Electronics OEMs and the Burden of Market Growth
The electronic component market and the industries it supports have a symbiotic relationship; the growth and innovations on display from one side intrinsically affect the growth of the other, and vice versa, just as the downturn of one negatively impacts the other. When the electronic components market struggled to source raw materials at the turn of the century, many unprepared OEMs struggled to maintain their current production lines. Conversely, as current industries are seeing consumer demand for electronics escalating to levels surpassing even the most bullish expectations, it pushes the electronic components market to maximize their resources and maximize revenue shares.
Like the chicken or the egg debate, trying to unravel which comes first is largely irrelevant; what matters is that it’s all but impossible to discuss one without the other – and in 2019, it certainly seems that analysts are optimistic about the outlook of both. By 2022, the active electronic component market alone is expected to be valued at approximately $332.20 billion, posting an average of 10.57 percent annual growth between 2016 and 2022. The global interconnects and passive component market, by contrast, is projected to grow to “only” $211 billion by 2022 at approximately 6 percent annual growth. This reflects confidence in the market’s ability to ramp up production with the help of automated manufacturing process and the rise of new, competitive players in developing markets such as India and the APAC region.
But such numbers are misleading; success for the market as a whole does not mean such success is equally distributed. Just as electronic OEMs face constraints and setbacks during times of shortage, industry growth presents a variety of new challenges. As industries such as automotive and IoT continue to push component manufactures to provide inventory to areas where the most growth potential lies, OEMs who operate in niche, less-profitable market sectors are inevitably left struggling. To acquire commoditized generic components, these manufacturers must compete with primary market drivers – which inevitably means dealing with lengthening lead times that can stretch well beyond 52 weeks.
For the OEMs who rely on specialty components designed for a very specific market, the situation is even bleaker. With stagnant competition and a significant reduction of inventory quantities, these manufacturers are often forced toward third-party vendors and legacy product sellers who may not have transparency processes up to their customers’ typical standards.
This reality is important to consider because it highlights how some inventory management strategies, such as making a commitment to purchasing enough inventory to support a product at the inception of its production cycle, can have merit regardless of the state of the market. During a component shortage, for example, making such a commitment upfront puts the OEM at the “front of the line” to obtain the inventory before lead times become unmanageable. If electronic component production appears to be outpacing market demand, however, as it did following the 2008 market crash, OEMs still benefit from this strategy because it allows them to take advantage of the low prices such a surplus brings.
No matter the context, an inventory management strategy that prioritizes inventory commitment has significant merit – and a Partstat Last Time Buy Solution can make such a strategy a reality by preserving all of the working capital typically needed for such a transaction. For more details on how a Last Time Buy Solution can be incorporated into your supply chain today, click here.