Purchasing and Supply Chain Management Must Adapt to Changing Market Conditions

Dear Reader

Electronics is and always will be a fast-moving and dynamic industry. It is, therefore, vital that companies in the industry are flexible enough to rapidly react and adapt to the continually changing business landscape.

At present, the global electronics industry is enjoying a period of healthy growth, as reflected in the fact that the worldwide semiconductor market has seen year-on-year increases for the last 12 quarters. At the same time, consumer confidence is increasing and corporate capital expenditure continues to rise.

This is, of course, all good news. However, it is worth noting that, despite increasing sales, semiconductor equipment investment in 2005 was actually lower than the previous year – i.e. there was no expansion in global capacity. Furthermore, the transition to RoHS compliant manufacture is in full flow in advance of the July deadline and is having its own impact on the supply chain.

As a result, it is now clear that inventory in the supply chain has reached its lowest point since 2003, and there are real and growing concerns regarding forecasting and forward visibility. We are already seeing extended supplier lead times and price increases in key commodity areas, with some products now on allocation. The supply chain is coming under further pressure as major global OEMs and CEMs react to market conditions by securing their own component supplies.

This situation is set to continue through 2006, as investments that are being made to increase capacity this year are unlikely to result in volume output until at least six months after coming on line. It is vital, therefore, that OEMs and CEMs take time now to review their current supply chain approach and to modify their purchasing and pipeline management strategies as appropriate. In particular, companies should be looking to secure their position during the last quarter of RoHS conversion and be willing to extend commitment further out to ensure continued supply. Price factors will also have to be factored into the business model.

Fortunately, Arrow’s strength as a global distributor, combined with our focus on customer requirements at a local level, puts us in a good position to not only anticipate supply chain issues in advance, but to help companies identify and implement plans needed to make their own supply chains as resilient as possible. Regular contact with Arrow support teams allows customers to clarify the global situation as it affects them now and in the future, while our global buying power and advanced and value added supply chain services can help to mitigate the impact of extended lead times and increasing costs.

As always, I hope that you enjoy this issue of Arrow Innovation. If you have any queries on any of the stories in this issue, please do not hesitate to contact us.

Andy King
Managing Director
Arrow Electronics UK