direct, a franchised distributor that specializes in excess, obsolete and end-of-life electronic components. We asked Martin to talk about the state of the electronics supply chain and provide an industry outlook for the remainder of the year. He pointed to globalization, product obsolescence, and the increasingly important role of electronic commerce as key issues shaping the electronics supply chain. What follows are excerpts from our conversation.
Global Purchasing: What are some of the most important challenges facing the electronics industry today?
Steve Martin: I think the number one challenge is globalization and the supply chain complexity that results from it. I see more globalization and a resulting leakage in collaboration between everyone in the supply chain. Companies are engaging in manufacturing product and distributing product in different parts of the world. This creates many challenges in ensuring that all standards of production and distribution are correctly adhered to and that, ultimately, the traceability of that product back to the original manufacturer has not been obscured in any way. Keeping a tight control on this process has been something our industry is continuing to deal with.
Another challenge is the reduction in the product lifecycle of more and more components, which ultimately leads to an increasing rate of obsolescence in the supply chain. As manufacturers reduce the lifespan of many parts, and innovations in technology are occurring at faster and faster rates, this results in an increase in parts becoming obsolete and no longer produced by the manufacturer. The demand for this product, however, may still be present, resulting in a severe mismatch between supply and demand.
Global Purchasing: Counterfeit components are another challenge. What are the key issues buyers should consider when trying to keep counterfeit components out of their supply chains?
Martin: This is a really wide topic of discussion. There are a tremendous amount of things they need to do, but a few that come to mind first. They need to work with a trusted supplier and have a continuous plan for vendor reduction. Also, they need to buy parts direct from the manufacturer or through the franchised or authorized distributor. If they go outside the authorized channel, there are a few telltale signs to look for: How many years a company has been in business; the size of the company in terms of revenue; and whether they are members of any industry trade groups. We’re part of [the Electronic Components Industry Association], for example. In terms of warehousing, buyers need to know what the quality is, the handling, and the inspection process, both ingoing and outgoing. Does the supplier have a counterfeit screening or testing process in place? Are they ISO certified? A lot of people say they’re not certified but they are compliant—that should be a telltale sign; a supplier really needs to be ISO certified to be sure they’re on the up and up.
Global Purchasing: Given the prevailing economic uncertainty worldwide, what is your outlook for electronics distribution this year?
Martin: Even though there’s an ongoing recession in Europe and slow growth in China, we are optimistic. Last year was a building-block year; we expect right around 5% growth in 2013.
Another growth area within the electronics distribution industry that I predict we will continue to observe is an increase in the growth of online purchases made by many design and procurement engineers. People are beginning to recognize the important role that e-commerce plays within electronic component distribution – not just in facilitating online sales for parts, but also researching data on parts as well as price point variables.
Global Purchasing: What end markets or geographies look most promising to you?
Martin: In terms of excess, obsolete, and EOL components, we’re seeing that North America is very promising. In addition, our e-commerce platform has seen substantial growth in last four months [in places such as] Asia and South America. We see Brazil as a growing market, and we expect growth in Mexico as well.
Global Purchasing: Similarly, which end markets or geographies look the most challenging?
Martin: Certainly Europe because of the economic difficulties there. But we’re also seeing some challenges in Asia. There’s great opportunity in Asia, but I also think with the counterfeit issue we’re seeing that as a challenging market as well—particularly with the proliferation of counterfeit parts in China. If you look at China in particular, there are a lot of newer companies. Whether they are OEMS, OCMs, distributors or [businesses] in the secondary market, a lot of companies are popping up in China on a daily basis, and there are no checks and balances on that.