Expect more from distributors in 2008

By Jim Carbone -- Purchasing, 1/3/2008 12:55:00 PM

Buyers will find that distributors will be more willing to provide value add and supply chain services as they search for new customers. 

Large distributors are trying to grow their number of smaller OEM and electronics manufacturing services (EMS) providers because many large electronics companies have shifted manufacturing to Asia. While large distributors are expanding operations in Asia to service those large OEMs and EMS providers, they are also looking to shore up their North American business. 

As large distributors go after more smaller customers they will compete more with medium and smaller distributors. This means buyers can expect higher level of service from distributors. 

Most global distributors saw strong growth in Europe and Asia in 2007, but flat or low single-digit growth in North America. 

“In North America we saw a softening of business, particularly with the large EMS providers,’ says Brian McNally, president of global alliance and supply chain for Arrow Global Components. “The global EMS providers for most of the year had inventory issues. The decline was a moderate decline and more weighted toward the large EMS providers. We are starting to see the numbers come back, but much more moderately,” he says. 

In 2008, Arrow and other distributors are confident that their business will grow in North America in 2008 as they find new customers. 

“I am bullish on 2008. It will be a solid year in North America,” says McNally. He says Arrow has “tens of thousands” of small customers and the number is growing. 

"We are seeing a different class of customer. Many are smaller customers that are learning to design with electronics for the first time," he says 

One example is lighting. Many lighting companies are moving to light emitting diode (LED) technology in their products from incandescent and fluorescent. 

Many of these companies need design help because they are not familiar with LED technology. Arrow and other distributors provide that design help as well as sell LED products. Lighting is expected to be a strong growth segment in 2008 and beyond. 

Other strong segments in 2008 will be transportation, medical and defense and aerospace. “The military aerospace segment has just been on a tear,” says McNally. “It has been very strong and that business tends to stay in North America. It has been less affected by the outsourcing phenomenon.” 

Phil Gallagher, president of Avnet Electronics Marketing Americas in Phoenix, says there will be distribution growth in North America, but it will be slower than in the past. “I don’t think you will see double-digit growth in North America anymore. I don’t know what would drive that. You have to be realistic.” 

However, he says there is still a distribution market of $10-12 billion and “we are about 30-35% of it.”

Gallagher says supply chain programs will help grow business. “Fifty-five to 60% of our business involves vendor managed inventory, he says. Such programs involve schedule sharing and “helping our customers take cost out of their businesses and helping them be more competitive.” 

However, while distributors will try to find more customers in North America and improve market share, most of their growth will be in Asia. 

For instance, Digi-Key in Thief River Falls, Minn., had global revenue growth of about 14% and North American sales growth of 10% in 2007, according to Mark Larson, president of the company. He says its revenue was about $100 million in Asia and Europe. 

“We want to grow our international business,” he says. “We are working to get to Hong Kong and China to understand the market better. We are seeing nice growth in that market.”