By Roland Brewer
The new millennium has begun with a shortage of electronic components. A booming telecommunications industry and its demand for components is greater than the current supply can handle. Manufacturers are raising prices and giving long lead times. Many purchasing agents are scrambling for product in order to keep production lines moving. These agents must also satisfy their component requirements for next quarter's production runs.
Reasons for Shortages
Component shortages are caused by several factors. Lack of space and having a low yield on the production line are probably the two most common situations. Another circumstance for component shortages is when there is an upswell in demand for a particular device that is unforeseen by manufacturers, such as fiber optic connectors or analog-to-digital converters. For instance, the telecommunications industry has been flourishing but semiconductor manufacturers have not properly planned for this sudden growth. Essentially, shortages occur because of poor planning.
In addition to poor planning, other conditions contribute to component shortages. Interest rates and fuel costs are on the rise. This forces manufacturers to re-evaluate construction plans for new factories. Also, higher oil costs increase transportation and materials costs, assembly of production equipment costs and so on. Manufacturers may scale down or slow development and construction of new sites. The added costs may not justify the new construction of additional plants. If this happens, the shortages may last longer than expected, until the book-to-bill ratio evens out.
In response to this high demand, manufacturers are double-booking parts. When they have more than they need, they then sell the parts at near market prices to independent distributors, more commonly known as brokers. Most brokers keep an extensive inventory of components. They purchase excess stock from manufacturers in preparation for times like this. For the customers, this means immediate delivery and, quite often, greater savings. This is the same place contract manufacturers have been going to find and recover obsolete and end-of-life components.
Independent Distributors
Independent distributors offer competitive pricing, quick delivery, scheduled ordering and, most importantly, product guarantees. Some larger companies are even able to provide engineering support that is typically found only with franchised distributors, such as kitting, scheduled orders, warehousing and inventory analysis. Brokers have access to many different and reliable avenues for product and purchasing for clients is done from all corners of the globe. Their sources include manufacturers' surplus, distributors and other brokers.
Another service that independent distributors can provide is asset investment recovery. Services include traveling to do a value analysis of obsolete inventory or having a consignment program. This is done by placing the product in inventory in a dedicated area in the warehouse, and then marketing the product to other manufacturers. When the parts are sold, a check is forwarded to the consignor for the goods. Instead of receiving 10 to 20 percent return, the customer can expect to receive 60 to 80 percent of original costs. An agreement can also be reached that the customer can set the resale price.
Another service is kitting. Scheduling or bonding inventory for customers ensures the product is in the warehouse and if the product becomes short, it will be available with no price increase.
Whether it is supplying a product in shortage or designing an asset recovery program, independent distributors are ready to take on any task.
ROLAND BREWER is President, SeaView, 300 West Rd., Portsmouth, NH 03801; (603) 436-3733; Fax: (603) 436-3447; Web site: www.seaviewtech.com.
