It was a disastrous year for electronics distribution in 2001. Distributors struggled throughout the year with excess inventory and extremely weak demand. Most posted percentage sales declines in the double digits, according to PURCHASING Magazine's Top 75 electronics distributors survey. That's a significant change from the previous year when most distributors posted double-digit growth.

Distributors blame the industry's problems partly on excess inventory created by the electronics manufacturing service (EMS) channel. Those companies built up huge inventories to meet unrealistic demand forecasts by major telecommunications and wireless companies. Demise of the dot.coms also contributed significantly to the downturn.

PURCHASING's survey finds that 65 of the Top 75 distributors saw sales decrease in 2001. That's in contrast to only ten of the Top 75 distributors that reported flat to lower sales in 2000. Only ten distributors in 2001 reported flat or higher sales, compared to 65 in 2000, of which 56 posted double-digit growth.

Revenue among the Top 75 fell 24% from 2000 to $26.3 billion. Survey shows the average rate of decline experienced by the Top 75 was 16.8%, compared to a robust growth rate of 27.7% the previous year.

'It was probably the worst year electronics distribution has had in the past two decades,' says Robin Gray, executive vice president for the National Electronic Distributors Association (NEDA), Alpharetta, Ga. 'What made the downturn so dramatic is that the year before was probably the best year ever for electronics distribution,' he says.

Gray believes the downturn has bottomed out and that a slow recovery is on the way. 'Everything has improved, but not dramatically. We're seeing only small incremental increases. But any increase is better than the downturn,' he says.

The simple explanation for what happened last year is too much inventory and not enough orders. But the situation was much more complicated for many reasons, Gray says. 'Part of it was the lack of accurate forecasts for demand,' he says. 'But more of it was confusion that had arisen about the roles of the respective parties in the supply chain. Who was best situated to manage the supply chain? And who was in the best position to take its pulse?' he says.

'The confusion caused people to get nervous and reach for the safety blanket of added inventory, particularly when a lot of product seemed to be on allocation,' Gray says.

After two years of steady consolidation in electronics distribution, acquisitions slowed considerably in 2001. The only major acquisition in 2001 was Avnet's purchase of interconnect, passive and electromechanical (IP& E) specialist Kent Electronics Corp., ranked number seven in 2000. The merger strengthens Avnet's Electronics Marketing and Computing Marketing groups.

Only three other distributors announced acquisitions. ESCO acquired Wofford Electronics and Sierra West Electronics; XP Foresight, formerly Foresight Electronics, acquired Aston Technologies and Powerspec, and Memec purchased a design services group in Europe. Pioneer-Standard made a majority investment in Aprisa, a Web-based engineering service provider.

Avnet retains its number one position in 2001 despite a 30.1% decline in North American revenues to $6.5 billion. The company's worldwide sales also shrank to $10.6 billion from $12.7 billion the previous year.

Arrow remains in the number-two slot, posting $6.3 billion in North American sales, down 22.3% from the previous year. The distributor posted worldwide sales of $10.1 billion, down from $13.0 billion the previous year.

Bell Microproducts, Future, Memec, Newark, Pioneer-Standard and TTI all managed to stay in the top 10 although there was some shuffling among the ranks. Bell Microproducts, ranked number five, switched positions with Memec, ranked number six. TTI moved up one position to number seven and Newark moved up two positions to number eight.

All American Semiconductor, ranked number nine, moved into the top ten from number 12 in 2000. Nu Horizons slipped to number 12 from number nine in 2000. Avnet's acquisition of Kent enabled Reptron Electronics, ranked number 11 in 2000, to regain its title in the top ten list at number 10.

Other notable changes include Richardson's climb from number 17 position to number 14; Digi-Key's move up the chain to number 11 from the number 14 position and The DAC Group's move to the number-13 slot from number 15 in 2000. However, a few distributors slipped in their rankings. Most notable changes include Sager's drop to number 16 from number 13 in 2000.

Large distributors such as Digi-Key, Nu Horizons, The DAC Group, Richardson, Jaco, Sager and Allied all posted significant declines, averaging about 17%. Bell Microproducts is the only large distributor that posted double digit sales growth. The distributor boosted its sales by a whopping 23%.

Don Bell, chairman, president and CEO for Bell Microproducts attributes the company's success to continued investments in strategic areas such as its solutions and tech centers.

In January 2001, Bell says the company had to make a decision about how far it should cut back and how far it should continue with strategic programs and investments. The company took a middle-of-the-road approach, Bell says. 'We did cut back. We cut our overhead, tried to maintain our sales. We continued with our investments in the tech center in Alabama and a solutions center in Eden Prairie, Minn., and we continued to make investments on a worldwide basis,' he says.

'In the European market we acquired another company in storage systems, we launched our effort in six new countries in Europe. We invested in storage systems and we invested in our software programs globally, which are just being rolled out now. We found that we had to tighten our belt more than what we would have liked, but we continued with our investments,' Bell says.

Smaller distributors also struggled to show gains in 2001. Eight of the nine distributors that posted sales growth are small-sized distributors. House of Batteries, new to the Top 75 list, reported a 6.7% gain, Marlac Electronics, another newcomer, reported a 5.3% gain, IBS expanded its sales by 4.5% and A.E. Petsche increased sales by 4.2%.

Many of the small distributors posted average decreases of 14%. Notable declines include Projections Unlimited Inc., showing a 68.2% decrease in sales compared to the previous year. In 2000, the distributor posted a 177.8% gain. Another big winner in 2000, Surface Mount Distribution, showed a loss of 47.3% in 2001. Taitron Components posted a sales decline of 51.7% and CAPSCO Materials management saw revenues fall 41.3% to $27 million.

In this year's survey, 37 out of the Top 75 distributors say they have field application engineers (FAEs) on their North American staffs. Numbers range from two to 330 in North America. Global FAEs on staff bring the upper range limit up to 648.

This year only seven of the Top 75 distributors reported expansion into new regions or new sales offices in North America compared to 21 distributors the previous year. These distributors include Avnet, Bisco, Dee Electronics, XP Foresight, Interstate Connecting Components, Newark and NRC.

However, the survey shows that distributors are still making a big push into the global marketplace. TTI, for instance, continues with its geographic expansion in Asia and Europe. The distributor opened new branches in Denmark, Spain, Sweden, Switzerland, and Hong Kong. Reptron opened a new sales office in Singapore. PEI-Genesis expanded its UK facility into a full value-added connector assembly facility. Nu Horizons established Nu Horizons Electronics Asia Pte Ltd. (Singapore) and Nu Horizons Eurotech Ltd. (England). NRC completed NRC Canada in 2001 and just opened NRC Ireland.

Leading distributors also focused on making profits from their e-commerce investments with the introduction of new fee-for-services business models. Avnet launched its online services business Promière with support of key partners that include independent distributor America II Electronics, Cadence, i2, PMG, and Spin Circuit.

Arrow's fee-for-services business, referred to as Arrow Digital Solutions (ADS), essentially centers around three key services: Arrow Alert, Arrow Collaborator and Arrow Risk Manager, all available on a monthly subscription-based fee per seat. Earlier this year, Arrow upgraded ADS with the launch of its new browser-based collaborative tool called Connectivity Dashboard that allows users to access all of ADS's services from a single environment.

Pioneer-Standard has partnered with Aprisa, in which it now has a majority stake, and SupplyStream to provide supply chain services on a subscription basis.

Top 75 distributors are still hopeful that a recovery will materialize in the third or fourth quarters of 2002 with most of the growth coming from new product lines, geographic expansions, and value-added services.