It is obvious that we have a strengthening US dollar, rapid debt growth in China (driving deceleration in China’s economy), oil prices that are still looking for the bottom, and an electronics industry that simply isn’t growing. Current projections call for growth in the second half of 2016 and for oil prices to rebound next year. Both of these things will eventually happen, so if we leave the dates fuzzy enough we are bound to be correct. At PEI-Genesis, we are optimistic.
A typical distributor holds finished goods inventories to support customer forecasts. At PEI we use a build-to-order model for over 70% of the products we sell, and we build our products in three mirrored factories in North America, the UK and China. We are a high-reliability interconnect specialist. We don’t have the option of supplying a customer’s entire bill of material. Instead, we work with engineers to design connectors and connector assemblies into new applications. We then use our build-to-order model to support those designs through the production cycle. This gives us a unique perspective on the entire cycle from design through delivery.
Although sales are lackluster, we see increased design activity. Prototype builds and design proposals are at record highs. Production start dates are slipping more than we would like, but these projects will launch and create sales gains in future, perhaps in the second half of this year. To feed this approach, we are adding product lines, co-developing with our suppliers, and creating new products internally. Our sales activities remain focused on design.
Pain, Irritations and Costs
One of the major challenges we’ve been faced with recently is facility moves by key suppliers. Several of our suppliers have relocated production; rushed implementation and flawed execution coupled with the inevitable loss of human knowledge makes it difficult to isolate our customers from the pain of these changes. On-time delivery from our major suppliers is at historical lows. All of these gaps must be absorbed and buffered.
On the customer side we are seeing more on-site audits and more contractual and compliance demands. We now have Compliance Officers looking at purchase orders. A customer may invoke 250 nested clauses on a purchase order for a single connector. Each customer may insist on an Advance Shipment Notice, which must be processed through their proprietary portal. We do Certificates of Conformance, traceability documents, NAFTA Certificates, Conflict Metals statements. We host source inspections. We take our best people and run them through three day customer audits, then two day supplier audits followed by an ASD audit. This means additional time and cost with no offsetting income. In the end, distribution fills these gaps and absorbs these costs. It is hard to imagine how the industry would function without us.
The market is flat, but opportunities are out there. Our strategy is to stay focused and invest in the capabilities that will allow us to excel at our design-in, build-to-order model.
Click here to view article as seen in Electronic Sourcing North America's March 2016 Issue
Submitted by Russel Dorwart, President and COO, PEI-Genesis