The “golden screw” will determine market success

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This year is set to be another strong year for the electronic retail industry, but as we look back on the final months of 2022, speculation is that we are starting to see some weakness in the broader market. . Consumer spending is down, but demand remains extremely strong across all industries and verticals and is expected to remain strong, although specific components remain a big challenge.

The issues Digi-Key Electronics faces globally are the same issues facing businesses in Canada, from declining consumer spending to ongoing COVID issues and new variants. Add to that the extreme weather impacts, high demand, carrier delays and understaffing and it’s enough to make any engineer’s head spin.

Waiting for the golden screw

There is an assumption in our industry that many are waiting for the “golden screw”. This means that from an inventory perspective, customers have purchased hardware, but they are still waiting for those one or two critical components to finish production and start generating revenue.

Source: Dan Francis, Fargo – Digi-Key Electronics

It was thought that as consumer builders gear up for the holidays, since all of this product is due to hit the market between September and October, many of these companies are going to play the game of supply and demand and not not wait for the elusive golden screw. They will eliminate their inventory and may not have as much on the shelves for consumers over the holidays, but they hope the overdrive in price from an inflation perspective will make up the difference.

So we’re seeing some softness on the passive side and an increase in component support, but there’s still those hot items for automotive and some data center design that’s still critically needed, and timelines of delivery are still long there.

Overall at the macro level there is some sweetness but there are still some people feeling the pinch and we’ve really tried to keep a close eye on the data because it’s not an industry or a specific component, it’s still pretty gray.

For many customers who have moved from just-in-time inventory to a just-in-case strategy due to the supply chain issues of the last two years, we see many who were used to holding X amount of inventory, and now they hold 4 to 5 times that amount, causing cash flow issues.

Specifically in Canada, we’ve seen a lot of medical designers and manufacturers being specifically hammered by supply chain disruption, and any small change or modification to a design in this industry requires a very lengthy process, therefore, in many cases, customers are just holding on and waiting. They may be able to find the component they need on the broker market, but they will probably pay twenty times the normal cost of the product, which is not worth it in the long run.

Upcoming challenges

The biggest challenge we face right now as a distributor is the golden screw, or persistent necessary component. If I had a dollar for every call or email I got regarding an expedition, I could be a very rich man! And while we may see some of the market easing, many customers are very optimistic about what they are seeing and their future, because they don’t see demand falling – they don’t see customers backing down. In fact, they’re getting more and more customers to start depositing on future builds just to secure the inventory they think they need and make sure they have a place in line, so when the inventory is produced, it can be delivered.

The world is changing, with all the demand for the Internet of Things (IoT), everyone is going to live differently than in the past. Phones will start talking to refrigerators to tell you what to buy at the store or what to have delivered. Demand isn’t going to go away, we’re going to have a bit of a downturn, but manufacturers are optimistic, and that’s one of the reasons there’s so much investment in their manufacturing plants. And the locations they choose – they’re not just going back to their traditional locations in Asia Pacific, they’re bringing some of that manufacturing back to North America to optimize the supply chain.

Source: Dan Francis, Fargo – Digi-Key Electronics

Manufacturers see that the need will be there in the future and the demand will not go away in the future. We can look to future generations as our gauge – they don’t bank in the same way; they don’t buy the same way – it’s a very different world for them and they’re the ones we’re going to support in the future.

Digital continues to drive

Digital will continue to be a big step forward – those who have the data faster can decide faster, and whoever makes the decision faster will be the winner. You can’t make the call if you don’t have the information, and the fastest way to get it is digital. That’s going to be a big boost as we head into 2023, to make sure our efficiencies are in line and we’re doing as much as we can with automation for speed, accuracy, and quality.

Humans will always be very much needed, but if you can provide that human with a better tool and better data integrity, that human will be able to make a better decision, which ultimately should be a better decision for the company. The engineering people are really pushed into this market, they select components not based on what they need or what the design requires, but when they can get it. And it’s not always the best for the product and the overall cost, so it really pushes the engineering community.

Many customers are trying to do a lot more with a lot less, so the digital connection becomes even more critical, whether through an API or submitting a digital order to reserve inventory. The days of paper purchase orders are coming to an end, as most businesses find it difficult to hire people to enter those purchase orders, so they sit and wait. But if you click submit on the web, these rooms are automatically reserved.

Finding people to get into those POs isn’t the end of the labor shortage – the big quit is an important outcome of the pandemic, and many people have been assessing their lifestyles and making alternative choices, leading to staff shortages everywhere from restaurants to manufacturers to Silicon Valley. The world is coming back online, but everywhere it’s hard to find people to work with.

Source: Digi-Key Electronics

On the enterprise side, customers are looking for more tools to self-serve, quote, and easily check availability — as quickly as possible. They also want to manage their BOM and share it with others. Customers can now do all of this and more with Digi-Key’s myLists tool, which allows them to upload a parts list or BOM for quick analysis. This is an improvement that really improves efficiency for the customer and makes their job easier.

The Continuing Supply Chain Chaos

The perfect storm of supply chain disruptions that we have been experiencing for two and a half years now between COVID, extreme weather, high demand and international conflicts will continue for the rest of this year, especially as many new variants of COVID continue to disrupt every location and facet of life. A lot of people are sitting on a pile of inventory right now waiting for that special piece and just trying to weather the storm until they can start shipping and generating revenue for themselves. Some of the larger manufacturers have restructured their inventory forecasts and we expect others to follow suit. We are also anticipating the holidays, which are always a big driver.

Growth will continue

While some of these trends and predictions aren’t the most encouraging, the silver lining is that customers are seeing exceptional year-over-year growth. Now the question is whether it will sustain through the end of the year and into 2023. Of course, the 40-60% growth they’ve had is just not scalable from one year to year.

The good news is that we are already planning for the next round of growth, because in our industry it’s never a question of if, it’s a question of when. As the market fluctuates, one thing will always remain: we will continue to support our customers and suppliers to ensure we deliver on our promise to empower the world’s ideas and remain a trusted distribution partner.

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Kim Vettleson is Regional Business Development Manager – Canada for Digi-Key Electronics. Digi-Key is a leader and continuing innovator in the distribution of high-service electronic components and automation products worldwide.


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