OEM Channel Responds to Slower Growth

The harsh winter of 2014-2015 combined with ongoing economic concerns to create slower business conditions in the OEM supply chain. Russell Dorwart, president and COO of electronic components distributor PEI-Genesis, says he saw a number of instances in which weather, in particular, has an impact on business.

“I believe the weather had a negative effect on businesses across the board,” Dorwart explained. “Our largest assembly facility is in South Bend, Indiana. They know how to live with snow in South Bend, but this past winter the city officially shut down twice in January.”

Jimmy Seifert, senior vice-president of product, supplier, asset and pricing at distributor Newark element 14, agreed and pointed to an array of weather issues.

“There were a couple of different weather issues. One was the snow in the Northeast, which was pretty rough,” he explained. “And there were ice storms in the South and Southeast as well.”

While Newark was able to keep things in check at its various locations, many customers faced insurmountable weather hurdles simply to get to work some days.

“When you are in a high-service business such as ours, where you are meeting customers’ immediate demands, weather does have an impact,” Seifert said. “So you did see slow-down periods during that time.”

Another winter issue for some distributors was that items on back order due to weather delays in delivery are not always re-ordered or re-submitted. Such was the occasional case at Allied Electronics, in Fort Worth, Texas, explained Mark Simon, vice-president of sales. Allied is a distributor specializing in industrial automation products, electronic components, and electromechanical products.

“We do a lot of emergency orders, if you will, for plant maintenance,” he said. “And if you’re in California when you need a part, and you need it tomorrow—and you know that UPS, or for that matter any carrier, is probably not going to be running in Fort Worth on those icy days—then you will place your order somewhere else. And that did hamper us.”

Some of those orders don’t come back, Dorwart explained.

“In a B2B environment you would logically expect that any orders lost to a snow day would simply accumulate and reappear when business resumes. But it never quite works out that way,” Dorwart said. “With multiple closures and weather disruptions throughout the winter, the velocity of the entire market was dialed down.”

For some distributors, including Allied, 2015 got off to a slower than anticipated start following a strong 2014 due to these and other issues.

“If you look at calendar year 2014, it was very solid,” explained Simon. “We had good growth … [But] there are a lot of concerns about how fiscal year 2015 has started. It has been slower than we would like. I don’t want to say real slow, but there has been softening.”

Among the factors Simon cited were foreign exchange rates as well as an ongoing dock strike on the West Coast. And since Allied is based in Texas, it gets a close-up look at oil exploration industries. Although lower rates at the pump are great for consumers, it has meant the stoppage of oil drilling in some areas of Texas—and resulting job cuts.

“Energy is a big, big beast, with the declining oil prices. And the new project launchings were cut,” said Simon. “We have lost 100,000 employees in the energy sector alone … We are hopeful that it will come back, but it is all speculation.”

Though Simon says he sees the impact when oil drilling is stopped, he agrees that lower fuel prices help in other areas.

“If you think about the consumer’s [perspective], it is absolutely fantastic, the money that people are not paying at the pump,” he said. “It is good for the economy in general. It creates jobs. There’s lots of upside … And it helps some of our industries run more cost-effectively.”

At Newark, many of its vertical markets have been steady, Seifert explained, but they have seen an uptick in sales to education-related businesses as well as in test and measurement.

“Education, schooling, and the acceptance of technology has really driven some nice demand for us,” said Seifert. “[And we] have seen some very, very nice progress in our test and measurement businesses.”

Allied has seen its medical markets business improve.

“[Medical] is ticking along. You have home healthcare driving a lot of new products, new product designs, and continued production of designs in recent years,” explained Simon. “So it is going pretty good.”

The overall outlook among these distributors is one of optimism, though more of the cautious variety. Innovations abound, with both Simon and Seifert citing the Internet of Things as a prime example.  Innovations aside, though, all agree that customer service is still the key to distribution’s continued success.

“The distribution industry has always come under unique challenges …,” said Seifert. “We just have to evolve, innovate, and keep on having better customer intimacy to strive ahead.”