ecsn Chairman’s intro: Keeping this show on the road
Author : Adam Fletcher | Chairman | ecsn
01 June 2020
The primary concern for members of the Electronic Components Supply Network (ecsn) throughout the current COVID-19 pandemic has been the avoidance of infection for the people they employ, their families & the wider community. Here, ecsn Chairman, Adam Fletcher discusses how the UK electronic components sector has reorganised during the current crisis – and outlines the measures ecsn members have taken to date to “keep the show on the road”...
This viewpoint was was originally featured in EPDT's H1 2020 Electronics Distribution supplement, included in the June 2020 issue of EPDT magazine [read the digital issue]. Sign up to receive your own copy each month.
Members of the association are maintaining full compliance with their ‘duty of care’ obligations and are fully conforming to the evolving directives issued by the governments and public health authorities in all the geographic territories in which they operate. At the same time, the importance of maintaining good customer support cannot be underestimated: it’s essential for both the survival of their organisations and the continuation of employment opportunities; all-in-all, simply the maintenance of the important contribution our industry makes to the national economy.
Customers, business partners and employees tend to remember organisations that do “the right thing, at the right time” in problematic situations. It generates widespread goodwill, even though short-term profitability could be impacted. The electronic components supply network has always been a people-to-people business, and despite the increasing digitisation of many internal and external operational processes, it remains so today. Inspirational business leaders have encouraged long-term interpersonal relationships throughout their supply network, as they recognise that they enable timely engagement with problems, and go a long way to engender the effective responses that lead to successful resolutions.
Working from home...
There has been a gradual trend towards employees working from home in recent years – and in the current national crisis, all ecsn members have invested in the additional resources and training necessary to enable the maximum number of their employees to do so. This has the dual benefit of maintaining a high degree of employee productivity and customer service, while enabling them to support their dependents during lockdown. Customers might have to wait a little longer for a response, as their telephone calls are re-routed around the network – but it’s likely that they too are working from home, and are maybe struggling themselves with the complexities of unfamiliar audio and video conferencing solutions, while possibly having to cope with a few ‘other life’ background distractions.
I suspect that many people will want to continue home working once the current pandemic is overcome, but this will need to be carefully considered and managed. The benefits of a home-office working environment – no commuting, flexible hours, reduced overhead costs and so on, must be carefully weighed against the benefits of office-based employment, such as mutual support, humour, rapid dissemination of information and team membership that organisational psychologists confirm contribute to efficiency and emotional wellbeing.
ecsn members report that the majority of their customers are operating at near normality and are continuing to require on-time delivery of their scheduled orders. Any rescheduling back of customer orders is being offset by other customers – especially those making critical medical or infrastructure products – pulling their deliveries forward and increasing their order cover.
Adam Fletcher, ecsn Chairman
In-house operations, such as manufacturing and warehousing, dictate that employees are at a defined workplace at defined times – but their safety is paramount. New work practices have been agreed and fully funded, and ecsn members have praised their teams for accepting increased cross skills training and increased levels of mobility and flexibility that go well beyond previous norms. Revised shift patterns have been introduced to ensure teams never overlap and environmental hygiene measures have been increased to minimise the possibility of cross contamination.
At a basic level, the two-metre separation rule is being rigorously enforced. The measures appear to be working, as high levels of staff availability have so far been maintained, and customer service levels remain high. Production bottlenecks, however, might still occur if critical levels of staff illness are reached, or if governments or health authorities tighten the definition of “key workers”, and/or impose further movement restrictions on the populace. At the time of writing, this looks unlikely, as the need to encourage increased economic activity is gaining momentum – but it’s a fragile balance and may change quickly...
Last mile carriers...
Almost all organisations in the electronic components supply network are reliant on third party logistics providers, be that for shipments by sea, land or air. Earlier in the year, there were extensive delays in all shipments out of China, following COVID-19 population lockdowns, but in recent weeks, the situation appears to have significantly improved. In Europe, the closure of some national borders badly delayed road freight, but this too is now easing. UK ports are struggling to cope with the high volume of sea freight shipments, and in response, the majority of air freight carriers have ramped up their capacity to move time-critical goods, but escalating demand has made this option increasingly expensive.
ecsn members are very dependent on the ‘last mile’ service provided by courier companies for timely delivery of electronic components to their customers, but confidence has been boosted in these difficult times by the enhanced visibility provided by the package delivery tracking systems operated by courier companies, and the continuing reliability of their largely self-employed drivers.
Electronic components inventory & supply...
The COVID-19 pandemic has not helped with US/China relations and the current trade war looks set to continue, and may even escalate, which will inevitably lead to further shortages of raw materials, base metals, PCBs and components. Oversupply in the oil industry may also trigger a shortage of refined oil products, which would significantly hinder a return to economic growth.
Shipments from components manufacturers to their Authorised Distributors are currently proceeding satisfactorily, but ecsn members are confident that they currently hold enough inventory of electronic components for at least 6 to 8 weeks demand, even assuming no replenishment. Component manufacturers anticipate disruption into 2H 2020, primarily due to the problem of aligning their production output with almost non-existent demand visibility from customers.
The entire electronic components supply network has been compelled to rely on extrapolating historic usage data in order to forecast demand, which means that getting inventory holdings across millions of individual stock items anything near right over the next six months will be as much about good fortune as sound commercial judgement.
No surprise then that quoted manufacturer lead-times for most electronic components are continuing to extend. 8-to-12 weeks is the current average, but a small number of ‘multiple sourced merchant market commodity products’ (for instance, MLCCs and some passive components) are on extended lead-times of 20+ weeks. I expect average lead-times to remain extended until the underlying demand and supply situation stabilises and forecasting improves, probably in 2021.
During the current evolving COVID-19 pandemic, customers are being kept up to date with the latest availability information by their supply network partners, who are updating their websites daily and are prominently posting their organisation’s response to any delivery issues as they arise.
Having recovered the immediate situation, ecsn members are now beginning to focus on the prospects for their businesses near-term. The longer-term consequences of the pandemic on the UK, European and global economies are simply not yet known, but it is almost certain that lack of cash will reduce planned spend on mobile phones and mobile infrastructure, vehicles, aerospace and industrial products. On the plus side, demand in network computing, PC and medical equipment markets looks set to remain strong, but on their own, these smaller market sectors will not be able to sustain overall market growth.
Many parties in the electronic components supply industry are continuing close-to-normal business operations during the COVID-19 pandemic, but it’s a sad fact that many will struggle to manage their revenue stream over the next few months. The maintenance of a positive cash flow is crucial: all parties must continue to pay their invoices promptly, but in the event that they run into a cash flow problem, it’s important that they communicate their position with their partners quickly and honestly. Reaching an amicable resolution through discussion is far better than any alternative solution.
Figure 1. DTAM By Quarter for 2014 – 2020_580x280
Keeping the show on the road...
The current challenges will gradually recede into history, but in the meantime, what we all choose to do together, and how we conduct ourselves over the next couple of quarters, will have a significant effect on the final outcome for our national economy, our people and the organisations that employ them. Wide engagement and collaboration up and down the supply network costs little and will go a long way to ensuring we all keep the show on the road...
UK market decline...
Statistical data for Q1 2020 is shown above. While not good news, these results probably won’t be considered disastrous in the current economic environment – and could even be rated a pretty good performance, compared to many other UK market sectors. The UK DTAM (distributor total available market) declined by (10%) in Q1 2020, compared to the same quarter in 2019, a steeper and faster rate of decline than predicted by ecsn members in December last year. The blue bars are the actual results achieved; the orange bars indicate the forecast, and the brown portion highlight the range. The bars shaded orange and brown represent the range of ecsn’s guidance for the second half of 2020. Following my conversations with a wide range of industry leaders, I now reluctantly predict that another decline in the UK DTAM is likely in Q2 2020, possibly in the range (10%)-to-(15%), again when compared to the same period in 2019. My forecast is indicated by the brown arrows on the graph.
Adam Fletcher is Chairman of the Electronic Components Supply Network (ecsn), a business association established in 1970 that today offers support to all organisations with an interest in electronic components throughout their entire lifecycle. He is also Chairman of the International Distribution of Electronics Association (IDEA), an association of individual country electronic components associations, whose objective is to share best industry practice.
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