"You don't get real value for free"
February 09, 2023
It is precisely the strength of distribution that has worked against it in recent years.
Source: Computer & Automation – January 2023; The interview was by Andrea Gillhuber.
Material and component bottlenecks and supply chain problems keep companies on their toes. How do you see the current situation?
Andreas Falke: I wonder whether it is right to write about bottlenecks when, on the other hand, we have such massive growth to report in sales and in unit sales. Based on the already very strong Q3/2022, sales of distributors reported to the FBDi rose by a whopping 44 percent to 1.36 billion euros, significantly exceeding the record quarter Q1/2022. With each quarter of 2022 significantly higher than the same quarter last year, we are amazed at the continued high order intake.
In Asia, we see a slump in the consumer and computer sectors, which usually then hits our markets, but to date the figures show a different picture to the experience of the industry's previous rollercoaster rides.
Rarely have specialists been so divided in their forecasts, which range from double-digit contraction to double-digit growth. I myself expect consolidation in the single digits – but even I am uncertain about the "big picture".
Do you expect the situation to ease in terms of component and material availability?
Andreas Falke: I do not expect any real easing, because even with falling demand and increasing production capacity on the manufacturer side, we see incalculable influencing factors exerting pressure on component availability.
Resource problems will put increasing pressure on supply chains. First and foremost, we will experience friction from additional staffing issues on all sides, ranging from the developer to the freight forwarder.
Other incalculable influencing factors will impact availability and further drive prices – and here I'm not just talking about raw materials, but also sanctions and environmental events.
What steps do companies need to take to secure their supply chain? Do completely new paths have to be taken here?
Andreas Falke: Yes, the question is which one. If I had the one hundred percent answer ...
One thing is very clear – and not just in politics: we have to reduce dependencies.
In the past "golden years," everything was economized and streamlined in order to achieve price leadership or optimize earnings through an optimal cost structure. This thought model now has to face a reality that is not as "Easy to Develop" or "Easy to Produce" as it is "Easy to Use". Security is gaining in importance: "No Risk, No Fun" is now the slogan of a fortune hunter who probably has his back to the wall.
Quite independently of the crisis mode in which we are currently learning to live, the turn of the times is also a reorientation: Those who do not keep up with the times will now disappear from the market more quickly.
All of a sudden, it is transparent again that even a supply chain can only be as strong as its weakest link. It is necessary to think outside the box and to change working paradigms. Cooperation and communication become more important!
"Reduce to Max", i.e. core competence as a principle with the aim of buying in cheaper partial solutions, is coming to an end – not because of the supply chain protection law, but because of the necessity of having or developing high-performance partners at eye level.
Why should companies adapt their obsolescence management and what should they consider?
Andreas Falke: In line with what has already been said, you have to start at the very beginning of development. The availability of technologies and "second source" beats price and "over-the-top performance".
We have spent too long in the comfort of knowing that everything can be done; now we realize that it is not that simple, or remains that way, and perhaps never really was. Even the specifications should prescribe availability, second source and, if necessary, "double engineering" in critical areas, in order to be able to deal with imponderables as flexibly as possible.
And – to put it bluntly – the whole thing is not because of the problems that we foresee, but precisely because of those that we cannot think of today.
How can distributors help with this?
Andreas Falke: In this complex market, distribution is the key to designing a situational supply chain that is optimized according to the individual requirements of the market participants.
The secure access to manufacturers, which only distributors with a franchise have, makes logistics planning and information exchange on new products or specs up to availability or life cycle possible in the first place. Only here can customers get the value they will increasingly need in the future.
But this requires the cooperation, communication, proximity, understanding and trust already mentioned above. Anyone who only looks for the best price and then buys gray imports will eventually understand this very painfully: You don't get real value for free. It's not for nothing that the slogan "I'm not stupid!" is no longer used by advertising – because the answer is increasingly "Yes, you are!".
What challenges does distribution face?
Andreas Falke: It is precisely the strength of distribution that has worked against distribution in recent years. The certainty of supplying only original goods directly from the manufacturer has led to imports from the gray market finding their market among customers via brokers. They were surprised that their distribution partner could not deliver.
Often, spot business damaged the image that had been built up over years with complex logistics concepts – which could usually be served much better.
We have to counteract this negative perception. But it also means that we have to sell our added value. At present, too much value added service is still included in the component price. This is not the right way, because "What costs nothing is worth nothing!"
One initiative in this regard is a round table that FBDi is setting up as a web conference for EMS and FBDi members, starting at the end of March, where key-notes and discussions should bring a better mutual understanding and clearer view of the market.
The big challenge, however, will most definitely be further political, economic and environmental developments. In all these areas, electronics plays a major role as a cause and/or solution contributor – I am not worried about the work, but about the necessary personnel that will be lacking in all areas.
What role will technologies such as artificial intelligence play in the procurement of components?
Andreas Falke: AI is already being used in many areas of production and logistics planning, often still as a tender seedling, but with its roots growing into more and more areas – accelerated, no doubt, by bottlenecks in the availability of employees.
But possibilities and quality depend on structure and data – here is the important step toward digitization and preparation for AI: What sensors do I have to record and then process states?
The role of AI will be huge, the question of when is the more relevant one. Here I see big differences, not only in the innovative power of distributors, but also in the willingness of customers and suppliers to capture and share data.
More and more companies are also offering pure software products. How or in what form do distributors include this segment in their offering?
Andreas Falke: I checked back on this question in the Bi-Weekly – the biweekly web conference of FBDI member owners and executives – because it seemed very distant from distribution from my perspective.
In fact, distribution is confronted with several opposing aspects here, which actually only allow very hardware-related software as products to be distributed via Component Distribution.
Perception and different business models up to adhesion and contract topics do not permit apart from the qualification of the coworkers here a stronger commitment of the distribution. Larger players acquired and acquire then rather specialists, in order to serve this range in a completely detached division. In addition, regulations from the area of EU cybersecurity requirements will do the rest to make market access more difficult for component distribution.
But as already mentioned – there is more than enough to do for distribution! Dancing at every wedding may be fun. But to marry every bride is forbidden by common sense – and by law.