In the distribution industry, change is the only constant. Integration with suppliers and customers is the best way to predict and prepare for it.
By Wally York, vice president of marketing
Pioneer-Standard
Electronics, Inc. Industrial Electronics Division
Electronic Component News magazine
Distribution is a notoriously cyclical industry. When the economy turns down, distributors are disproportionately affected as customers immediately stop ordering new components and cancel existing orders. Predictably, inventories build up and distributors find themselves carrying a glut of components. Distributors must discover the reasons these cycles occur, so the industry can identify strategies for anticipating, preparing for, and mitigating both downturns and upswings.
Most distributors are today coping with a very traditional glut. It’s not a new situation, and no one is particularly surprised. With apologies to the first President Bush, there’s no voodoo at work: we all recognized that the Internet economy is a roller coaster. Distributors, like many other industries, rode it up when times were good, and we’re riding it down on the other side of the bubble. If anyone in the industry is expressing legitimate surprise, it’s surprise at the relative swiftness with which this bubble popped and its commensurate glut arrived. But, if distributors are, in some sense, in the possession of the tools of their own destruction, they also possess the tools and capabilities to resolve some of the most challenging issues related to the cyclical economy.
Too many businesses blame a single cause for their inventory glut. The truth is far more complex, and far more difficult to admit for advocates of the “New Economy.” The New Economy is real – computers and communications have, indeed, enhanced the productivity of employees around the world. But the New Economy won’t make business cycles disappear – it will make them faster and more ferocious, for distributors and everyone else.
The Internet economy is based on the concept that more people have more access to more information and more avenues to act on what they learn. Conveniently enough, distributors consistently tell their customers and suppliers that is the recipe for effective supply chain management (SCM), their best strategy for dealing with business cycles.
The current downturn proves the truth of the New Economy: every economic variable is now much more liquid than it ever was before. When things start looking bad, it’s easy to shift investments, transfer production, shut down operations, and lay off employees. Those decisions are even easier because it’s just as simple to do the opposite when things start looking up – money flows around the globe in the blink of an eye, production ramps up at increasingly flexible manufacturers, people move from one place to another or telecommute with ease. The cycles remain – they just come faster and faster.
Distributors are not doomed to this fate if they will only practice what they preach: integration and collaboration.
The same eBusiness technologies that created the New Economy enable tighter integration and enhanced collaboration among distributors and their suppliers and customers. At Pioneer-Standard, we recognize and embrace the traditional strategy of SCM. At the same time, we’ve extended the practices of SCM to the other half of the equation – demand chain management. Demand chain management complements SCM by delivering a fully integrated view of component supply from the earliest stage of the product design cycle all the way through production. Both demand and supply chain management leverage New Economy technologies to forge closer and increasingly automated ties among electronics distributors, manufacturers, and suppliers.
Effective supply and demand chain management eliminates inefficiencies by fostering earlier, more consistent integration and collaboration from the beginning to the end of design, engineering, and production processes. Deploying the most advanced eBusiness systems, engineers, purchasing managers, distributors, manufacturers, and suppliers can leverage highly automated demand and supply chain management tools to improve designs, reduce costs, and accelerate time to market.
The integration enabled by demand and supply chain
management technologies presents an important benefit to distributors. Collaboration among all parties in the
manufacturing process generates better information for everyone – including
distributors. Better information enables
better decisions and better forecasting.
In other words, the natural
by-product of the most efficient possible integration and collaboration along
the chain of production is precisely the information that distributors need to
predict and prepare for the natural cycles of business that drive inventory
gluts and constrictions.
Distributors are uniquely qualified to deliver the
benefits of demand and supply chain management – and to derive the information
they need to adapt to economic changes.
By definition, distributors are the pivotal link between buyer and
seller, and have built a core competency based on using information to identify
and eliminate inefficiencies throughout the production process.
Distributors have invested considerable resources to convince the industry we aren’t just static middlemen. An inventory glut is precisely the wrong time to turn back the clock by throwing up our hands or assigning blame. Distributors can’t afford to merely react. As we changed the industry by adding value to distribution services, we must proactively apply the same tools and the same technologies to more tightly integrate the demand and supply chains, and better anticipate future demand.
The more value distributors add to both ends of the production chain, the more manufacturers and suppliers can optimize their productivity and efficiency, shorten time-to-market, and enhance their bottom lines. At the same time distributors are adding value, we’re also able to distinguish and analyze the information necessary to make better decisions and smooth the gluts as well as the constrictions in our inventories.