Tightening Supply Squeezes Connector Buyers

In a market where product lifecycles can be less than six months, protracted component lead times can be a virtual death sentence for a new product development project. This is exactly what OEMs sourcing military specification, or mil-spec connectors may be facing as demand hits all-time highs and manufacturers reach capacity.

OEMs should be prepared for lead times on mil-spec connectors to stretch as far as 26 weeks, according to Ron Bishop, president of Bishop & Associates, Inc., a market research firm in St. Charles, Ill. “Lead times are traditionally long in this space,” he says. “And though we haven’t seen 20-plus weeks in a long long time, suppliers are running at capacity and demand continues to be brisk. At this point, anything is possible.”

Historically, demand for mil-spec connectors has been like a seesaw, Bishop says. When the defense sector has been up, the airframe sector – a subset of the aerospace market focusing on the mechanical structure of aircraft – has typically been down. Today, however, connector suppliers are enjoying unprecedented demand in both the defense and airframe markets. Military connector sales have grown in the double digits for the past several years, Bishop reports. This growth is approximately twice the historical average of 4 percent to 5 percent for this market.

For example, Boeing Corp. has booked more than 900 new orders so far this year, bolstered by demand for its new 787 Dreamliner jumbo jet. Illustrating the enormity of this demand spike, Boeing’s record of annual orders shows that the company netted more than 1,000 orders per year in 2005 and 2006. Yet in 2004, total orders came in just under 300. In addition to the surge in commercial aviation, the worldwide war on terror has spurred demand in the military sector. Maintaining and replenishing depleted defense weapons systems and vehicle inventories has not only consumed a much higher than normal quantity of electronic devices, including connectors, but it has also depleted raw material stocks of aluminum, steel and copper, notes Pat Wastal, senior vice president of Interconnect Passives & Electromechanical (IP&E), Avnet Electronics Marketing Americas, Phoenix.

While this ongoing torrent of activity is good news for connector manufacturers, it could spell trouble for OEMs. “Any time there is a tight supply and demand market, OEMs can expect prices to go up and lead times to stretch even further,” Wastal says. In many cases, he adds, typical lead times have already been pushed out by four to six weeks.

Working closely with authorized distribution partners is the best way to mitigate these risks. For example, Wastal notes, most Avnet customers are unaffected by additional price increases since they are protected by the long-term contracts they maintain with Avnet. Meanwhile, those that are likely to be hardest hit by any price hikes would be buyers on the spot market.

In this environment, it is also important for OEMs to establish longer range forecasts than they typically would, adds Lew LaFornara, vice president corporate product management, TTI Inc. in Fort Worth, Texas. “This allows us to pipeline inventory to assure timely component availability,” he notes. “The earlier customers can commit to a forecast, the better we can prepare to protect them against lack of availability or price increases.”

Longer-term planning can also help OEMs avoid being saddled with counterfeit or substandard components. “Whenever there is a situation where demand is tight and pricing pressures are up, we find that getting product becomes the customer’s one and only concern, and confirming the source of the product is overlooked,”  LaFornara says. The consequences of introducing counterfeit product to the mil/aero supply chain can be particularly severe, considering the applications for these technologies, such as commercial airplanes and defense equipment. “This is why we stress the need to be diligent about the traceability of supply. And as long as customers share their long-term forecasts with us, we can invest in the inventory ahead of time, and help them avoid these pitfalls,” adds LaFornara.

Since many connector customers also rely on distributors like Avnet and TTI for value-added connector services, Wastal and LaFornara note their respective companies are both bolstering the capacity of their value-add groups, as well as continuing to invest in component stock. “Our ability to mix and match components gives us much better utilization of our inventory, so we can carry more breadth and depth in our connector line, without the inventory liability that an OEM would face,” Wastal says.