Recession takes its toll on independent distributors
However, some non-franchised distributors see growth potential in 2009
Jim Carbone -- Purchasing, 7/2/2009 10:31:14 AM
The global economic downturn has been challenging to the
electronics industry, including non-franchised independent distributors.
Sales revenue for the top five independent distributors is down and in fact has been falling for several years even when the economy was robust.
For instance sales of the top five North American- based independent distributors in 2004 totaled $1.8 billion. The figure has declined each year since, and in 2008 was $1.4 billion, according to Purchasing magazine's annual survey of the industry.
Because of declining revenue, some independent distributors declined to fill out Purchasing magazine's annual survey of the industry.
However, some independent distributors have done better than others. For instance, Smith and Associates, based in Houston, Texas, says it was able to grow sales 3% last year despite the downturn.
"Three percent isn't dramatic but when you realize the economy was in a recession, we feel good about the 3%," says Mark Barnhill, chief trading officer for the company.
With the rest of the industry down, Smith was able to grow sales because it has a reputable track record with buyers, according to Barnhill.
"We have major buyers who told us it always isn't about being a penny less. It's about if there is a problem down the road, we will be in business to address the problem and solve it," he says. Many smaller distributors and parts brokers have gone out of business in recent years.
Barnhill says he expects Smith's sales will grow 10% or more in 2009, despite the recession this year. "It is a goal that is attainable," he says.
One reason is that a lot of fabs "have closed or reduced production, which will result in leadtimes being pushed out. When the industry starts going hand-to-mouth, it creates opportunities for independents," he says. Independent distributors thrive during periods of shortages.
Converge of Peabody, Mass., is also expecting sales to rebound in 2009. "We would be happy with mid-teens growth from where we are," says Frank Cavallaro, Converge CEO. Last year Converge's sales fell by about 15%.
Top five independent distributors
"We have a services offering that is not as affected by the downturn," he says. The services include IT equipment disposal service and spare parts for services operations.
"Those services will be a greater percentage of our overall revenue moving forward," says Cavallaro. In 2009 they should represent 30-35% of Converge's revenue.
With the component business, the need to reduce cost is the name of the game. He says long leadtimes and shortages are not dominating business right now.
"The talk is how can you save me money? How can I keep my site in Europe, Mexico, Wisconsin or Florida. How can you keep my site profitable? That's what purchasing professional and general managers are talking to us about," says Cavallaro
Inventory services is one way to reduce cost. "Everyone wants inventory services, including bonded and consigned inventory," says Carleton Dufoe, vice president of sales at Fusion Trade in Andover, Mass. "Everyone is running lean and no one wants to carry the product."
He says Fusion sees opportunities with end-of-life parts as more buyers whose companies need the parts want distributors to carry them in inventory for years.
Often such parts are needed for service contract that an OEM has. The parts are used for older servers or networking gear.
A key challenge for all independent distributors is parts reliability. Independent distributors and brokers are blamed for introducing counterfeit or substandard parts into the supply chain. Some independent distributors have put in place screening processes and inspection and traceability programs to identify and weed out bad parts.
SG Industries (SGI) in Beverly, Mass. screens its suppliers carefully, according to Schuyler Glidden, CEO of the company.
‘We visit our vendors and interview their staff, we take pictures of their establishments and warehouses, we review their processes," he says. "We want to ensure traceability on every device that we buy and later sell.'
He adds that SGI photographs its shipments "in and out - of
the building, so that we could provide documentation to a customer should
issues arise."
The company has developed a large database of pictures of devices with the
correct original markings that "we now use today to compare against receipts,"
says Glidden
SGI is also using higher-end technologies to test, X-ray devices in situations where it is buying EOL products for an OEM.
"Since we schedule up to three years on some devices, we are ensuring the customer perfect parts, and protecting SGI from potential harm two or three years out," he says.
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