Front End I Electronic Components Supply Network Sales solve everything…?
The adage ‘sales solve everything’ is as relevant for organisations today as it’s ever been, but it’s not the entire story. In this article ecsn chairman Adam Fletcher suggests that sales made need to be profitable, the goods sold have to be deliverable, and the customer has to promptly pay for them, all of which is currently a challenge in electronic components markets
forecast their component needs. Authorised distributors however began to work with the manufacturers they represent to increase their order cover and inventory levels in-line with their best estimate of their customers anticipated increase in demand.
UK sales revenue growth continues… Two years on and the UK electronic components market is continuing to experience sustained ‘quarter-on-same- quarter-the-previous-year’ growth. In fact, the last nine quarters has been the longest period of sustained growth in the UK since 2000 (see the graphic “ecsn / afdec – DTAM by Quarter for 2012 to 2018”). ecsn members forecast that the UK &
Adam Fletcher R
eviewing statistical data towards the second half of 2016 it was apparent that electronic components markets
in the UK, Europe and globally were all experiencing stronger than forecast growth, which was likely to knock-on into extended manufacturer lead-times and restricted availability of some components. Local and international trade associations including the Electronic Components Supply Network (ecsn) lost little time in joining with member companies and the trade media to communicate this critical change in the market dynamics to the wider market but as is normal in these situations it took a while for the message to be understood and acted upon. This is understandable as in the current economic climate many customers are struggling to
Ireland market for electronic components would grow in the range eight per cent to 12 per cent in Q2’18 compared to the same period in the previous year. In the event the outcome for Q2 was 8.6 per cent growth, just within ecsn’s forecast range. However, the 8.9 per cent growth achieved in 1H’18 fell just outside the association’s forecast range of nine per cent to 14 per cent. This suggests that although the UK electronic components market continues to grow, it is not growing as strongly as anticipated by ecsn members but is following the historic trend in the UK for electronic components markets to grow faster is the first half of the year than they do in the second half. The green and orange bars in the graph indicate ecsn’s forecast range for the next two quarters. Member companies are forecasting growth in the range 5.5 per cent to seven per cent in Q3, which should be achieved.
The UK Book to Bill ratio The good news is that UK customers have
responded well overall to the message that lead-times are extending and the current quarter ‘Book to Bill’ ratio (a measure of net new orders entered divided by sales invoiced less credits) suggests that semiconductors are ‘on-track’ at 1.08:1, electro-mechanical products – connectors in particular – are somewhat ‘under-committed’ at 1.03:1, while passive components markets are ‘overshooting’ at 1.14:1 The supply problems and extended lead-times affecting larger case size multi-layer ceramic capacitors (MLCC) and chip resistors are a major contributor to the passives ‘overshoot’. Price increases together with new order cover placed by customers in a bid to keep up with revised lead-times is increasing the B2B ratio at twice the forecast market growth rate, which is too fast. There may also be an element of ‘double ordering’ as buyers attempt to ensure supply. This is a classic ‘sales solve everything’ problem… It doesn’t matter how much an organisation sells in terms of Bookings (net new orders) if it cannot ship the products as Billings (net sales invoiced less credits) then the sales revenue equals zero.
Continuing global growth The largest current global electronic components market driver remains mobile phones, but sales appear static and there are no indications of a significant upswing in the 2H’18. However, industrial, automotive, medical, high-rel and aerospace markets are all experiencing solid growth. Audited international statistical data for Q2’18 is not yet available but preliminary information suggests that sales in electronic components markets (excluding commodity memory) continues to be strong with estimated growth in the US of eight per cent, four per cent in Japan, 12 per cent in China and four per cent in Asia-Pac. The European electronic components distributor total available market (DTAM) continued to grow in Q2 2018. Members of the International Distributors of Electronics Association (IDEA) reported Billings growth of 5.4 per cent when compared to the same calendar quarter 2017. The Austrian, Italian and UK electronic components markets saw growth above the European average, but the overall market declined by (1.3 per cent) when compared to Q1’18, which is in-line with historic trends. These figures are the latest in a period of continuous growth spanning 20 calendar quarters and an ongoing period of double digit growth going back to Q4 2015. IDEA members continue to upbeat about the market. They believe that the European electronic components market will continue to grow throughout 2018 and into 2019, albeit at a somewhat slower rate (see the table IDEA Quarterly Trend Statistics for full details).
10 September 2018 Components in Electronics As the global demand cycle in the
electronic components market follows its normal pattern of moving from the west in the first half of the year to the east in the second it looks likely that growth will continue to be moderate, which will probably ease lead-times slightly towards the end of the year. But this may only be a short-lived respite as preliminary forecasts for 2019 are suggesting much stronger growth driven by 5G infrastructure build out, increased availability of new 5G mobile phones and growth in automotive applications.
Exchange rates and payment terms
The UK £Sterling continues to decline in value against both the US$ and € which will inevitably result in further increases in the price of electronic components for UK customers. Payment terms in the UK are already starting to creep up and this should be a concern for all as increases the risk of payment default in a growing market. There is little our industry can do about fluctuating exchange rates but things will eventually turn around, in the meantime, all players within the electronic components supply network must manage the process as fairly and carefully as possible.
Conclusion
Once goods have been Booked and Billed the prompt collection of the payment due is essential. Without it sales solve nothing and merely result in a bad debt and a ruined relationship, which is in no organisations’ best interest. I urge all in the electronic components supply network to actively engage with their partners both up and down their supply network, I’m convinced that collaboration can be a major contributor to longer-term synergistic gains for all parties and costs almost nothing.
www.ecsn-uk.org
www.cieonline.co.uk
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