> ERA Quick Connections — September 2024, Vol. 1
September 2024, Volume 1
MANUFACTURING DATA REPORTS
Manufacturing data reports from the Institute for Supply Management (ISM) are released at the beginning of every month and can be accessed at ISM. The latest report says economic activity in the manufacturing sector contracted in August for the fifth consecutive month and the 21st time in the last 22 months.
The electrical equipment, appliances & components category reported contraction in August, while the computer & electronic products category reported growth. Read the full report.
INDUSTRY NEWS
> A Texas federal judge blocked an FTC rule seeking to ban non-compete agreements nationwide. What’s next for employers? Read more.
> The U.S. will partner with India and invest in India’s semiconductor industry as part of a U.S. State Department-led initiative to redirect the global technology supply chain in its favor. Read more.
> Mastering these high-income skills can increase your business’s earning potential and growth. Read more.
INDUSTRY TRENDS SURVEY
The September ERA Electronics Components Industry Trends survey is now in your inbox! Check your inbox and fill out the survey today.
View Monthly Survey Results (available to ERA members only)
Please note: ERA sends this survey monthly to one contact from each ERA member firm via email. Please be on the lookout for this survey in your email inbox. Help us make this survey a valuable resource for you and the rest of our members by taking 5 minutes to complete this each month. The results are visible only to ERA members and gives us a great cross-section of what our members see on the horizon for the near and long term.
VIEW SURVEY RESULTS
ERA NEWS
> ERA STEP 2024 starts in two weeks! Are you ready to take a “step” up in your electronic components sales career? View the digital brochure, the sessions, the speakers, the schedule and more! Register today.
> Registration is now open for ERA’s annual Chapter Officers Leadership Training (COLT) program, taking place virtually this fall from Nov. 6 – 8! COLT offers interactive instruction to current or aspiring leaders, focused on effective chapter management and planning tactics, and is an excellent way to connect with other chapter officers and gain ideas for recruitment, event hosting and educational sessions. There’s no registration fee! Know of a promising candidate for a leadership role in your ERA Chapter? If so, please forward this invitation onto them and encourage them to attend! View more information about COLT and register today.
> ERA is now accepting reservations for ad space in the Fall 2024 issue of The Representor! ERA offers discounted rates for classified ads for ERA members and special rates for chapters as well! View rates and sizes. Reserve an ad today. Ad reservations are due by Friday, September 20. Questions about advertising? Contact Clare Kluck, ERA Communications Director, at ckluck@era.org.
ELECTRONICA
Automation is at the heart of modern industries and is driving forward the digital transformation in almost all sectors. electronica 2024, taking place in Munich from November 12-15, will present the latest developments in two of its key areas, sensor technology and connectivity. Leading companies and experts will showcase the key trends and technologies paving the way to the all-electric society, hence promoting energy efficiency and sustainability.
Programmable logic controllers play a decisive role in automating production processes. They enable companies to respond flexibly to changes in demand or technology, while at the same time ensuring the quality of the products. Thanks to their robustness, fast response times and high IT security, those digital systems make a significant contribution to efficiency and safety in industrial applications. For this global industry sector, the analysts from Mordor Intelligence project an increase from $11.75 billion in 2023 to $14.46 billion by 2028. Industry forecasts also unanimously predict an annual growth rate of over 10 percent by 2032. Particularly strong growth is expected in the Asia-Pacific region, led by China and India, where extensive investment in factory automation is taking place. Innovative sensor and connectivity solutions, like those presented at electronica, are essential for driving forward the digital transformation of industrial processes.
Sensors are the backbone of modern automation solutions. They record and process data that is essential for controlling and monitoring machines and systems. Real-time monitoring by sensors leads to optimized operations and higher productivity. Modern connectivity solutions are crucial for seamlessly integrating automation systems. In addition to a wide range of wireless standards and protocols, Industrial Ethernet is a key technology that enables real-time communication and end-to-end networking right down to field level. Single pair ethernet (SPE) offers compact solutions that transmit energy as well as data, thereby increasing efficiency in industrial applications.
Automation plays a central role in the vision of an all-electric society. By integrating intelligent systems and energy-efficient processes, automation helps optimize energy consumption and promote sustainable technologies. Under this year’s motto, “Leading the way to the All-Electric Society,” electronica 2024 will showcase corresponding solutions such as intelligent energy management systems that support the transition to a sustainable future.
In the supporting program, the Embedded Platforms Forum on November 12 and 13, and the Industrial Control Forum on November 14 (Hall C5), in particular, will be an indispensable meeting place for all players in the industry, from developers and product managers to device and system manufacturers. Here they can find out about the latest developments in the field of automation, connectivity and sensor technology, share expertise and expand their network.
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— Kate Van Hise has joined ERA as Events Manager to replace Erin Collins who recently left ERA. Kate resides in Rockford, Ill., and is a graduate of Illinois State University. Kate joins us with superb experience in managing different types of events and conferences, facilitating sales training and listening skills courses. Kate will be managing the 2025 ERA Conference in February 2025.
— Natalie Zullo has joined ERA as Operations Specialist, a new position for ERA. Natalie is a graduate of East Carolina University and resides in Greenville, N.C. She comes to ERA from the healthcare industry with a specialty in family and community services and child development. Natalie will be involved in many different areas of ERA, supporting the team with her strong operational and organization skills.
— Ama Derringer, Membership Services Coordinator, will be taking on the role of ERA Chapter support and supporting the efforts of the various ERA chapters. She will be partnering with Cam English to facilitate COLT training on October 6-8. She will also represent ERA at electronica in Munich, Germany on November 11-14.
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> Our prices come with parts
EXECUTIVE COMMENTARY
Our prices come with parts
Walter Tobin, ERA CEO
by Walter E. Tobin, ERA CEO
At EDS, there were a lot of questions around the state of the union of our industry. When are things going to turn around? When is business going to get better? When is the excess inventory in the channel going to get burned off so we can get back to booking new orders? When will things get back to “normal’?
Defining words like “things,” “getting better,” “excess inventory” and “normal” depends on the lens that you are looking through: a manufacturer, a rep and a distributor may define these words very differently. What about our customer? How would they define them? I think very differently.
And what about Wall Street and the financial investment community? What do they think about the times we are in today? Do they even understand the challenges of our industry? Do they even care about anything other than the stock price of the publicly traded companies? Do they look at anything other than return on working capital, gross profit margins, net gross profit margins, total days of inventory, inventory levels and turns and days sales outstanding and days of collections? Inventory is a dirty word on Wall Street — yet, somewhere along any supply chain there has to be inventory. But everyone wants someone else to carry the inventory on their P&L and “not on mine!”
Our industry has grown up over the years by relying on manufacturers to continue to develop and manufacture highly complex electronic components and make them available to a broad range of customers who have varied levels of sophistication in their ability to forecast demand and then manage their supply chain. On what do they base their demand forecasts? Certainly, the inputs of their manufacturing teams who have to plan out their build cycles based on what? The forecasts that they are receiving from their own customers and sales force. How accurate are these forecasts? How often are they changed? How do they manage the forecasts that come in from their manufacturing teams, who need product inside of a manufacturer’s lead time?
Their first call may be to their manufacturer partners: “Can you manage this unforecasted demand for us? We need the product in four weeks versus the manufacturing lead time of 12 weeks!” This “unforecasted demand inside of manufacturer’s lead time” is placed at the feet of the distribution community. After all, isn’t that the role of distribution?
The typical distributor services anywhere from 20,000-40,000 customers, all with supply chains that get set at the beginning of a month or quarter, only to have them blown up by these unforecasted demands right after they are transmitted to their suppliers. Can you imagine the challenge of the distributor who is aggregating the forecasts of thousands of customers whose forecasts are +/-25 percent wrong? How does the distributor accurately forecast its own demand on their manufacturers and even come close to being correct?
When the pandemic hit, many of us panicked — we rushed out to get product and we double- and triple-ordered parts. You could not get masks or ventilators; remember those days? However, throughout the first 18 months of the pandemic, with product on allocation and in a shortage mode, when you asked any company, “How’s business?” the answer usually was, “I am having a record year.” How could this have been true? Someone was ordering, shipping and billing something to someone.
Many of us were experiencing book-to-bill ratios of over 10:1. Then, as things eased up a bit, we were waiting for “the golden screw” — that final part on the bill of materials (BOM) that we were waiting for to release the BOM to the manufacturing floor. Once the golden screw came in, we rushed to cancel the overages that we bought on the other devices and begged our suppliers (distribution or the manufacturer direct) to let us both cancel or backlog and/or return the overages that we bought.
We were then faced with both the manufacturers and distributors enforcing NCNR orders that we willingly agreed to a year prior simply to get parts: after all, no one had ever enforced these NCNR orders! Well guess what? They did.
Now here we are in 2024, finally almost recovered from the excess inventory up-anddown of the supply chain. We went from a sellers’ market to a buyers’ market in 18 months. What do you think the next cycle will be — a sellers’ market again? The only thing we do not know is when.
So, here we are, trying to manage a very complicated supply chain that consists of sophisticated state-of-the-art electronic components, selling to manufacturers who will incorporate these parts into their own products. They have outsourced manufacturing to the world of EMS which usually relies on the distributors to their supply chain – often due to their supply chain expertise and/or discounted/extended payment terms.
In most cases, the demand from the OEM customer, either direct or via EMS, is inaccurate. The demand forecast is based on manufacturers’ lead times which are often inaccurate or not in line with lead times.
So, in many cases, with all of our supply chain automation, adoption of APIs, etc., we are simply transmitting bad information faster! Yet, Wall Street thinks we are managing commodity items, parts that are easy to set lead times for and easy to forecast demand. Not so! So, what is a customer to do? How can any OEM or EMS company reward great performance and punish bad performance? Simple! Change the archaic ways of measuring the supply chain teams on purchase price variance (PPV) and go back to looking at the total cost of ownership (TCOO) that was introduced by economist W. Edwards Deming years ago. What good is a low price when the quality is not there? When the product is not there?
Any supply chain executive will usually lose their job when they do one of two things: 1) Buy too much – They buy extra quantities to get a lower price to satisfy their PPV goal and they end up with excess inventory that may take the company another 12-18 months to burn off. Yet, the buyer hits his/her PPV goal and gets additional incentives. The CFO has the buyer terminated. 2) Buy too little – The buyer may reward an order to a supplier that gives them a low price but then cannot meet the expected lead time to the manufacturing floor — the manufacturing line stops. The buyer may be asked, “Where are the parts?” They may respond that they bought from the lowest price solution to hit their PPV goal. The line gets shut down; the buyer is terminated.
Buyers generally do not get terminated for paying a few pennies more. After all, the cost of an individual part represents .000001 percent of the total COGS in any BOM and the line hums and there is no excess inventory on the company’s P&L. Suppliers need to be measured on their total cost of ownership. Do customers even look at this today? When was the last time you told your customer about your on-time delivery and quality ratings? Have them ask the competition what their ratings are. Start this today at your own customer base.
It is up to us to change the game here — to take away the price discussion and take it back to TCOO.
Any good supplier should be able to say, “Our prices come with parts.” Nothing else matters.
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