Front End | International Distribution of Electronics Association
In my discussions with the wider electronics industry during Q3’20 I suggested that rather than de-stocking OEMs should consider increasing both their order cover and their inventory holding, possibly by a factor of 10 per cent. My advice met with a mixed response and by Q4’20 remarkably strong growth had pushed the ‘B2B’ ratio 1.22 to 1. But even this was dwarfed over the next seven quarters by a B2B figure that at its peak reached an unprecedented 1.74:1! It steadily declined over the following six quarters but remained at unprecedented levels before entering ‘negative’ territory in Q4’22. IDEA members are currently forecasting that the B2B ratio will remain negative for the first six months of this year before growth returns in 2H’23, albeit at a much lower rate.
Looking forwards
OEMs’ ERP systems are designed to adjust in-house safety and general inventory levels to reflect market changes without too much human intervention. However, buyers in the global electronic components supply network will need to keep a close eye on current risk factors that include; fear of economic recession and infl ation, exchange
rate fl uctuations, the cost and potential shortages of energy and raw materials, and highly elevated geopolitical tensions, as well as continuing disruptions to international and last-mile logistics.
They need a much higher level of
confi dence in the ability of their suppliers to 100 per cent meet their bill-of-materials requirements and deliver them on-time. I’ve no doubt however that in the highly competitive electronic components market supply will rise to meet demand but what will be the pertaining demand? In my opinion it’s likely to be signifi cantly lower than current industry wisdom predicts and until we as an industry invest more resources in improving our forecasting, market stability will not be achieved. More immediately I fear that we may be entering a period of oversupply of electronic components as the pendulum of supply and demand briefl y swings beyond equilibrium. The upside is that organisations that have been disingenuous with their business practices and communication with their supply network partners will be revealed.
Despite the improving supply situation all parties in the electronic components supply network need to factor in the continuing uncertainty in the economic
environment and the elevated level of risk. I suggest that the appropriate customer response in these uncertain times is to gently “roll back on the throttle” and work with their supply network partners to get their order book back into balance in a controlled way. Organisations ‘applying the brakes’, cancelling orders or otherwise making abrupt changes in their purchasing procedures, will inevitably frustrate their network partners and open everyone to increased supply risks. I ask that you carefully consider your organisation’s impact on its supply network partners and remind
yourself of the adage ‘what comes around, goes around…’.
For information
Adam Fletcher is chairman of the International Distribution of Electronics Association (IDEA), an association of individual country electronic components associations whose objective is to arrive at and share best industry practice. He is also chair of the Electronic Components Supply Network (ecsn), a UK business association that was established in 1970 and today offers support to all organisations with an interest in electronics technology.
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Components in Electronics
March 2023 13
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