What is being done on the sustainability front in the electronics distribution industry? In this episode, Don Akery, CEO of Waldom Electronics, shares the sustainability initiatives that his company is driving forward with. From planting trees for every order placed to installing enough solar panels on its American facilities to reach a point of not having to purchase any electricity, Waldom is striving for a greener future.
This interview has been edited and formatted for clarity.
Tyler Fussner, Managing Editor, Supply Chain Connect
Hey, Don! Welcome back.
Don Akery, CEO, Waldom Electronics
Hey, great to be back. Thank you for taking the time to sit down and talk with me.
Fussner
If you could please introduce yourself to our audience.
Akery 0:27
I'm Don Akery. I'm the CEO of Waldom Electronics, a master distributor of electronic components; we only sell to distributors. I have been at Waldom for a little over two years, but I've been in the industry for almost 40 [years] running parts of some of the largest IP+E distributors, TTI and Arrow.
Fussner 0:49
Don, I'm excited for this conversation today. I wanted to ask you: it's 2024; it's a new year; what has changed for the master distributors? Anything new this year in your operations?
Akery 1:03
The topic is where we're at in the cycle that our business goes through. Obviously, we've got a unique perspective, looking at being a master distributor and selling only to distributors. So, we have a look at a broad market. We are global; we've got locations and deal with about 2,500 distributors all over the world. What's changed from when we talked last year? Obviously, the market has continued to go down a little bit. I think we've hit the bottom and we may be seeing signs that it's coming up.
A big change has been the inventory levels of the distributors, suppliers, and customers, they've all started to correct. We seem to be going in the right direction there. And the million-dollar question is, have we reached it? Are we back to where they inventories are in that healthy position? We're almost there. There are some products that probably have made it there. I'd say that's the biggest change that we've seen in the past 12 months.
Fussner 2:04
Well, it is good news. It sounds like a positive future outlook here where hopefully we're digging ourselves out of this downturn.
I'm also curious, Don, what are you hearing from your distributor customers? What are their challenges today? Are they coming to you with any new demands or new expectations?
Akery 2:22
We're talking last year [with] the inventory surplus… Distributors had more inventory as the demand switched very quickly on them and their end customers. The inventory had built up; there were a lot of discussions because I've got a model that helps with slow moving and excess inventory. So, we've had lots of conversations, lots of business transactions, to where we've helped them reduce that with a creative model. We've done that with suppliers and the distributors.
The conversations have changed a little bit on the business side where everybody was changing their algorithms of how they purchase inventory from us and from all of their suppliers to try to get their inventories under control, adjust for the demand, take out all the safety and extended lead times that they'd put into their algorithms in order to make sure that they were buying product in order to support the customers. It has switched now a little more to where that's turning back on. I'm not saying that they're ordering at the same rates that they were pre-pandemic, but we are starting to see positive book-to-bills.
So, I'll say again, pretty optimistic. Still probably two or three months before we're going to call it that we're seeing an upturn, but we think we're close to calling it.
Fussner 3:43
Don, last time we talked we had just scratched the surface of the sustainability initiative that Waldom is driving forward with. I would love to hear an update on some of the sustainability practices that your company is moving forward with.
Akery 3:57
That's near and dear to our hearts and we've made a lot of progress over the past year. When we talked last time, this model itself where we handle the slow moving and excess inventory, it is sustainable; it's part of a circular economy.
We've done a lot of work with some of the carbon offset guys and they've looked at what we do where we take a lot of inventory back that is slow moving and excess for distributors and suppliers. We had a lot to look at over the past 12-18 months, but that process when we take it back in, we redistribute it.
Tens of millions of dollars’ worth of inventory are destroyed by distributors every year. They receive a credit for it. The cost of moving it back to try to redistribute it through a supplier is very costly. There are no processes in place. Waldom put a model in about 15 years ago; we didn't really do it for environmental reasons. But when you talk to the carbon offset guys, they say, “Your model actually qualifies for carbon credits.” Now, we haven't gone through that process; we have been collecting the data about the tonnage that we've kept out of the landfills. Instead of that product going into the landfills, we're bringing it back in, making sure it's good, sellable product, and we make it available to the distributors to redistribute it; it gets a second chance. And over time, we sell about 87% of that.
So that process, you can imagine in our industry, there are billions of components that were destroyed. And we've taken billions of those now and put them back, in our model, and we've redistributed those. And over that time, selling 87% of them. The parts are put in usable items that go out and extend the life.
Some other things that we've done, we started planting a tree for every order for these products that we get. Many of our suppliers are about to join us in that process. We're pretty proud of that initiative. We partnered with a company, Veritree, that has a very accountable process, something that's auditable, because there's a lot of greenwashing going on in the environmental world and people trying to do good and paying to have trees planted in parts of the world and it never happening. Veritree, they're built on being able to verify. We get photos; we get GPS coordinates of where the trees are planted; we get the data, and we feel 100% confident.
To date, we just started this not even at the beginning of 2024 with the orders that we've taken with our distributor partners and our supplier partners, they told me earlier today that we've gone over now we're in the process of planting about 40,000 trees. That will offset and it'll be the equivalent of taking hundreds, if not thousands, of cars off the road. We're really excited about that. We've committed to planting at least 100,000 trees this year. At the rate we're going, I think we will blow right through that number. And I hope that I'm sitting with you next year to tell you that we're on a run rate to get closer to a million trees.
Our industry has not done a lot related to sustainability. We're trying to take a lead position when it comes to the actual distribution of components. Obviously, there's a lot of work to be done on the manufacturing of those. It's not part of our processes. So, this is our first step in that direction. You'll see a lot more in the logistics and packaging related to the parts that we sell. You'll see a lot of announcements for us over the upcoming months and throughout the rest of the year.
Fussner 7:38
I will certainly be staying tuned for those announcements and keeping an eye on this. I'd like to commend you on your drive through this sustainability initiative. It's an important topic and it's one that people are asking about. They want to do more, from the suppliers all the way down to the consumers. Everyone wants to know, “How are we going to make our practices more green and more sustainable?”
Akery 7:58
We actually just went through an ECHO data scoring system in all three regions of the world. We've got our first ECHO data score. Now the challenge will be how we run some of our operations. You'll see us putting solar panels in. We've just started that process where we won't need to purchase any electricity in America for any of our facilities. We believe we'll have that in place by the end of the year. We've got quite a few things of just running our facilities. We've also achieved a Green Business Bureau certification, a silver certification, through our first assessment, which is pretty unusual to start as high as we did. I'm proud of the team for what they've done.
Fussner 8:38
COVID was a global disruption across the supply chain. And more often than not, we see disruption events taking place all over the world, whether it's conflict in the Red Sea, or jams in the Panama Canal, the collapse of the Baltimore bridge, or earthquakes in Taiwan. How have any of these recent events disrupted practices from your distributor customers? And maybe more generally, how does Waldom prepare itself to navigate any supply chain disruptions?
Akery 9:11
We'll start with the logistics challenges of some of the conflicts if you are trying to go through the Red Sea. Now, we're on top of that to where we get the information and data quickly. Obviously, I've got people that reroute shipments; it's added days to some shipments. I move a lot of products outward to distributors. I move a lot of products in with this sustainable, slow moving and excess that we manage; I'll probably move more in than I move out, especially in the environment that we're in now. That's the first thing and the most evident, whether it's the Red Sea, whether it's Baltimore, which was not a big impact. A couple of suppliers use the port, but for our model itself, we were not clearing much through Baltimore. It's not the main hub for bringing electronics from other parts of the world. But you've seen quite a bit.
The key is, I wish I could say that we'll get through these, and then they'll be done and we won’t have to worry about it. The harsh reality is we've been dealing with these things for years. So, something else will occur. The challenge is when sanctions are put in place related to a war between Ukraine and Russia, and the adjustments that have to be made. None of our product can go to a banned country. We have to be accountable for that. We have to put systems and automation in place. We run our business the way distributors run their business. I think we've gotten much better at adapting to those things and adjusting and doing the right things pretty quickly. I look at the industry the way it operates today, and a war breaks out and we end up having to reroute products, or we end up having to cut off supply to a part of the world, the industry actually does that pretty efficiently today.
Fussner 11:06
Do you offer any advice to your distributor customers? What does that conversation look like? How do you help your customers prepare to navigate these situations?
Akery 11:15
Obviously, we've got solutions and services to where we can help them. We've got inventory throughout the world, and sometimes it may be, “Hey, instead of buying it out of my U.S. location, I've got inventory in Europe that I can get into a European country much faster.” We help them redirect the supply chain in some cases.
Some of our distributor partners we work with and let them leverage off our supply chain on our paths that we take in inventory. They are partners of ours. We help move that inventory around and leverage our size. There's a lot of things that we do and part of it's a relationship with our distributor partners, and you have to remember, on the supplier side also. Sometimes that's a three-way conversation when a distributor needs parts to support an end customer and Waldom can't find that solution on our own, so our supplier partners come into play there, too.
Fussner 12:14
Another question I had, with the conversations that you have with your distributor customers, are you hearing any specific industries or verticals that they are anticipating some growth in over the next six or 12 months?
Akery 12:28
If you look at anybody that is playing in the aerospace and defense and military, AD&M part of the business, that business has been up for, sadly, the past couple of years with the conflicts that are going on throughout the world. There's a lot more money being spent there. I've seen some statistics from the distributors with that being up 10-20%. Last year, we were seeing the same run rate. Obviously, anybody that supports that end customer base, from a distributor standpoint, that part of their business is pretty robust. That's helped alleviate some of the inventory and has probably created some supply chain issues also. Lead times have probably gone out on some of those parts, making it a little more difficult.
You've got some other industries in the distribution world. Industrial, which is a broad category, we're seeing signs from the distributors that that part of the market is starting to return to a normal growth rate. Through the pandemic, it went to an extraordinary growth rate, which caused shortages, which in industrial, typically, you're not talking about double-digit growth, but it went through that period and then it went to a correction. Now, we're coming back up to the low- to mid-single digit growth rates. We're seeing that, and I think most distributors will see that as a strong market.
Depending on where you're at in the world, whether it's consumer, you don't see much of that in the U.S. or in Europe, but obviously in Asia. That business, in pockets, there's recovery. Our business, selling to the distributors in Asia, APAC, is up year to date 26% and the book-to-bills have gone positive. They've got a lot of markets that are correcting; they're coming back to more normal growth rates for that area.
The mobile phone, it's hit or miss depending on who the manufacturer is. You read the papers that Apple and Samsung, their numbers are way down. But if you go into China, the local smartphone manufacturers in China, some of those guys are seeing pretty good recovery in that area.
And then it's mixed. Medical; you'll go into some that that seems to be coming back, but there's some that are still probably a little over inventory.
Fussner 14:51
Don, the big question: What does the future look like? I know we would all love to be able to tap into a crystal ball, but I'm curious, from your perspective, throughout the electronics market, what should stakeholders really be prepared for come 2025?
Akery 15:06
Yeah, there's a lot, obviously. If I had the perfect answer, probably the correct answer, is none of us really have the correct timing. We all know that it will return to a good growth rate, maybe a robust growth rate. I've sat on a couple of analysts calls lately to where there are signs that either later this year, or 2025, 2026 could return to better than usual growth rates in the cycle.
The way I look at it, I'm more of a leading indicator since I sell to distributors who are waiting for the end demand from the customers. While I see that the distributor inventory seems to be corrected, I think there's still some end customers, their customers, that are still working and burning down some inventory. You can look at some of the largest EMS customers and what their inventory levels are today and what they were five years ago. And it's dramatically different. Look at their growth rate on their sales versus the growth rate on their inventory and you can see there still has to be some surplus out there.
I'm believing that we're going to see a continued recovery through the end of 2024. So, the second half, really. I am not sure if that's going to start right the beginning of Q3 or if it is going to linger until the end of the summer months and the start of the winter months, but definitely I feel like there's going to be an upturn, probably substantial in the fourth quarter. I think we'll go into 2025 with some good momentum. I think we will run for a couple of years. I think it'll be another good cycle for the industry, as a master distributor, for distributors, and for the suppliers.
Fussner 16:53
It's an exciting period to be able to see that on the horizon and look for some positive growth.
Akery 16:58
Absolutely. I'm looking forward to it. We've worked through the downturn. I've heard a lot of people describe it… you know, the business, it's not like it's bad. I mean, the business, the demand for electronic components is still up. It's just not what it was for two years where we could sell anything we could get our hands on. But it's come back to a more normal reality. And if you put the past three years together, you'd rate it as a good period. Even the correction that's occurred, to me it feels a little faster, a little quicker than what we traditionally see going through a correction.
Fussner 17:34
Don, I want to thank you again for joining us today. I really appreciated the conversation and really appreciate you sharing your expertise with our audience.
Akery 17:41
It's been a pleasure. Always good to talk to you. It's good for me to sit down and actually answer a few of the questions on the things we discuss every day in our business to make sure we're prepared, but I appreciate the opportunity.
