Inventory management key to staying afloat in downturn

The economy is bad, but will the electronics industry see another massive downturn in 2009 similar to that of 2001? No, according to a number of electronics-supply-chain watchers, including Robin Gray (photo), executive vice president of NEDA (National Electronic Distributors Association).

“Things were on allocation [in 2000/2001], so people were double- and triple-booking and ordering, believing they could get market share from the other guy,” says Gray. “Inventories were at all-time-high levels.”

This time around, however, inventories are low at distributors. “Everyone learned their lesson,” Gray says. “Capacity is not building as rapidly as it did last time. The manufacturers aren’t flooding the channel with more product.”

The role of inventory was evident in the analog sector in late 2008. Fairchild, National Semiconductor, and Analog Devices all noted tightened ordering from distributors in the financial statements they made in the last quarter of the year. Analog Devices said that on the downturn and inventory consumption, it would reduce utilization and output of its factories.

“[Suppliers] were a lot more cautious in expanding factories’ capacities,” Gray maintains. “Distributors have been pretty successful in keeping their inventories pretty lean.” Gray advises distribution customers and anyone who’s designing to “keep a wary eye on inventory and demand. Make sure the forecasts you are getting are solid—and revivify those forecasts.”

He says that a competitor can undercut any innovative product design, or it can become obsolete. “Don’t be left holding inventory because you think you’ve got a great product and everybody is going to flock to it,” he says.