2022 set to be '2021 revisited' for distribution

“Getting inventory will be the biggest challenge,” asserts Mark Burr-Lonnon, Senior Vice President, EMEA, Asia and Global Services at Mouser Electronics. “Going into 2021 we had $850 million of inventory and that is now down to $770 million, it is amazing we have kept it so high. Now we have $1.6 billion of inventory on order so we know this market is going on through next year, certainly in Q1 and Q2.”

“It is difficult to know what to budget, we will probably look at 15-ish % growth. We think it has to continue to grow next year. When we look at our growth from $2.2 billion to $3.2 billion this year and our bookings are over $4 billion, you have to believe that even if some of those get cancelled that is a pretty good order book.”

John Macmichael, Managing Director of Solid State Supplies

“The supply chain issues will continue, there is no let up there,” says John Macmichael, Managing Director of Solid State Supplies. “The price hikes we have seen this year should slow down, they were extreme in the past quarter. I don’t see the same price increases next year as suppliers are now seeing where they need to be profitable.”

“Solid State Supplies is ahead of the aggressive sales targets we set ourselves. Despite shortages we are sourcing products to get ahead of our target. Our financial year ends in March and we have already booked 50 % of next year’s business.”

“Suppliers are working hard to meet demand,” adds Macmichael. “Automotive is the focus so distributors are lower down the food chain. Fortunately, we have very close supplier relationships so we have been able to get the components to keep customers’ product lines moving.” He believes it will be 2023 before market conditions return to some sort of normality.

“We had a strong end to 2021, and while some think there may be some easing in the market by Q2, we see no sign of business slacking off,” notes Rob Rospedzihowski (pictured above), President EMEA Sales at Farnell.

The demand for technology continues apace.  We are seeing new demands from new customers as electronics extends its reach.”

Nigel Watts, President of WPG EMEA (pictured above) concurs.

He says that past ‘cycles’ have been driven by single killer apps such as the PC in the early 1980’s, mobile phone, internet infrastructure, tablets and smartphones. When these markets became saturated the supply/demand situation changed dramatically and the market slumped.

“Today’s cycle is different,” argues Watts. “We do not have one killer app acting as a catalyst but instead we have multiple market growth events occurring simultaneously, many interdependent upon each other and all contributing to a rapid increase in TAM growth. Unlike previous cycles I do not foresee these multiple market growth events saturating or slumping at the same time which lead me to believe that any slowdown will not result in a slump and that the market will continue to grow overall.

All the pointers indicate another tough year for distributors moving between difficult conversations on component availability and price rises, and in pretty much continuous conversations with suppliers about product availability and delivery.

“An allocation market for a distributor is not an enjoyable one, apart from the data at the end of the year,” observes Burr-Lonnon. “It’s hard work, a lot of pain, dealing at the front end with a lot of customers who, quite rightly are unhappy. We are the guys in the middle and its real tough in that respect.”

Before the violins start playing in the background, distributors have all done very nicely thank you. Avnet and Arrow reported record quarterly sales during the year and Mouser’s revenues jumped from $2bn to over $3bn. Farnell achieved a record sales quarter with revenues totalling $455 million.

One major headache that could stall progress is staffing.

“It is a challenge in our distribution centres, explains Rob Rospedzihowski. “Availability of people continues to be a problem. It’s finding people who are Covid free and can come into work. Workers from eastern Europe returned home post Brexit and haven’t returned.”

He gives a tip of the hat to the Farnell team. “They did a great job in 2021. We continued to offer 24/7 support to customers from our service centres in Leeds and Krakow. We kept our service levels at 98%.”

Mouser’s Mark Burr-Lonnon agrees. “Getting staff anywhere in the world is just about impossible whether that’s in the UK, north America or Shanghai. As we have continued to grow having the right number of people to do things is putting pressure on the people we have got. Our team has done a great job so I am really proud of that.”

Amazon opening a warehouse six doors along from Solid State Supplies and offering £1,000 signing on fees wasn’t great news for John Macmichael. “It has made it difficult to hire. We are OK on technical support, the problems are more around staff for internal sales, procurement and the warehouse.”

The pandemic’s shift to people working from home has been beneficial. It means Macmichael has been able to widen the geographical net. “We are hiring from further afield, as long as they are close to one of our offices. We just have to ensure they are fully trained, as they aren’t in the office picking up knowledge from conversations or able to ask support from a nearby colleague.”

Design activity shows no signs of slowing this year. “It’s good,” declares Mark Burr-Lonnon. “There is lots of activity around the regions. We are up 80% in Europe. There are a lot more designs based around new parts. In terms of how many engineers it is growing that is a difficult number to get to. A design engineer can buy from the office. If they then work from home and buy from us that looks like a new customer to us.”

“Our design activity pipeline is plus 30%”, reveals Solid State Supplies’ Macmichael. “Activity in oil and gas is coming back strongly and that is important for us, but design activity is ahead across the board, it’s not just one market.”

Rob Rospedzihowski has identified a change in order patterns from design engineers. “In the past customers were placing orders by 6pm for delivery next day,” he explains. “Now we see engineers at home working and ordering products throughout the night.”

And he adds that customers are moving from just in time to just in case. “We have a stronger order book as customers are scheduling better.  We can offer a range of options and engineers designing new products are looking at those options and choosing product based not just on current availability but also on availability of product when their development goes into full production.”

“We are not having to divide up reels or tubes of products either, customers are ordering a full reel or tube to ensure they have some to spare.”

He also notes that in Europe over 80% of transactions are via ecommerce – “in some countries it is as high as 90%,” he adds.