A Distributors Take on the Industry in 2022 with Mouser

A Distributors Take on the Industry in 2022 with Mouser

2021 was a tough year for the manufacturers of goods that use electronic components. Despite booming demand for their products, those manufacturers struggled to get enough product on shelves to satisfy demand, mainly due to a shortage of semiconductors. There are different reasons for the shortage – the COVID-19 pandemic meant that fabs were not able to operate at full capacity for much of the duration, and the pandemic also led to many workers being asked to work from home, which increased demand for consumer goods around the world. That increase in demand was compounded by demand from automotive manufacturers who wanted to incorporate new features that were heavily dependent on electronics components, such as ADAS, in a wider variety of cars. Together, these events created a perfect storm, where demand for semiconductors was up by over 26% over previous years, while the manufacturing capacity of the semiconductor industry was down. Semiconductor producers are currently trying to increase capacity to keep up with demand, but building new fabs takes time, and that process has been hindered by events, such as the fire at lithography provider ASML’s Berlin plant.

So how will the future look – will this year be more of the same, worse or better? I had the chance to talk to Mark Burr-Lonnon, Senior VP of Global Service & EMEA and APAC Business at Mouser to get his thoughts on the industry at the moment. Mouser stocks products from the smallest quantities to production levels and the company is the authorised distributor for over 1,100 semiconductor and electronic component manufacturers, giving it a good all round view of the industry.

For customers who wish to buy components, Burr-Lonnon’s advice is to put orders in as early as possible as he doesn’t think the market will change that much, at least until the end of the year, so it may be a tough one again for customers. Mouser still has many parts in stock - throughout the shortage its inventory has had between $750 million and $850 million worth of stock at any time and currently its inventory is sitting at a value of $770 million. It has also placed orders with suppliers worth an additional $1.7 billion that will arrive in the coming weeks and months. Mouser only has one distribution centre, and all stock is stored and dispatched from there. The company is working closely with suppliers to produce queues to get parts when they become available, and the earlier orders are placed, the further up the queue customers will find themselves. Inventory can come in any time, so it is best to be prepared.

To demonstrate how unpredictable the industry is at the moment, Burr-Lonnon quoted an example of an incident that had happened the day before we talked, “We took an order from a customer yesterday that needed to be there in six to eight weeks. The components were meant to arrive in four weeks from TI. After the events of the last year, I had my doubts that the inventory would actually be available in that timescale, but called TI for an update before signing off the order. TI confirmed that it had the inventory and it would be there by the requested date. So there are pockets of inventory that have been freed up or the manufacturer has more stock than it thinks and it will release the inventory through the distribution channel at any time. It is well worth getting orders in as quickly as possible to be in a position to take advantage of these sudden changes in availability.”

There also has been a lot of talk in the industry on whether the backlog has been exaggerated by companies putting in orders to more than one distributor and cancelling outstanding orders when the first order is fulfilled. Burr-Lonnon is confident that that scenario has been exaggerated. He says that there always have been companies who like to place multiple orders with different distributors and many more have attempted it during the pandemic, but as there are a limited number of distributors accepting these orders, the component manufacturers are doing a good job of identifying and cancelling duplicate orders. He adds that the demand and the backlog is very real and will continue for quite some time. There will be a lot of stock throughput all the time as more capacity comes online from component manufacturers, but it will be at least the end of this year before we see the backlog start to diminish.

The end of this year looks very far away at this point in time, and Burr-Lonnon says it could be a tough year for some customers. He uses an analogy about a three-wheeled car to highlight the problem, “There's a lot of manufacturers building three wheeled cars right now without the components to finish the job. That makes it tough from a cash flow standpoint, because you've invested money to build four wheeled cars, and when it comes off the production line, you can’t sell a three wheeled car to anybody. I think we're going to find a number of issues as we go through this year from manufacturers that have managed to get through last year okay. If they've now got lots of three wheeled cars sitting in their in their warehouse ready to go when they get the ability to put the fourth wheel on, then they need to do that quickly to bring money in. The finance departments of suppliers and distributors are going to have to be very flexible this year.”

I wondered whether the shortage of components had meant any changes in designs, especially whether designers had moved away from discrete designs, which required a large number of components, towards modules. I thought this might be the case as the larger module producers would likely have better access to any available components than smaller companies. Burr-Lonnon has seen a little of that type of change, but thinks more companies sticking to their discrete designs, but specifying components that can be second, third or even fourth sourced to stand the best chance of receiving them on time.

Another situation that has hit many companies is the difficulty in getting staff after the COVID-19 pandemic. In what is sometimes termed “the great resignation”, many employees have left the workforce completely, taking early retirement or have left their current role to search for jobs with better benefits, such as permanently working from home. Burr-Lonnon says Mouser has not been affected directly by the phenomenon and the company has retained the vast majority of its staff, however, as the company has grown, finding new employees has proven quite problematic everywhere in the world. Mouser has gone from a $2 billion business to a $3 billion one over the last year and the extra work requires many more staff just to keep the company functioning at its current level.

To try offset the worst of any staff shortage, Mouser has increased the level of automation in its newly expanded warehouse. Expanding, Burr-Lonnon says, “We installed a lot of mechanization in the last year, especially vertical lift modules, where we now have the largest number installed in a single location in the US and possibly the sixth largest number in the world. There will also be an AutoStore coming online this year that was postponed from last year as the company prioritised getting inventory in and out through the vertical lift modules. We are fortunate as a single warehouse is easier to expand, upgrade and hold inventory in one location and buy inventory just for that location.”

A second way that Mouser is trying to reduce the number of new employees it needs is by the continual improvement of its web presence to make it easier to place orders online. Although Burr-Lonnon already regards Mouser as a leader in e-commerce, customers are more likely to see buying and order processing jobs as ones that can be replaced by e-commerce, leading to a corresponding reduced demand for a physical sales team at Mouser. Companies will just no longer have buying departments on the scale that the did before the pandemic and the move to digital purchasing has already been very strong. Mouser will also step up its online content management to ensure it has the right content for engineers to make it easier, better and quicker for engineers to find parts, including providing that content in more languages.

All in all, Burr-Lonnon predicts that 2022 will be a good year for component manufacturers and distributors, but it could be another tough year for a lot of customers because of the continuing lack of inventory. To assist those customers, Mouser will continue to take on more lines and grow the inventory on the lines that the company already stocks, making as much inventory available as it possibly can. The company will also continue its focus on new technology, which has proven a very successful strategy over the last year. Burr-Lonnon puts that down to manufacturers being keen to seed that technology in the market to provide longer-term success and Mouser has been getting a strong flow of inventory for the latest parts. Adapting designs to include newer parts could become a winning strategy for manufacturers and allow them to reach the market faster.

https://www.mouser.com/