Stay Safe in a Lean Market

Stay Safe in a Lean Market
Passive product supply chains are increasingly lean and it is expected they will remain tight for the remainder of 2016. Suppliers are right-sizing their businesses by streamlining capacity, reducing costs and funneling remaining capital back into their businesses. While the cost of many raw materials has gone down, the overall cost of doing business has risen for many suppliers, a trend most attribute to rising workforce costs, especially in China.

Customers are faced with similar challenges and purchasers are increasingly applying pricing pressure on distributors and suppliers. Both component manufacturers and OEMs are closely managing inventories and stocking only the quantities they need to cover short- to mid-term requirements. This lean supply chain environment, coupled with tight pricing, has created a market that is fairly balanced with stable lead times; however that doesn’t mean there isn’t risk in the market.

TTI’s book pricing for capacitors and resistors has not changed much for 2016 and pricing is likely to continue to be stable this year. While pricing is always a priority, additional agility, a focus on value-added services and reducing the ‘total cost of fulfillment’ are increasingly critical requirements for distributors. Buyers are seeking partners that can help them keep their supply chain lean while providing expertise and responsiveness to changing demands.

Supply chain risk
Although availability and lead time remain stable, the balance is delicate, which means there is inherent risk for the entire supply chain, especially buyers. A spike in demand could cause ripple effects throughout the industry because many component manufacturers are operating on minimum process timelines. They are able to meet requirements, but a moderate rise in demand could cause an interruption in the supply chain and increase lead times if processes can’t be accelerated.

The exception to this lean supply chain trend is with core product line extensions through enhanced products. These products have considerable growth opportunity. Capacitors designed for higher temperature, lower equivalent series resistance and higher voltage continue to be in demand and suppliers are increasing capacity. The enhanced resistor market follows the same trend; components that deliver tighter tolerance and better performance are continually being developed. With demand steadily increasing for these enhanced products, suppliers are likely to continue expanding their capacity this year.

Plan ahead
Since the core passive market doesn’t have much price point variance, these products are more susceptible to market changes. Buyers should work with manufacturers and distributors to develop forward-looking supply chain management strategies. TTI, for example, enables buyers to forecast purchases, lead times and obsolescence through its Advanced Inventory Management platform. It also helps component manufacturers optimize productions based on customers’ future needs. As such, TTI claims a vital role in navigating market changes and helping buyers reduce risk.

Reprinted with permission from Electronics Sourcing North America.