ProcurementPro’s Mick Elliott talks to Nick Turton, Regional Sales Manager, International Markets, Farnell as he reviews the past 12 months and discusses prospects to the rest of 2024.
Looking back at the past 12 months, how would you characterise the industry?
Towards the end of last year, the UK saw growth as a result of the allocation and so did the Nordics, but the latter is still returning to the pre-covid allocation levels, while the UK is already there. Contract manufacturers overall were the most impacted, but they held high levels of inventory and are quickly recovering.
Inventory levels started increasing during the latter part of 2023, so the allocation situation that had previously affected the market began to ease. That induced more competitive purchasing behaviour, which in turn meant that the broadline channel scenario started shifting back to normal high-service distribution.
When you couple that with global conflicts and the associated shipping challenges, it started to change people’s perception of what differentiates a distributor in terms of the total value they can offer, not just in terms of inventory, but their overarching proposition that adds value rather than just a traditional shifter of component boxes.
Today, price premiums have essentially been removed by all players in the market. However, lower, pre-allocation prices are being realigned to take into account changes in the costs of raw materials, manufacturing, and shipping. Components aren’t as inexpensive as they used to be, but in the current scenario modest price increases tend to flow through the market as a normal cost of doing business rather than as a short, sharp shock.
What is being seen from the end market segments? Are any performing particularly well?
If we look at various territories, we’re still in a bit of a rebalancing situation. We’re getting there, but the balancing act has not completely settled down.
Contract manufacturers were probably the most impacted by allocation, but they were holding high levels of inventory so there were a lot of mitigating actions by those companies to take destiny into their own hands and put product on the shelves. However, the need for extraordinary efforts to control distribution is diminishing.
There is currently a lot of product in the channel, but as we move forward throughout 2024 we may see slightly slower deliveries of those products as shipping companies divert their containers to more lengthy routes to avoid conflict zones.
There are lingering concerns around semiconductor supply chain sensitivity given the ongoing tensions between Taiwan and China as well as the Red Sea. And there is an obligation for NATO members to contribute to defence spending as a percentage of their GDP. So, it’s obvious that the defence industry will grow. For example, with test and measurement companies such as NI, we are seeing particularly good performance because aerospace, defence and government comprise a substantial portion of their traditional market.
For our part, Farnell has long had in-depth strategic plans in place to minimise the impact if new conflicts arise.
What are your hopes for the market? What trends do you expect to see during the remainder of 2024?
A lot of price sensitive inventory is still in the channel, so the market is going to continue to be very competitive. As additional inventory enters the channel the focus will shift toward price rather than availability, which means that as inventory levels become more balanced, so will pricing.
Success in such an environment requires the implementation of new and improved ways to add value, not based solely on the availability of the brands and products they supply but how they introduce solutions that give customers additional value for money.
Reducing carbon footprints will continue to be a very important issue and is one that we’re working hard to help ourselves, and our customers, achieve. We’re introducing new practices in terms of e-procurement to significantly reduce or consolidate the number of shipments required, which will reduce carbon footprints and boost sustainability.
It’s much better for every link in the supply chain – and the environment – if a distributor can put everything a customer needs in a single box instead of 20 components in 20 boxes shipped over several days.
How is Farnell developing its T&M portfolio and supporting customers in the industrial control and automation space?
We continue to invest in teams of specialists who have historically worked for some of our major T&M suppliers or their affiliated partners. These are highly qualified, highly experienced engineers to whom we add a commercially aware element as part of their training.
Their expertise enables us to work even closer with suppliers and customers to share genuinely useful, relevant information and develop opportunities to work collaboratively on not just the business at hand but to acquire – and retain – new customers.
In terms of automation products, as Industry 4.0 gains momentum, so does the development of automated technology. Along with the connectivity of devices through the Industrial Internet of Things (IIoT), automation is enabling manufacturers and engineers to increase productivity, improve efficiencies and reduce maintenance costs.
This is an exciting trend that will continue to benefit not only all aspects of the industrial supply, manufacturing and distribution chain, but the human condition as new ways to reduce energy consumption and clean the environment while increasing productivity and profitability are found.
