Distributors Playing Bigger Role in Electronic Components Procurement

The COVID-19 pandemic may be a memory, but the challenges of procuring electronic components of all types, from passives to logic parts to specialized semiconductors, are fresh in the minds of many OEMs. OEMs, facing ever-shorter time-to-market cycles and more complex product designs, are looking more to the distribution channel to ensure a more consistent, reliability component supply chain.

Design News recently interviewed Frank Cavallaro, CEO of A2 Global, an electronics component distributor, on recent trends  in electronics component procurement. Among several topics, Frank talked about the greater role of open market distributors (OMDs) in helping find difficult-to-source parts. The interview follows below:

DN: What other component sourcing practices will OEMs engage in long-term, particularly as a result of lessons learned during the pandemic? Do you foresee more long-term supplier contracts to ensure a stable supply of parts to minimize disruptions in design cycles? 

 Frank: Due to the growing emphasis on just-in-time production and the increasing semiconductor content in end products, end-product manufacturers are expected to purchase more through distribution (both direct and OMDs) over the next five years to minimize held inventory. In addition, distributors are now expected to better manage their inventory on hand for the upcoming few years to keep up with consumer preferences for distribution. 

Related:Uncertainty Only Sure Thing in Electronics Market in 2023

 DN: What components and semiconductors do you foresee potentially having shortages or other supply issues in the next few years as technology changes to meet the needs of AI, high-end computing and networks, and advanced vehicles? 

 Frank: Wafer supply across all semi manufacturing node sizes are expected to be outpaced by demand post inventory recovery (from 2024 2026). The most significant supply/demand imbalance will be in the >=65nm node size, where OMDs are best positioned to fill gaps in supply. Post inventory correction, supply/demand imbalances for legacy and current gen components are expected to continue as there is limited new supply expected despite consistent demand outlook. In addition, AI, the cloud and embedded space is expected to have above-average growth driven by high underlying demand for edge, data center,  equipment and the continued proliferation of IoT products.  

 Also, automotive production/demand is expected to increase as electric vehicle production increases and consumers look to purchase vehicles that had been in short supply from 2020-to present. This pent up demand will further strain the auto/EV supply chain. For example, the number of components per vehicle is expected to increase in order to support more comprehensive user interfaces, both for ICE and electric vehicles.  

Related:Component Shortages Persist Despite Waning Demand

DN: What are the major advantages of Open Market Distributors? Do they offer advantages on price, selection, or supply contract terms? How else are they different from franchised distributors? 

Frank: Chip shortages, geopolitical conflicts and natural disasters can all hinder the global supply chain. For the electronics industry, partnering with open market distributors (OMDs) helps to address global shifts in the market and ensure timely, reliable component supply. 

OMDs represent 10-15% of the broader $160B electronic semiconductor component distribution market, differentiating against other distribution channels based on their ability to globally source hard-to-find or obsolete components. 

OMDs compliment franchise and catalog distributors by supplying many products with shorter lead times and flexibility in pricing as far as where products can be sourced at better prices. 

DN: In what industries or applications will OEMs continue with direct sourcing of parts rather than going through distributors? 

Frank: Most industries that have the volume requirements needed to buy direct from OCMs will continue to have this as part of their overall strategy. What is different now and going forward is that even highly regulated industries like medical, defense & aerospace, automotive, industrial and telecom customers will tend to use open market distributors more as a key partner in their supply chain strategies.  

Spencer Chin is a Senior Editor for Design News covering the electronics beat. He has many years of experience covering developments in components, semiconductors, subsystems, power, and other facets of electronics from both a business/supply-chain and technology perspective. He can be reached at [email protected].