How did the electronic components industry wrap up 2023 and where will the industry be headed in 2024? Jim Banovich, CEO of Marsh Electronics, joins us in this Innovation Destination – Executive Perspectives episode to discuss the trends, technologies and verticals to watch for in the new year, as well as the ever-evolving role of distributors and what will be asked of them in this changing landscape.
This interview was edited and formatted for clarity.
Tyler Fussner, Managing Editor, Supply Chain Connect
Jim, thank you for joining us today.
Jim Banovich, CEO, Marsh Electronics
Hi, Tyler. Nice to be here.
Fussner
If you could please introduce yourself to our audience.
Banovich 0:28
Yes, I’m Jim Banovich. I’m the president and CEO of Marsh Electronics. We are a regional solutions distributor of electromechanical components located in Milwaukee, Wisconsin. In addition, we do some light assembly work here with the components we like to sell. We’re all about providing solutions to our customers. A great way to describe Marsh is we do what’s called in our industry a lot of non-cancelable, non-returnable type product. We don’t have a lot of customers per SKU. So, it’s a pretty unique, the customer base. We do a lot of design-in type work, unique stuff for our customers. And then we build our inventory around what their production needs are, and actually support their production. The neat thing about Marsh is that we’ve been around since 1935, headquartered, once again, out of Milwaukee, Wisconsin.
Fussner 1:28
Excellent. And Jim, I would love to hear some more of your storied and unique perspective from Marsh. I want to start our discussion by asking you if you could give us a pulse reading of the market. How do you see the market closing out here in 2023? And where are we going to land before the New Year?
Banovich 1:49
I think from an overall standpoint in the electronic components industry, it’s probably somewhat flat. For us though it’s more on an upswing. We work with what we call second and third tier type customers. We don’t work with a lot of ‘on the printed circuit board’ type products. Our customer base is a little different; a little unique.
What we have found is if you’re working with consumer related type products (we work with food and beverage guys where they’re building equipment for the food and beverage industry) we’ve seen that segment slow, a little bit down. But when you get to the other aspect of it where we’re working with industrial type accounts, military-related accounts, off-road vehicles, commercial vehicles—that business has been, for us, very active, very busy. It’s been on the upswing. And for us, we’re going to finish on a very strong upswing.
We’ve been fortunate. We have a large project that we worked with one of our customers that gives us about a six-year design cycle, but it’s finally gotten narrowed in; started getting some production going about mid-year this year on a limited basis and then it’s going to take off in 2024. So, for us, we’re on an upswing. And even when you take that project out of the mix, the remaining part of the military and off-road vehicle business that we have, commercial vehicle business and then the industrial accounts, still been very active, very active on the design side. And their business has been really good. I would say if we took that big project element out, we’d still probably be running about 4-5% over our budget and over last year.
Fussner 3:41
Congratulations on the big project coming through. And I’m sure you’re not alone in seeing some give and take, right? There was some success in 2023, but it seems like there was some slowdown as well. And now I’m going to ask the hard question—to look into the future: What do you think 2024 is going to bring? What should stakeholders anticipate in the next coming six months? The next 12 months?
Banovich 4:04
Some of the economists we like to try and follow, they’re talking about a mild recession in 2024 in certain pocket areas. I would expect, as we talked earlier, the food and beverage area, some of the agricultural or lawn equipment guys we’ve worked with—those guys have been slow. I still see them slow. However, when you get into certain segments of the markets we deal with, I still see military being very active; the industrial marketplace and the off-road vehicles and we still see a lot of activity going on in the electrification aspect of commercial vehicles and off-road vehicles.
I think we’ll see a lot of margin pressure start to come from customers. We went through a pretty good period of time where there was a lot of growth. Long lead times of products and pricing were on constant rises. And with some of the slowness coming into play, there’s still some excess inventory out there that people are dealing with. But we are starting to see a little bit more margin pressure or price pressure coming from our customers. I think we’ll still have to deal with some of that. I think as businesses and business owners, we’re still going to see labor issues and the cost of labor continuing to go up. I know here in Wisconsin they’re talking in [the range of a] 5-6% potential average rise in wages for our workplace. It’s going to be a mixed bag of stuff. Some nice positivity out of it, but there’ll be some pressures.
Fussner 5:47
The follow-up to that is: How does the electronics industry prepare? No one could have anticipated the COVID pandemic and the shake-up that that caused the industry, but looking ahead and seeing what may be on the horizon, how can you prepare for what’s coming in 2024?
Banovich 6:08
For us, we’re trying to do a lot of work internally. I like to call it “Modernizing Marsh.” We’re trying to upgrade our systems. One of the neat things, especially for a smaller or mid-sized distributor, is that there are a lot of technology platforms out there, or technology stacks, that you can bring into your company, and they can match-up or bolt-up to some of your existing systems and it starts allowing you more tools to work with things like inventory or customer service-related stuff, forecasting, ERPs and CRMs. There are a lot of separate bolt-on items that you can get that have a lot of smarts. A lot of them are starting to incorporate AI into their analytics and their systems. It allows us to try and start being a little bit smarter, to try and get a better handle on forecasts and history that our customers supply for us and then be able to plan how to manage our inventory and build our inventory to support those needs.
I think the expansion of AI into how you work and how you operate, and all kinds of different ways, can start helping our workforce be able to work a little bit more efficiently. It can maybe take away some of the redundant tasks and you can have systems and AI in place that can help make us more efficient and more productive, because that then reflects back into pricing and being able to handle labor issues or the availability of labor.
But the other aspect is you have to work with inventory issues. We still see excess inventory in our industry. And we still are trying to find ways to get better on how to manage that inventory applied to our customers’ needs.
We’re also starting to see our supplier partners reallocate or shift where they’re doing some of their manufacturing. If they were heavily dependent on the China area, they’re trying to look at other places to manufacture to try and alleviate some of the issues we had during the pandemic. We’re seeing some of the suppliers move operations to Mexico, looking at India, they’re looking at other areas of Asia, like Vietnam and Malaysia. Those are all good things from an industry perspective, and I think from the customer perspective, because it can get back into not being dependent on one area of production where we get these pandemics, or these unique situations occur where it starts putting a hamper on production. It’s kind of like a customer; you should have multiple parts spec’d in and approved so that you’re not single source. Because if something happens to that single source, you can be in a world of hurt, and it can really affect your production capabilities. So, I see that happening.
As distributors, I see customers looking for more of a need for us to expand our quality capabilities. In other words, being able to do things like PPAPs and qualifications of parts and having higher and more in-depth quality systems embedded into our operations. And we’re seeing some of that coming down, being downloaded to us from customers to help them. It’s adding to the value proposition we can provide them, more service-related type support.
We also need to be beefed up in material compliance. I would say that’s an area, in the last year, we have seen many more requests coming from our customers and it’s a lot of work. It’s a lot of detail work. It’s a lot of busy work that gets put on your procurement teams and your inside sales teams and your quality teams to go pull that stuff. But once again, that’s another area where customers are looking for help from us. It’s a need that they’re expecting out of their distributors and it’s just one of those ways that we need to adjust, as distributors, to support our customers.
Those would be some of the big things I would see coming from changes in the industry, changes that our customers are looking for. And for us, it’s also into the value-added services area. And for us, [an example of] value-added is we do assembly services here. Our customers are also looking to us to expand those capabilities for them. They need us to be able to help them with their production processes, which then also helps us manage their SKUs for them. And it provides process efficiency gains for them. But it also allows us to do more sub-assembly-type work and enhance their production processes. I think it comes down to the value-added services area, the quality area, that you’re seeing a lot of adjustment for distribution to go down into.
Fussner 10:54
It seems like there are plenty of options in terms of how to prepare and how to be better suited to react and adjust to the needs of your business and the market. A good place to start is finding those value-added opportunities with those that you partner with.
Banovich 11:10
I think it’s great for the distribution world. It shows we’re more than just a logistics company that just inventories parts, and then provides parts for customers as their production needs go. There’s a lot more to us as a distributor—it’s a much broader value proposition for our customers and our suppliers as well. It’s another way for us to take some capabilities and enhance the products we’re representing and taking to the marketplace for our suppliers.
But our customers—they need help. They need people that can come in and provide solutions for them. They need people to do more work in the compliance area, the service area, the quality area—and some of that is new for distribution. And it’s an opportunity for us to expand our capabilities and expand our value proposition to the customer.
Since the pandemic, for the world of distributors, it’s a great opportunity to help us try and soften that blow. And if we have that inventory and we have those value-added services, in partnership with our suppliers, it should give a little bit more of a comfort level to customers that they’re not relying just on a direct relationship. And if the supplier for some reason can’t all of a sudden provide product in a good lead time, or in a good amount of turnaround time, or they have to get shut down or something, distribution provides a great buffer to that. Because we can inventory product. We could put levels of inventory in to try and support those possible shutdowns, those delays in shipment, those extended lead times that may happen. And we all know through the pandemic, there are all kinds of areas within the supply chain that can cause disruption and delay. And that’s part of the responsibility of distributors, for our supplier partners, is to try and buffer that and help our customers.
Fussner 13:05
Over the last few years, we’ve learned that the hard way. Like you said, there are plenty of areas that things could go wrong, but it sounds like distribution and the distribution industry is primed and ready to step up and provide answers in places that customers are going to start looking—new places that they’re going to look for the solutions to their issues.
Banovich 13:27
Absolutely. And for Marsh, that’s fun because we love trying to go into a customer trying to understand, “What are their pain points? What are the things they are having difficulties with?” And then we can come up with a solution for them—and that’s the fun part about who we are as a small to mid-size distributor. We have great supplier partnerships, and so it gives us the option to come up with a lot of different ideas and solutions that fit a customer’s application need. But we’re also very flexible. We can do a lot of different things. We can put together a lot of different types of programs depending on the program a customer is looking for. And then, like I said, with us expanding into some of those quality areas, into those compliance areas and continuing to enhance our light assembly area, we have a great opportunity to provide some unique solutions for our customers and get them through some of those things that they need help in.
Fussner 14:22
Jim, earlier in our conversation, you had mentioned seeing some ebb and flows in different verticals as it pertained to the electronic space in 2023. But looking ahead, do you see any verticals that are poised for rapid growth in 2024? And on the flip side of that, do you see any verticals that maybe will see a reduction or slow in their activities?
Banovich 14:42
Well, like I said, we don’t work a lot with commodity-type products and high-volume commodity-type products. So, once again, we’re kind of unique. There might be some things that we don’t see. But I still think through 2024, consumer-related-type products in our space, some of the food and beverage type stuff, maybe some of the lawn and ag equipment type stuff—we still see some slowness there. But I think the area of military is going to continue to be high-demand and continued growth. Our off-road vehicles and commercial vehicle product group—we see a lot of work being done in electrification, in the EV world. And those are great opportunities. That’s not going to slow down; that’s going to continue to climb and just get even more active. And then, we still see the industrial segment—and that gets to be a very broad area—but we’re still seeing a lot of design activity and opportunities to help our customers do some design and assist.
What helps us in those segments, with them continuing to still be on an upswing, [is that] there’s an opportunity for us to help them even more with our latest assembly and manufacturing area. It supports those verticals very well. And those are the ones I could see, from our segments in our space, that we still see a lot of lot of activity, a lot of upswings.
I think at least through 2024 some of the commercial-related stuff will be a little slow. I know the economists that we like to follow, too, they talk more about trying to get prepped and see 2025 and 2026 as being years of good growth. For Marsh, there are a lot of great opportunities out there. And I think, once again, as we talked earlier, the world of distribution, there are a lot of segments that we can all play in and provide some great value for our customers because they need us.
Fussner 16:37
How do you see procurement professionals really setting themselves up for success in the next year? If you could put something atop their priority list, what do you need to get a good handle on to be more strategic and proactive in the new year?
Banovich 16:49
We’ve always been about relationships and having relationships deep into account and forming those. And I think what's happened through the pandemic, what we have found is if you’re a strong partner with your customer and you’ve had an in-depth relationship and you’ve been involved with a lot of design work and procurement work and services work with them, you really didn’t skip a beat. And as they came out of it, they’re depending on you even more.
A lot of our procurement partners, with our customers, are limited in what they have as availability for time. They’re trying to partner with suppliers that can handle the work for them and handle more, because they don’t have the time to try and develop and qualify new suppliers or new distributors. But they’re limited. They have scaled-back workforces; their availability of labor is tight. I really think our customer procurement teams are looking to partner deeper with existing suppliers and sources they have, because they’re just limited on what they have availability to do. They’re looking for us to provide more of those services in the quality area and the compliance area.
There’s a high demand for that stuff and it’s very time-consuming, and that’s being transferred down to the world of distributors. And if you have those capabilities, it’s going to put you in a strong position to help them. They’re looking for us to provide good market feedback on what’s going on. In the production area of our supplier partners, try and give them some heads-up that if there are some issues coming so that they can plan better so that we can try to avoid some of these long lead time items that can kick up or production slowdowns or shutdowns to try to minimize all that stuff and eliminate as much of that risk as they can. They’re looking for us to provide them with some market input, some feedback, on how our suppliers and our supplier partners are operating.
Fussner 18:55
Building those relationships and really strengthening the partnerships that you have is only going to open more doors and opportunities for both businesses.
Banovich 19:03
Yeah, and we have found the trend for us is—and of course, this is one of the things that has changed, and not only as a distributor that we use, but I’m sure our customers are using it, I’m sure our supplier partners are using it—there are all kinds of analytics out there. There are all kinds of availability to grab data that we never had 10 years ago, 20 years ago—and it’s growing. It allows you, if you have the right technology tools in place, you can do a lot of analytics and you can try and help make smarter decisions on what to do. And can we figure out ways to reduce transactions? Our procurement partners are looking for us to do that because if they can reduce transactions that allows it to be a lower operating cost for us as a distributor and a lower operating cost for our customers. It means you may not need as many people to process and handle things, so you’re more efficient. And if you can do the business analytics and the business analysis of the cost factors and all that, you could work on trying to reduce transactions. It’s just a little area that we can all work on, but it provides gains for us and it provides gains for our customers.
Fussner 20:20
You just touched on the integration of data analytics becoming a trend. Do you see other trends within the procurement and distribution spaces that are going to become even more relevant in 2024?
Banovich 20:34
We’ve done a lot of transactional analytics. I see us expanding into what I call inventory analytic tools. And that’s trying to work with the data we get from our customers and do a better job of supply chain management. And by that meaning, we try and reduce the risk of excess inventory, because excess inventory is nothing more than a high cost to the distributor. And with the cost of money up, with interest rates up, it just makes the value of that inventory more expensive. We need our customers to support that. And for them, that’s a cost-adder and they’re trying to avoid that as well, but they’re also trying to avoid the risks.
So, if we can use analytics to help us both be better at our forecasting and then better at how we manage the supply chain inventory aspect of it, it’s a gain for both of us. I see a big growth area for that. It’s utilizing that data to collect.
Customers and distributors using third-party sources for material conflict management—that’s a huge area that can be very time consuming—a ton of busy work. But customers need that because they have to have that information as part of their products and there are requirements coming down from government regulations, but it’s a big workload on them. And it’s a big workload on us. We’re finding third-party sources that can do a lot of that work to help support both of us and it’s an efficiency gain and it should be a cost gain for both of us.
Fussner 22:11
It certainly seems that the new year is going to be a big one for digital transformation of the procurement and distribution spaces. It is going to be a lot of new technology coming in to, like you said, create those efficiency gains, realize those efficiency gains, that can be implemented through the use of those technologies.
Banovich 22:29
The exciting part for somebody like us… We’re a small to mid-size distributor, and our customers fall into some of those areas, too (small to mid-sized customers). We didn’t think about this stuff five years ago, because quite frankly, it was way too expensive for us to be able to do. But we were at a conference back in September and it was a great eye-opener into the technology area on how AI is coming up, the availability of lots of data and data analytics, but just all the different types of technology stacks out there that you can get that you can integrate into your existing systems or into your business that can help you work better and make better decisions. And the fun part now is that they’re affordable for distributors, companies of our size. And I think the same is applying to our customers as well as even some of the small to mid-size suppliers we have. We can now get those technology stacks and incorporate them into our business. And just like you said—it’s a transformation of our business, which allows us to operate more efficiently, make better decisions, and hopefully be a better value proposition to our customers. And that’s exciting.
Fussner 23:42
It’s good to be excited about the new year. I know the last few years have been pretty wild for a lot of industries, and it’s good to have a bright-looking future ahead.
Banovich 23:52
Marsh has been very fortunate because of the type of business we do, the segment that we’re involved in. When the pandemic hit, we were deemed critical, so we didn’t have to shut down. We saw about a quarter, a quarter-and-a-half of downness, which was mostly due to customers trying to figure out how they had to operate and what they couldn’t do and all that. And that’s about all we saw.
We saw our business bounce back and we continued to grow just because I think of our position where we were. We’ve been very fortunate. It worked out well for us. I think the management methodology we had in place allowed us to make the adjustments we needed to do quickly. And then we were able to start working with our customers. We have had great relationships with our suppliers, so we were able to get product as we needed.
Don’t get me wrong—we had our challenges. But for us, it was kind of fun because it opened up all kinds of new things that we needed to do and we’re about continual improvement at Marsh, both from a company standpoint and trying to help our customers. And with all this stuff—to me it’s exciting because you’re getting to almost repurpose your business, you get to reposition your business and get poised for the next generation and the next 10-15 years. And that’s exciting. For me it is, and I think our employees are excited about it because they see us active; they see us doing things to be relevant and they see us trying to continue to secure ourselves for the future. Things have changed, though, and the biggest part is how fast the change is.
Fussner 25:33
Jim, we talked a lot about how Marsh works with their customers and their partners, but I’m looking ahead and I’m curious how can procurement professionals lean into Marsh for success in 2024?
Banovich 25:43
They’re going to look at us to continue to try and find ways to find cost savings for them. It’s turned a little bit with lead times and products getting much more stabilized, at least in the products we deal with. We don’t deal in the semiconductor world, but I know there are still lots of issues and demand issues in the in the area for semiconductors and microcontrollers and things like that. That’s going to continue for a while. But in our segment, things have stabilized in the lead time area and things are a little bit slower. That is going to start putting pressure on where customers are going to be looking for some margin relief, and they’re going to be looking for some price relief, because we all have similar pressures. Labor rates are going up; the cost of health insurance; other general things that go on in a business and the expense world is all increasing, and they’re looking to try and maintain their bottom lines as well.
So, I think we’ll see them leaning into us trying to find cost savings… Transactional cost savings is a big deal because it can help us from an operational end and that allows you to get into the soft-cost savings with your customer and really look at good business decisions and try to be good businesspeople beyond just a part supplier. And you can find lots of cost savings of soft-cost savings in that area.
They’re going to be dependent on us to have those types of capabilities, the decision-making capability. I think they’re going to want to have us be able to do more with them. In other words, they’ll want to do vendor reduction—try and run more SKUs through us to try and streamline their processes. We have to have the ability to expand our offerings. And if it’s not an authorized line, because we’re very much into wanting to make sure the majority of our business is through our authorized suppliers, and that’s because you have contractual agreements with them; you get warranty support; and most critically is you eliminate the need of counterfeit-type stuff. Anytime you work off your line card as a distributor, that’s a risk area you have to be involved in it and you have to be very careful with.
Customers can have us do more for them. That’s a benefit for them. And I think they’re going to continue to lean into us for that kind of stuff with labor issues. They’re going to want to know how raw materials are going and are there any pieces out there that are going to have supply chain issues. A big one for us to watch will be copper, because with electrification and batteries, the use of copper demand is looking to go up over the next several years. And that’s involved in just about every element of electronic components you can think of. They’re going to be dependent on us watching that to make sure we’re keeping them abreast of how it may affect them from lead times on parts and such. And in the quality area, I think they’re looking to us to do more help for them and support the quality area and expand our quality capabilities as a distributor.
It’s not only components. It’s a lot of those little extra service areas and value proposition areas that allow us to help our customers more.
