Michael Knight’s reputation as an influencer in the distribution and supply chain world is considerable. His official title is president of the Exponential Technology Group and SVP Corporate Business Development at TTI, Inc. He is regarded as among the leading visionaries in the industry.
Knight took time to talk with Bob Vavra, senior content director for Machine Design, about the current state of the supply chain and the potential for growth in an age of expansion of electronic products contrasted with severe semiconductor shortages. The interview has been edited for clarity. The full version of the video interview is available here.
Bob Vavra: How are your customers adapting? What are they what are they coming to you for in these times? And what do you feel like you’re most able to provide for them?
Michael Knight: It’s a good question. I mean, we kind of laugh about it a little bit, but every day we wake up, we basically are looking at the newspaper and trying to figure out what’s the latest disaster that has happened somewhere in the world that’s going to impede our ability to get parts for a customer. I think that from a customer aspect they’re really coming to us and they’re looking for us to help them to devise a solution that puts them in a better position for assurance of supply.
They want to understand the lifecycle of product they want to ensure that they’re able to produce their products and get it to their end customers in a timely basis. And since many of them are publicly traded, they’re obviously trying to take care of their stakeholders, their shareholders. And so that that’s a lot of the work that we do.
We spend the time with our customers to understand—what are their goals, their pain points? And then in some cases, we’re helping to educate because we have this large portfolio of suppliers that we represent. And so, we’re getting inputs from across that portfolio of suppliers in some cases, we’re working with the customer to devise the solutions and create a new supply chain scenario for them that that is more robust than what they had in the past.
And you start piecing all of that together. And ideally, we develop a strong relationship, and we talked about trust earlier…and that that’s what we want. We want that trusted advisor role with our customers to help them in their efforts internally.
BV: A lot has been made about the people part of TTI and the process part that you you’ve had to work with. If this were a planned business situation, you would have taken five or 10 years to do what the what you’ve done in two. So talk about that from a people standpoint and also from the process.
MK: The people side of it has developed as a really strong culture over the years. It started with [TTI founder] Paul Andrews 50 years ago. It’s written on the backs of our business card as far as what we try and do from a mission. And so that was probably the easier transition is as we all went into COVID in the pandemic. We pivoted in what seems like overnight to work from home teams, meetings, Zoom meetings…whatever the medium that we want to talk about.
But we were able to really embrace that pretty quickly with our groups. We were able as leaders within the company to wrap our arms around our teams and to keep them motivated. And we really didn’t miss a beat during all of that. Our teams did a phenomenal job of making that adaptation, getting into it, taking care of the customers continuing to engage suppliers.
And that was really a strength for us as well as we came through it from a process standpoint, I would say the processes that we had developed pre-COVID didn’t really change too much. Our people in the warehouse were still going into the warehouse. They were still managing the receipts coming from suppliers. They were managing, picking the product, they were managing, getting it out the door right.
From a purchasing standpoint, our people were doing the same things. They were just doing it in a different place. And sales, same thing. We did the same things in a different way and in a different place, but it all managed to come together and work well and generate record results.
MK: I think that we’re continuing to see that. We’re all attempting to get smarter about how we do this business and all companies that I deal with—our own included. We’re going to be challenged in the coming years because of the labor shortages and trying to get good talent into the business and retain that talent.
So we’re all looking at ways to do it more effectively, do it more efficiently. Some of that’s going to involve new technologies. We started using things like robots in our business, pre-COVID, and that’s continued. We’ve started to engage what I would look at as kind of a shared services model in the lower cost countries to help manage certain very tactical portions of our business and free up other resources for more value-added functions. Those things will continue to evolve.
BV:Things like [artificial intelligence] are things that every company is looking at and trying to figure out, “How do I best take all this knowledge that I have and synthesize it down into something?” To your point, that creates value, but at the same time improves the process for the company as well as the humans that work at it.
MK: And that’s the critical question, right? I mean, we do have a ton of data. We’re a company in an industry that that builds data, and it’s about how do we take all of that and then make it meaningful—because raw data doesn’t do anything for any of us. And I think that there’s going to be a lot of opportunity for that, whether it’s in the AI space and using some of the machine-to-machine type of applications. Those are all, I think, going to be big in our business as we look forward over the next three to five years.
BV:And your customers are looking for those kinds of solutions to either piggyback on existing technologies or bring in whole new systems that are going to address some of this data management and data mining.
MK: You hear it every day. The buzzwords in the industry around supply chain resiliency and digitization of the supply chain, it’s going to rely on that. The only way that we can truly be transparent from end to end of the supply chain is to utilize these technologies that are out there.
BV: So what are the customer pain points right now? There are obvious things, but are there some specific things that you’re hearing more and more particularly over the last six to 12 months?
MK: I don’t know that that’s changed a lot over the last six to 12 months. I think the biggest pain points are really the supply chain hurdles that are there. And it’s been heavily semiconductor-oriented, much more so than in the interconnect passive electromechanical and discrete space, even though we have very extended lead times in that space as well.
But the semiconductors have really been the bigger pain points for most of our customers. I think what you’re starting to see now are a few new areas emerge as many customers were bringing in a lot of inventory over the last couple of years because they wanted to have those parts. Once they got the critical semiconductor part, they could turn it into an end product and get it out the door and make revenue.
They continued to bring the inventory in across the entire bill of materials, but it wasn’t lining up. Supply and demand were not matching. And so now what we’re starting to see is customers that have cash flow challenges. They’re starting to scrutinize their inventory levels much more closely than what they were previously. And I think that you’re going to see that continue and actually accelerate as we get through the back half of 2022.
That’s going to be a real critical concern for many companies, particularly in the mid- and smaller-tier businesses.
BV: Most of those folks don’t want to carry inventory to begin with. But out of sheer necessity to your point, they’ve had to, but now they’re stuck with output. They’re missing the one or two pieces they need to continue to push up finished products through the door, but they’re still forced to hold the inventory.
MK: They have the golden screw that’s missing, right? That’s what everybody talks about. And the customers are, I think, doing the best that they can with it. We’ve certainly seen more of the OEMs willing to put to put money in with the MES providers and to pay for portions of that. But it’s not a complete solution. And until you get a better balance of the supply and demand lining up, it’s going to be a challenge for companies.
BV: You mentioned OEMs, and that’s an area that I’m particularly interested in. I’ve seen your business becoming a consultancy as much as it is a supplier. You’re talking about, “How do I help re-engineer or assist in the engineering of products based on the availability of components as opposed to what might have been designed at the front end?”
We’re seeing a lot of these a lot of the suppliers and a lot of distributors coming back and saying, “I can help you provide engineering solutions, particularly for small to mid-size manufacturers in a different way than you might have thought of us doing that before.” You’ve obviously made some acquisitions designed specifically to help that. Talk about it from a larger strategy.
MK: Certainly from the design services side of things, we have made a couple of acquisitions in recent times, and that’s really looking to drive our model further into the design cycle of the business and provide a different value to our customers maybe than what they has provided previously. In terms of how we’re engaging the customers on the engineering front, we do it in a variety of ways.
We have technical resources that are on board. We have these engineering design services firms, and we really try and connect our suppliers technology to our customers and educate them as best as possible: Where is the product in the lifecycle? What are the parts that they should be designing with? Which suppliers should they be designing with? The more that we can give them those inputs, we’re agnostic, so to speak. I mean, yes, we have 55 or so brands on our line card, but in general we’re agnostic, where the supplier is going to go in and obviously try and sell the customer specifically on their products.
We’re going to look more at the breadth on our line card and point the customer in the direction that will be most beneficial for them to source and to get the parts when they need them.
BV: And the OEMs generally are agnostic to they’re willing to take components from two or three different distributors when necessary and put them together into a finished machine that meets their end-users’ desires. So, they’re not particularly fussy, whether it’s component A, B or C.
MK: True. They want the technology. They want to ensure in many cases that they’re on the leading edge of the technologies and that they’re with those manufacturers that are going to keep them on the leading edge, but not only keep them on a leading edge, but also be able to deliver product to them when they need it.
BV: If your machine is six or seven years old and you don’t want to make the capital investment, what do you do to be able to find an end and source that part?
MK: Sustaining engineering right now. We were in a meeting earlier today with one of our suppliers, and they were talking about some of their challenges around sustaining engineering and tying that together with new product introduction. And in this particular case, the supplier has divided those two functions—understanding that they’re both critical, but they’re very different.
And if you’re trying to have your sustaining engineers also managing your (new product introductions), it doesn’t work very well because they’re always going to get pulled into things to keep a product life going and that’s where revenue is. But you’ve got to have people that are thinking on the new products side and how that’s going to work so that you’ve got future streams of revenue.
BV: Growth does not seem to be the problem. In general, 20% growth is great, but everybody knows it’s not sustainable. But we’d like to be able to plan for a consistent level of growth. Yet there’s so many emerging markets—you’re looking at the electric vehicle market, you’re looking at the electrification of everything. So how do we grow responsibly?
MK: We’re in a really exciting time in our industry. Electronics are really prolific across every application now. There is nothing today that you touch that doesn’t have the potential to have electronics and that connected and that’s not going to change. And we’ve got some really big game-changing applications that are out there. You talked about electric vehicles being one of those.
We’re seeing electrification of aircraft and marine. You have all of the IoT applications that are out there. I don’t know how you necessarily balance evolution and responsible supply chain. I think that that will ultimately come over time. I think that we have enough good manufacturers out there with good technologies that are assessing the markets, putting themselves in the markets that they want to play and going forward and then making those capacity investments that they need in order to support the growth in those markets.
Everybody knows that you have to make the investments. Sometimes it can be a little tough on the front end because you don’t necessarily know how much or how fast that that’s going to ramp up. But in general, nobody wants to miss that either. And I think what you’ll see here over the coming years is that it’ll smooth out some. There’s still going to be some highs and lows, but it will get smoother.
BV: It does seem that after two years of explosive growth without a lot of explosive planning, there does seem to be some enthusiasm out there. There seems to be some money waiting around for the right opportunities. And in four or five of these markets have emerged that are both exciting, but we haven’t come anywhere near maturity.
IoT hasn’t come anywhere near reaching its full potential yet, and then we look at things like AI and robotics, and they’re all still growth markets, and yet they’re also prevalent in a lot of industries.
MK: It’s it really is amazing. I mean, you look across all of these various applications and you’re always kind of at that edge of where is the tipping point and how fast will the adoption occur to really drive even more of the exponential growth.
We touch all of these markets. We look at it as, what are the things that we can do as TTI to ensure that we’re able to help our customers to position themselves to take advantage of the growth?
We invest heavily in our inventories. Our manufacturer on time delivery is up over the last two years and it shows our on-time delivery to our customers. We run in the upper 90s; our manufacturers run less than 70% to us, and that’s the value of the buffer inventory that we provide. As long as we’re able to continue to do that and make the right investments in the products that are coming to fruition in the industry, then we’re able to help our customers as those industries ramp.