Art Figueroa, Chief Operating Officer of Smith, explains how recent supply chain disruptions have impacted the semiconductor and electronics markets, as well as delivers insight into how his company leverages 40 years of experience to prepare for and navigate turmoil. Figueroa also shares information on where the market is heading and what stakeholders need to know so they too can succeed in the industry.
This interview was edited and formatted for clarity.
Tyler Fussner, Managing Editor, Supply Chain Connect
Hi Art, thank you for joining us today.
Art Figueroa, Chief Operating Officer, Smith
Hi Tyler, thanks for having me today.
Fussner
If you could please introduce yourself to our audience.
Figueroa 0:29
My name is Art Figueroa. I'm the Chief Operating Officer for Smith. Smith is the world's leading independent distributor of semiconductors. I've been at Smith now for 20 years, serving a variety of roles during that time. Most recently, as of February, I was promoted to my current role of Chief Operating Officer. Prior to that I was the senior vice president of global operations. And currently, in my new function, I lead all of Smith's worldwide operations efforts, both in strategy and initiatives across our five warehouse locations.
Fussner 1:16
Well, congratulations on the promotion. And as I understand it, 2024 is host to Smith's 40th anniversary year, is that correct? Can you tell me a little bit about Smith's journey over the past few decades?
Figueroa 1:29
It's been quite a remarkable story to think of what Bob and Lee Ackerley started back in 1984 at their home, really. The business started with humble beginnings. But in terms of opportunity, they embarked on this journey at the right time. If we rewind back to 1984, there was a small startup computer company that was getting things going as well. That was Compaq Computer that was headquartered here in Houston and that provided the initial foundation and the starting point for Smith to launch.
As we look back at the 40-year journey, it's been quite a remarkable journey to see, from those humble beginnings to now being an organization that roughly encompasses about 1,000 global employees. Last year's revenue was $4.8 billion. It certainly puts things in perspective. We've seen a lot of what's transpired within the supply chain over the last 40 years. We've seen our share of shortages, of disruptions, whether through geopolitical events, weather related events, and throughout each of those experiences, we've always come out of those in a stronger position. It's within these types of environments, that I would consider extremely challenging, that you experience the most growth as an organization. This is where you evolve and you enhance your capabilities, your service offerings.
The past 40 years have been a remarkable journey for Smith. We got the opportunity to celebrate a few weeks ago with a lot of our global colleagues, and it was a week filled with activities that reflected on how we got here. But more importantly, I think it sets the table for what tomorrow can be. Yes, the past 40 years have been quite the journey, a successful journey. But that's behind us. Now, the next chapter of the Smith book is about to embark, and I think we're getting ready to embark into an era that is unparalleled in terms of the use of technology, the use of AI. And so, the future's bright; the future is promising. We are happy to be at this point in the existence of the company.
Fussner 4:32
Art, with the decades of experience that Smith has, I'm curious if you could tell me, how has the role of the distributor transformed over the last few years? What is different today in 2024 for distribution?
Figueroa 4:45
I'll tell you what, Tyler, I would say a whole lot. I think the experiences that we've gone through over the last four to five years have really illustrated the need for a company to have a diversified, flexible and resilient supply chain. It's the supply chain that's shifted away from single-source, single-region suppliers and inventory models. Distributors, and in particular independent distributors, like Smith, have become an essential and necessary cog within the supply chain. I think we've earned a seat at the table. And we've done that by providing our customers with timely solutions during shortage or excess market conditions; providing inventory management models that help mitigate risk and exposure.
And most importantly, its information, which in this day and age, information is critical and critical for our customers as they make their decisions. Our unique perspective is one that comes from understanding open market activity. And that's activity based on demand. It provides us with a strong reference point for market conditions and is an early indicator of trends and any potential supply chain disruptions.
We feel that partnering with an independent distributor, like Smith, who has global reach, has market expertise, has operational capabilities that are rooted within certifications, can help customers navigate the evolving semiconductor supply chain.
Fussner 6:50
And speaking of the services provided and the aid and assistance provided to your customers, I'm curious, what are they telling you today? What are the new challenges that they're facing? Or are they coming to distributors with new demands or expectations?
Figueroa 7:04
The responses that we've been hearing, Tyler, primarily from our customers is the need for inventory management solutions, both from an access standpoint, as well as solutions that provide buffer stock. I think there's been a paradigm shift in the industry that has now required customers to look beyond single-source sourcing. They absolutely need to have a diverse supply chain with multiple options as it pertains to product sourcing. The paradigm shift is gone from a reactive to a proactive mindset.
And in terms of, let's say, for example, the automotive industry… That traditionally followed a just-in-time business model. Well, lessons learned over the last few years, I think the automotive sector was the most impacted by the pandemic and subsequent chip shortages.
So, what are the challenges that we're hearing? Well, customers want solutions that walk the tightrope of mitigating the risk while balancing inventory ownership. They're looking for partners that can absorb the cost and management of inventory for them. We've seen an increase in demand for our VMI programs, which are vendor managed inventory programs.
Fussner 8:49
Art, something that you touched on very briefly earlier in our conversation was AI. Now certainly, there is no bigger buzzword in business right now. But I'm curious, has Smith been able to implement any AI or machine learning or any advanced technologies to help improve your distribution practices?
Figueroa 9:10
Absolutely. Our organizational culture is one that is rooted in continuous improvement. It's a mindset. It's not something that you see flashed on posters. It's who we are. It's who we are and it's how we do things. And that mindset starts at the top, at the very top, with our owners Bob and Lee Ackerley, who have always reinvested back into the business in the form of systems, automation, new technology, new test equipment, people and facilities.
Last year, for example, we launched ELEVATE Summit, which is a Smith technology summit, in which we had members from our IT team and we had colleagues from across various departments, regions, within the organization come in and discuss what the needs are—technology needs. The result of that initial summit is that we identified over 100 initiatives that are intended to transform our business processes with technological improvements, automation and system optimization.
Technology. We've always been of the mindset that technology never stops moving, and neither do we. Earlier this year, we had another ELEVATE technology summit, and it was basically a progress check. “Hey, where are we on the initiatives that we identified a year ago?” And things have been implemented; things are still on the radar to be implemented.
A few things that that have come out of that is we've created an enhanced supplier rating and selection criteria utilizing a system-based process that monitors supplier performance and evaluates them on key performance criteria: on time delivery, quality, their ability to meet our expectations.
We've also improved visibility within our systems. We now have complete visibility on order status from the point of procurement, as it goes through our facilities, to ultimately being delivered to our customers. What that visibility allows us is to measure our process cycle times and efficiencies within our processes.
We've also established a data science team that's responsible for mapping our data and creating algorithms and other tools to identify and track pricing and demand trends, which has allowed us to be able to provide our customers with timely market information.
On the operation side, we created an internal research and development and automation team. This team has been tasked with developing new AI or machine-learning-based solutions for our technology platforms that utilize our vast repository of data to enhance our quality control processes.
Fussner 12:47
Art, something that you brought up in our conversation earlier, I couldn't agree with you more, is that there certainly have been disruptions in the supply chain and distribution has played a major role in helping solve those disruptions.
Unfortunately, all too recently, we've seen disruptive events, whether it's conflict in the Red Sea, earthquakes in Taiwan, the collapse of the Baltimore bridge—I could keep going. Have any of these recent events impacted Smith? Or maybe more generally, how does Smith prepare for and then manage any supply chain disruption?
Figueroa 13:21
I think the answer to that is that you plan for the worst, and you hope for the best. Particular events like the Red Sea event or Panama Canal incident or the bridge collapse, each of those incidents had minimal impact on our business from a transportation standpoint. Our business is built on speed. Our primary form of transportation is via air. Any containerized vessels or others pretty much occupy a very small percentage of how our business operates.
What is more impactful to us are disruptions [such as] natural disasters. In particular, the earthquake in Japan in the beginning of this year, in January. We saw an increase in Murata passive component shortages. And it's a shortage where we still see that there's demand there as a result of that, and potentially it can lead well into 2025.
The other incident was the earthquake in Taiwan that occurred on April 3. Now, that had the potential to be a very disruptive event. Ultimately, there were some shockwaves in the industry, but all business units within that area were able to recover and continue business operations fairly unscathed.
Going back to your question, you have to be cognizant that disruptions within the supply chain are an inevitable part of business. Just like companies work on disaster planning, business continuity, I think supply chain disruptions have to be discussed within that same breath, just as you talk about a tornado event and how your business response to that. Or in the case of Houston, we're headquartered in Houston; I understand that we're going to have a very active hurricane season. So, we have to have contingency plans in place. I think the same applies to all types of business disruptions that you have to treat those with the same level of care and attention that you do to any other aspect that is going to impact the continuity of your business.
Fussner 16:06
And speaking of disruptions, we have seen some setbacks and delays in the construction of new semiconductor fabrication facilities here in the U.S. I'm curious, especially from Smith's perspective, what does this mean for semiconductor distributors? What does it mean for their customers? Or maybe even the domestic chip market as a whole? Well, I think the short
Figueroa 16:31
Well, I think the short answer to that is that you have to be prepared. Part of those preparations include a diverse source of supply. Bringing back shoring, or having ship facilities in the U.S., certainly is going to provide some advantages. Obviously, it's significantly going to mitigate a significant amount of risk. But nonetheless, organizations still have to plan accordingly. You can't put all of your eggs in one basket, and the supply chain is a global one. Companies have to maintain that mindset; that you still have to have a global supply chain, and you have to have measures in place that will protect you against any potential disruptions.
Fussner 17:27
I'm going to ask you to take a step back here and look into the future. I know, it's not an easy thing to do, but looking ahead, do you see any industries or verticals that are poised for some growth over the next six or 12 months? And, conversely, do you see any industries that are set to face some challenges?
Figueroa 17:49
Yeah, absolutely. I think all indications, Tyler, at this point is that we're going to continue to see growth within the automotive sector. More particularly, as manufacturers roll out additional electric vehicles into the market, we're going to see the need continue to be there both from an automotive standpoint for the cars themselves and for all of the charging stations and others that support electric vehicles.
We're going to see growth in data centers, cloud computing—everything AI-related. I think this is the sector that we are going to see the most growth within over the next few months and into 2025, and beyond.
5G is another area that is poised for continued growth, just as healthcare and medical devices. There's going to continue to be opportunities there.
I would say that the one industry that's going to continue to face challenges as we move forward is consumer electronics. Demand for personal computing continues to remain low. That tide will turn as well, but not anytime soon. I think we saw the consumer electronics sector, right around the time—the peak—during COVID, where you saw the most demand. As companies had employees working from home, [there was] significant reinvestment in personal computing. There will come a day in which those products will have to be renewed and upgraded, but we don't see that, at least not in the immediate horizon.
Fussner 19:46
And sticking with this forward-facing perspective, Art, I have another question for you. If we could boil it all down to one thing, what do stakeholders in the electronics and semiconductor market need to be prepared for come 2025?
Figueroa 20:02
Well, I think it's continued growth in all of the aforementioned sectors. I think the tech advancements that are yet to come as it pertains to AI, machine learning, or the Internet of Things. I think you're going to see companies continue to diversify their supply chain. Nobody wants to find themselves in the position that they were in a few years ago. I think you're going to see more reshoring or back shoring where we're seeing production being brought back into the United States. And we're also going to see nearshoring as well, where production and sourcing materials from providers will move to neighboring countries. I think all our efforts to potentially continue to minimize the impact that some of the supply chain disruptions can have on all of the vertical markets.
