Business Improves, Variety Rules

Business Improves, Variety Rules

Distributors of mechanical components seek a solid 2015, as business conditions improve and customer bases remain diverse.

“A lot of our customers are focused on things like process automation, factory automation, and building different types of machines,” says Allied Electronics’ Dan Stewart. “Those machines could go into oil and gas industries or they could go into food and beverage manufacturing. We have a really very diverse customer base.”

Companies serving the mechanical components industries look for steady improvement in 2015, continuing more upbeat conditions that lingered through the end of the year.

Gallagher Fluid Seals of King of Prussia, Pa., sells to a customer base representing a variety of industries including oil and gas, aerospace, pumps and valves, and semiconductors.

“[And] most of our customers sell to a broad base of industries. It could be oil and gas. It could be semiconductors. It could be medical or a lot of different industries,” said company president Joe Gallagher. “Most of our customers want to have a diverse customer base [of their own]. So they are not relying on just one industry to be able to support their business.”

Dan Stewart, vice president of marketing at Fort Worth, Texas-based Allied Electronics, says his company takes a similar approach.

“A lot of our customers are focused on things like process automation, factory automation, and building different types of machines. Those machines could go into oil and gas industries or they could go into food and beverage manufacturing. We have a really very diverse customer base.”

Business conditions remain strong at Master Electronics, where they expect to see high single-digit growth this year, says Pat Wastal, vice president of product and operations.

Pat Wastal, vice president of product and operations at distributor Master Electronics, describes the company’s typical component customer as “somebody that is manufacturing some kind of electronic device in which they require discrete electronic mechanical components. It could be something as obvious as a smartphone or something as complicated as a large piece of test equipment for the semiconductor industry.”

Examples of the Santa Monica, Calif.-based company’s “best sellers” in the component categories vary depending on the industry, Wastal explained, but include “terminals, terminal blocks, relays, switches, shrink tubing, some wire.”

All three companies have had a positive year. Wastal described 2014 as good, adding that Master Electronics “will see high single-digit growth.” Allied’s fiscal year runs from April to March and its half-year numbers were up by about 10%, Stewart said. And Gallagher Fluid Seals reported in October that it was “up about 11% over where we were last year.”

Although an improving economy has contributed to this, Joe Gallagher cited other factors.

“Some of our growth has come from new opportunities, opportunities we didn’t have in prior years—projects that we have been working on in the past that came through this year,” says Gallagher Fluid Seals president Joe Gallagher.

“Some of our growth has come from new opportunities, opportunities we didn’t have in prior years—projects that we have been working on in the past that came through this year,” he said. “It could be a customer who has a new product that they had developed. Maybe that product was on the drawing board last year, and only came into production this year.”

He cited a customer that released a new product in the fuel dispensing-related industry—machinery found at any gas station. That manufacturer is phasing out the older version of the part while also manufacturing the updated model.

“On the prior product, there were about six different seals. On this new one, there are 12 seals. So that has been a great success and that product line is really getting off the ground,” Gallagher explained. “They are still supporting the old model, but are also really promoting the new model. We are seeing some very good success in that area.”

Persistence Spells Success

Distributors are also seeing the results that come from cultivating new business over a period of time.

“We are working with a new customer, a valve manufacturer, with whom we’ve been trying to develop a relationship over the last 12 to 18 months. Something has started to happen there and we are starting to see some new opportunities,” Gallagher said. “We work with our existing customers, but we are also out there trying to find new opportunities, and this is an opportunity that came to us through the persistence of one of our sales guys.”

At Allied, Stewart explained how an increase in inventory has contributed to improved results.

“The improvement that we have been getting has been pretty widespread,” he said. “It hasn’t been focused on any one particular customer base. We have made a lot of investments in our inventory over the last year or so to make sure we can get the right products on the shelves. We’ve also added some suppliers to our line card … We’re really just broadening our offerings for our customers, investing in inventory and investing in things such as our sales force.”

Though there is no standout innovation related to mechanical components, new developments and product improvements continue to come along.

“One of the biggest things that we are seeing and hearing a lot of is the connectedness of devices,” Stewart continued, “especially in the industrial space. One example is that Fluke has come out with a series of test-and-measurement devices where … you can be in a different place than where the equipment is, but can monitor it remotely in a much more sophisticated way than we have seen in the past.”

Many of these innovations are smaller in size, but stronger in performance.

“One of the things that we continue to see is things getting faster, smaller, and smarter … You have power supplies or whatnot that just continue to shrink in size and also continue to get more intelligent. It just continues to evolve over time,” Stewart explained.

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Some Worries Ahead

While generally upbeat looking ahead to 2015, the distributors shared a few concerns.

For Gallagher, one potential worry is the semiconductor markets.

“The most volatile industry we service is probably the semiconductor industry. That does go up and down. But I don’t think it cycles as it used to, say 10 or 15 years ago,” Gallagher said. “The semiconductor industry is becoming more mature, [so] you don’t see those large swings like you used to. But there are still some.”

Wastal is more philosophical about any specific worries.

“We don’t have a lot of volatility. The only thing that tends to upset our industry is when a supplier starts to relocate factories and they ‘lose the recipe’ for a short period of time,” he said. “So you have an item that might take eight weeks, and by the time they get done moving the factory and get organized, it’s up to about 16 weeks for a period of time.”

Stewart agrees with Gallagher about the potential volatility in semiconductor industries, but also looks overseas for potential concerns.

“Apart from [semiconductors], we don’t see a tremendous amount of volatility. It has been fairly stable for us,” Stewart said. “The biggest question for us … is that Europe is having a hard time. Even though most of Allied Electronics’ focus is on North America, the European market going into decline can have an impact on some of the people that purchase from us. So there may be some ramifications that we have to keep our eye on.”

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