EXCLUSIVE A2 Global CEO on Cost Management and Electronics Procurement

Welcome to part two of an exclusive Electropages interview with Frank Cavallaro, Chief Executive Officer for A2 Global Electronics + Solutions, a distributor of electronic components and supply chain services. With more than 25 years of successful leadership experience within the global technology distribution industry, Mr. Cavallaro is a seasoned executive who brings global market strategy and deep operating expertise. 

This part of the interview looks at managing vendor relationships, challenges posed by obsolescence and end-of life (EOL) notices, the shift toward data-driven procurement and cost management.  

Vendor Relationships, Obsolescence, and End-of-Life Notices

How can buyers effectively manage vendor relationships to navigate challenges associated with component obsolescence and end-of-life notices? What strategies and tools can be employed to anticipate and respond to these issues?

Partnering with quality distributors, like A2 Global Electronics, helps OEMs navigate spikes in demand. This is done via access to powerful data. Applying internally developed machine learning forecasting methods paired with lead-time data, A2 Global Electronics uses data-driven solutions to provide manufacturers and their partners with reliability of supply during unplanned semiconductor channel disruptions. It eliminates risk through continuous data monitoring. This enables customers to:

• Strategize for obsolescence at the design phase
• Leverage supply chain networks to plan appropriate inventory solutions
• Expand sourcing channels and vendors to account for part needs
• Build a strong obsolescence management system that helps with long-term planning, making informed decisions quickly, and avoiding costly redesigns or fines

Data-Driven Procurement and Customer Behaviour

What shifts in customer demand and behaviour are expected in 2024 that could affect the buying process?

The infrastructure required to support the growing demand for AI (and necessary components) is still unknown, and most likely not yet adequately constructed. With the proliferation of AI technology that consumers use daily, we're going to see more strain and possible undersupply in late 2024 or early 2025. The industry needs to take note of these delays, understand the consequences and take strategic steps to get ahead of impending shortages.

Cost Management and Price Trends

What are the best practices for cost-effective procurement in electronics for the current market and future predictions?

In order to protect against future disruptions, companies are turning to inventory prepayments, so they can secure required components for their end products. For example, Micron announced it received $600 million in customer prepayments during fiscal Q1 2024 alone. In December 2023, AI leader NVIDIA made a total of $775 million in upfront payments to multiple chipmakers to secure cutting-edge high-bandwidth memories.

To guarantee they can secure the critical components they need, OEMs must have those conversations and make the prepayments now rather than waiting until the situation is critical. Prepaying for chips long before OEMs can use them (and thereby recoup the cost) is a significant investment. To protect balance sheets, prepayments are best made on components that are in the highest demand. Reliable market forecasting strategies should be used to enable better-informed decisions about which parts to buy and at what volume.

How are price trends for key electronic components expected to change in 2024?

The semiconductor market should ease into more balanced, predictable supply behaviour in early 2025.

This will be due to the following factors:

• Legacy constraint period “take-or-pay” contractual agreements terminating
• Better supply visibility by mid-late 2024
• Surety of product manufacturing
• An improved economic situation, with better capital and lower interest rates
• Semiconductor market growth opportunities related to AI hyper-scaling and high-end cloud computing demand.

New Product Introductions and Innovations

What new products or innovations are on the horizon for 2024, and how can they benefit buyers?

Though they won’t begin to permeate the market at a large scale for many years, chiplets will play a major role in the future of semiconductor advancements and will eventually become a mainstay in new fab chip production.

What Did You Miss in Part One?

Part one covered supply chain management and market trends & forecasts, looking at current global events and their impact on the electronic component supply chain, strategies that buyers can employ to mitigate these threats and how demand for semiconductors is expected to evolve over the rest of the decade. You can click HERE to read it.

About A2 Global Electronics + Solutions

A2 Global Electronics + Solutions, established in 1989, is a prominent player in the distribution of electronic components and supply chain services. Originally known as America II Electronics, the company merged with Advanced MP Technology to form A2 Global, leveraging over 40 years of experience in the industry. 

The company specialises in a variety of solutions, including component authentication, shortage mitigation, inventory solutions, obsolescence management, and global sourcing. Headquartered in St. Petersburg, Florida, A2 Global operates multiple distribution centres worldwide, serving industries such as automotive, defence, aerospace, medical, and more. 

Visit https://a2globalelectronics.com/ to learn more.