Electronic component distributors in China expect double-digit sales growth this year, according to research.
Electronics Supply & Manufacturing China's 2015 Distributor Survey showed sales at components distributors in mainland China and Hong Kong averaged $385 million (£251 million) in 2014.
Distributors predicted an average growth in revenue of 26 per cent this year, 4 per cent higher than last year's projection. The profit margin for distributors in 2014 is 20 per cent, up from 18 per cent in 2013.
According to the survey, which polled distributors and manufacturers, distributors are shifting their focus to applications such as smart home, wearable technology/smart devices, internet of things (IoT), security and surveillance, and electric cars.
Emerging applications deemed the most important in the past, including smartphones, LED lighting, mobile medical and tablets, are given lower priority, indicating distributors' sensitivity to market changes.
The importance of vendors' supply capability has grown for 31 per cent of those polled, up 13 percentage points, indicating that the effects of a tight supply chain have been felt.
More manufacturers (33 per cent) pointed to vendors' capacity constraint as a procurement problem, up by 7 percentage points. Manufacturers bought 56 per cent of their components from distributors last year, and 44 per cent said they plan to increase this. Around 50 per cent of manufacturers use online purchasing platforms, mainly for component model searches, price check queries and inventory enquiries.
Online transactions accounted for 16 per cent of distributors' revenues on average last year, and this has been increasing for the last four years.
Distributors also believe manufacturers' purchasing habits (61 per cent) and trust (59 per cent) are the two main obstacles to the growth of online business. They mainly use online platforms to handle online orders and inquiries on part numbers, inventory levels and prices, while more complicated functions such as online payment, alternate components inquiries and providing technical specifications and spot price trend are not as common online.
When purchasing critical components, manufacturers' key consideration is product price (76-84 per cent). When selecting distributors, quality (76 per cent) is the first priority, followed by prices (64 per cent) and delivery lead time (63 percent). Shortfalls in these three categories are also the main reasons they downgrade qualified suppliers.
The main challenges they face in procurement remain the same: inaccurate demand forecasts (62 per cent), product quality (34 per cent) and delayed delivery (34 per cent).
However delivery problems caused by tight capacity have significantly intensified (33 per cent). Therefore, besides strengthening partnerships with suppliers, working with strong distributors and building safety stock, they are also using more standard components and fewer customised ones.