Distributors hiking inventories; as component leadtimes stretch, need parts to protect value-added customers

Electronic News, May 11, 1992 by Richard McCausland

As Component Leadtimes Stretch, Need Parts to Protect Value-Added Customers

LAS VEGAS -- With lead times stretching on a wide array of components, industrial distributors are building up inventories to ensure continuity of product to customers of their value-added services.

"We're buying longer and longer so that in many cases there are yearly commitments, to make sure we're getting product and locked into lead times," said Don Bell, president of Bell Micro-products.

"We've layered in scheduled stocking orders" to meet customer needs, including kitting programs, said Keith Steenland, executive vice president of Western Micro Technologies' distribution group. "As we see things tighten up, we'll lay in more inventory."

As in industry cycles past, distributors are jumping into the purchasing queue to secure product that will allow customers' production lines to keep running. Lending urgency to the task this time around, however, is that an increasing proportion of the customer base is paying a premium for such value-added services as kitting, just-in-time (JIT) deliveries, and even contract manufacturing.

As Aunet chairman Leon Machiz recently observed, "For economic reasons, and to avoid being saddled with suddenly obsolete products, customers reduced inventories across the board by placing greater emphasis on quick response through EDI (electronic data interchange), just-in-time shipments, kitting and making use of a broad array of value-added services which larger distributors can perform more cost-effectively than the customers can themselves."

And these customers must be served -- perhaps even given priority over those equipment manufacturers who buy from several distributors on a short-term, off-the-shelf, piecemeal basis. "Companies you're doing contract manufacturing with get first call on product - as they should," said Mr. Bell. 'The reason for that is those customers have put their lives in your hands."

After three straight years of readily available product, equipment makers are anxiously watching leadtimes stretch on video RAMs, some 4-megabit dynamic RAMs, by-8-configured 256K fast static memories, and various discrete logic and surface-mount components. Distributors, too, are closely following the situation.

"Leadtimes are going out; you can see it day by day," said Mr. Bell. As a result his company has boosted its purchases on the factory.

He cautioned, however, "It really hasn't been a major issue at this point because the customers really help you expedite matters. If you have a contract with someone, we enlist their help to secure product. They all have their own purchasing people.

"When you have shortages, you need all the clout you can get," he added.

While acknowledging that kitting problems could be hampered by leadtime stretchouts, "Contract manufacturing is a bigger bite," he said.

Asked if extending leadtimes could adversely impact JIT and kitting arrangements, Arrow/Schweber president Steve Menefee said in a phone interview: "Obviously you're not immune from those kinds of things."

However, by keeping close tabs on factory leadtimes as well as staying in touch with key value-added accounts on their production schedules, "You've covered yourself pretty well with those customers you're doing business with on a long-term basis."

What of those customers who are essentially buying on a hand-to-mouth basis? "The mainstream customer base is still pretty much in order," Mr. Menefee said. "Where you have a problem is that you can't take on those new opportunities" that arise when customers, unable to obtain parts from their existing distribution sources, attempt to place orders with alternate suppliers.

Although this might suggest that some customers, anxious to protect themselves, have resorted to double-ordering, Mr. Menefee noted that he had recently met with Motorola officials and, in their view, "It is still a little early for that to be taking place, but if the problem does not resolve itself pretty soon, then history tends to repeat itself."

But unlike similar situations in the past, which prompted "huge increases in capacity when there were no homes for those parts to go," Mr. Menefee said that this time around 'I think the supplier is doing a better job, as is the distributor. We're not as foolhardy as we used to be."

According to Western Micro's Mr. Steenland, leadtimes are moving out on video RAMs, "select 4-meg DRAMs based on packaging and speed -- especially faster speeds," and 32K x 8 fast SRAMs. "There's nothing more than four-to-six-week lead times outside of those areas."

He noted "We do very limited kitting," and so the stretchouts will have a minimal effect. In any event, a kitting customer typically provides a 90-to-120-day rolling forecast, allowing the distributor enough time to meet the customer's needs.

On another front, however, Western Micro's systems integration business has been affected. "There have definitely been shortages of disk drives -- mostly in the 40M byte drive," Mr. Steenland said. "We've been able to keep pace with that, but it's been tight."