Leading Edge Technology, Soft Demand and Distribution Strategy are Biggest Influencers
04/12/2016 //
As we close the first quarter of 2016, TTI’s Lew LaFornara, VP Supplier Marketing and Product Management, takes a look at trends for the connectors industry.
Market conditions are essentially what the electronics sourcing industry expected for this year. Relatively weak end-market demand and only a mildly positive economic outlook have created a basically flat market for connectors. The ongoing weakening demand that started in Q2 2015 and continued throughout the balance of last year has resulted in the leaning of the supply chains of both component manufacturers and OEMs. Most supply chain strategies are currently focused on cost reduction rather than dealing with excess inventory or capacity. This creates a pricing dichotomy in the market. Many component buyers are seeking price reductions, while at the same time many component manufacturers are moderately raising prices in response to shrinking margins due to rising operational costs and long-term price concessions.
Distributors play an increasingly important role in the supply chain, providing expertise and responsiveness to ever-changing demands. As a distributor, TTI helps component manufacturers optimize production based on a comprehensive understanding of customers’ current and future needs.
While lead times are currently stable, most buyers are focused on the short- to mid-term outlook and purchasing connector quantities accordingly. Purchasing less than minimum order quantities (MOQs) is certainly more of a trend today than it was a few years ago. While market conditions are stable, that’s an acceptable strategy. However, any fluctuations in the market could spell disaster for buyers that find themselves needing connectors in less than lead time. Adding to this risk is the fact that manufacturers are also tightening availability and capacity for component parts in order to manage their costs. That’s why the distributor role is increasingly important in the overall supply chain strategy. Since distributors have insight into both sides of the business, they can keep their eyes on the longer-term supply chain outlook, helping OEMs anticipate changes and minimize risk. TTI’s significant “available to sell” inventory is the first line of defense for its customers’ demand. In addition, supply chain management tools such as TTI's AIM programs and Lot Size Analysis application aid in forecasting component purchases, tracking production numbers, managing obsolescence and providing lead time management to smooth component delivery and ensure there is never an issue with a production line going down due to a lack of available connectors.
Increase in Demand for Leading Technologies
The exception to this lean supply chain trend is the development of enhanced products. Core product line extensions such as technologies that feature a smaller footprint, are lighter weight, provide optimized sealing capability, withstand harsher environments or handle more power have considerable market growth opportunity. With demand steadily increasing for these enhanced products, suppliers are likely to continue expanding their capacity this year. Ongoing connector innovations are also focused on increased speed and signal integrity and these requirements are expanding well beyond the traditional communications applications. A key factor driving this growth is the ever-increasing convergence and integration of communications and entertainment connectors into industrial and automotive applications.
Telecom, Aviation and Transportation Lead Vertical Markets
From a vertical standpoint, most industries are in a deflated – or at least soft – state. The state of the downhole industry has impacted the alternative energy markets, as well as many other peripheral market segments. Telecom, communications, and industrial markets also remain soft. The bright sides of the market include commercial aviation and transportation. The increased electronics content in the light vehicle sector make it a strong market for component parts.
Managing Total Cost of Fulfillment
While managing the ongoing pricing dynamics will continue to be a priority, a focus on value-added services and reducing the “total cost of fulfillment” are now critical requirements for distributors. Component buyers are seeking partners who can help them keep their supply chain lean while providing expertise and responsiveness to changing demands. As the specialist in IP&E and discrete semiconductor products, TTI serves a vital role in navigating changes in the market and helping buyers reduce risk.
A version of this article appeared in the April issue of Electronics Sourcing North America.
Lew LaFornara
Lew LaFornara, Vice President Supplier Marketing and Product Management, has responsibility for connector and electromechanical products at TTI. Lew is an industry veteran with more than 35 years in the connector industry.