Electrical Equipment

Commodity Group Description

Electrical products are found in almost every aspect of our lives, from the wiring and fixtures that light and power our homes and offices to the complex circuitry in our vehicles and computers to the factory floor lighting and machine controls used to manufacture all of the products we buy and use. So many activities are supported by electricity and electrical products; we almost take these products for granted. Lighting, heating, cooking, driving, processing, communicating, building and manufacturing all become possible through the support of electricity and the products that harness and control it. Since the use of electrical products is so widespread, and the market so large, distributors tend to logically break the sector down into manageable groups or sub-markets. Those sub-markets include the Residential, Commercial, Industrial, Hospital, School and Utility markets.

For the purposes of this Commodity Spotlight, we will focus on the Industrial market and how its Maintenance Repair and Operating (MRO) requirements are supported by electrical product distributors.

Once the market segment has been refined, a sharper focus can be placed on the main categories of products used within this arena. Electrical products used to support the Industrial market can be broken down into six main, yet still very large, product categories.

LIGHTING: including lamps (light bulbs and fluorescent tubes), light fixtures, ballasts and lighting controls.

DISTRIBUTION EQUIPMENT: including circuit breakers, transformers, switchgear and busways.

WIRE, CABLE and CONDUIT: including building and machinery wire and metal (EMT and galvanized), PVC, liquid-tight and flexible conduit.

CONTROL AND AUTOMATION EQUIPMENT: such as industrial computers and controllers, man-machine interfaces, safety equipment, and motor control centers.

DATA COMMUNICATIONS: such as wiring, cabling, terminals, connectors, hubs, and routers.

TOOLS and SUPPLIES: including batteries, safety equipment, tools, tape, and thousands of other products.


Industry Analysis

The 2011 forecast of electrical product sales through full line distributors is projected to increase by 5% to $84.1 Billion after an increase of 0.9% in 2010 and an estimated decline of over 20% in 2009. The Industrial market accounts for 19.4% of the overall distributor sales or $16.3 Billion i.


Top Industry Users (MRO) ii

Steel mills
Mining operations
Refining (chemical and petroleum products)
Printing
Pulp & paper
Auto manufacturing
Food processing
Ammunition and arms manufacturing
Machine shops


Key Items in the Commodity

lighting equipment; wire and cable; fittings; connectors; terminals; conduit and wiring devices; motor controls; hazardous locations equipment; sensors; programmable logic controllers (PLCs); circuit breakers and fuses; switchgear; fiber-optic cabling and other datacom products; power conditioning equipment; signaling equipment; building management systems; machine-vision systems; bar coding equipment and electricians' tools and supplies.

Electrical Type Brief Description Image Manufacturers
Lighting Lighting or illumination is the deliberate application of light to achieve some aesthetic or practical effect. Lighting includes use of both artifical light sources such as lamps and natural illumintatiof of interious from drylight. MRO lighting products include lamps, fixtures, ballasts, dimmers, sensors, and controls, including emergency and special application lighting. General Electric Lighting
Lithonia
Phillips
Killark
Eiko
Advance
Cooper Lighting
Leviton
Federal Signal
Distribution Equipment In the Industrial market, distribution equipments includes the products utilized to handle and distribute incoming electricity to bo used for lighting as well as to support the power delivery to machinery & equipment. Products includes breakers, busway, enclosures, fuses, circuit rotection, ground bars, inverters, panel boards, power systems and accessories, safety switches, terminal blocks, etc. Square D
Hubbell Wiring Devices
Thomas and Betts
Tripp Lite
Cooper Bussmann
Hoffman
Bussman
Ferraz Shawmut
EGS/Appletom
Lutron
Bryant
Wire, Cable and Conduit A wire is a single, usually cylindrical, string of metal. Wires are used to carry electricity and telecommunications signals. Wire is commonly formed by drawing the metal through a hole in a die or draw plate. Standard sizes are determined by various wire gauges. The term wire is also used more loosely to refer to a bundle of such strands, as in a 'multristranded wire', which is more correctly termed a cable in electricity. An electrical conduit is an eletrical piping system used for protection and routing of electrical wiring. Electrical conduit may be made of metal, plastic, fiber, or fired clay. Flexible conduit is available for special purposes. Carol Cable
Southwire
A.I.W.
Liquatite
Allied
3M
Panduit
Minerallac
Anamet
Control and Automation Equipment The use of control systems and information technoloies to reduce the need for human work in the production of goods and services. Information technology, together with industrial machinery and processes, can assist in the designm implementation, and monitoring of control systems. One example of an industrial control system is a programmable logic controller (PLC). Human-machine interfaces (HMI) or computer human interfaces (CHI), are usually employed to communicate with PLCs and other computers. Allan Bradley (Rockwell)
Cutler-Hammer
Banner Engineering
Siemens
Honeywell
Square D (Schneider Elec.)
ABB
Keyence
Beckhoff
Pilz
Data Communications Products to support advanced connectivity for voice and data communications, access control, securtity survelliance, building automation, video distribution, life safety broadcast systems. Hubbel Premise Wiring
Leviton
Panduit
Thomas and Betts
Ideal
Commscope
APC

Key Cost Drivers

  • Raw materials costs including copper and plastics
  • Fuel and transportation costs
  • Movement of manufacturing overseas
  • Growth and expansion leading to reduced competition through mergers and acquisitions

The main raw material used in conducting electricity is copper. Copper market pricing plays an integral role in adding or reducing pricing pressures on electrical products that contain high percentages of copper. Because copper is a closely tracked and commonly traded commodity, many facets can influence its price including

  • Foreign demand and economies like the recent large-scale economic growth in Asia.
  • Reduced housing starts due to the depressed housing market.
  • The slow recovery of the U.S. economy and associated manufacturing industries.

Despite a reduction in prices from over $4.00/lb in August 2008 to under $1.50/lb in December 2009 due largely to the U.S. economic recession, copper pricing has rebounded to new record highs trading over $4.25/lb in January of 2011 iii.

Since oil is the main input for both fuel and plastic, oil prices have significant impact on distribution transportation costs (which must be factored into product pricing) as well as actual finished good pricing. Plastic is another large cost driver since it accounts for a high percentage of electrical finished good product content. Plastic is found frequently in electrical products due to it good insulating properties.


Trends

In the last few years, there has been significant movement and consolidations within the Electrical Manufacturer Industry to not only remain competitive but to survive in tougher market conditions.

Many manufacturing organizations have established manufacturing capabilities overseas to take advantage of favorable labor rates and reduced regulatory pressures. However, due to heavy manufacturing shifts to India, Asia and other distant, low-cost labor regions, product lead times have lengthened considerably. These long lead times are often exasperated due to pressure on local distributors to reduce inventories and improve turnovers.

After a period of inactivity in 2009 and 2008, electrical OEM’s and distributors are making and executing plans for acquisitions. Some notable acquisitions in the industry include:

  • Rexel’s acquisition of Gexpro (GE Supply) in 2006 and Hagemeyer’s operations in Europe in 2008. The acquisition of Gexpro doubled the size of Rexel’s operations in the U.S.

In 2010 alone the following notable acquisitions made industry news headlines:

  • Arrow Electronics Acquires A.E. Petsche Company
  • Arrow Electronics Announces Acquisitions of Converge and Verical
  • Arrow Electronics Agrees to Buy Shared Technologies
  • Arrow Electronics Agrees to Buy Intechra
  • Thomas & Betts Agrees to Buy JT Packard & Associates
  • Thomas & Betts Acquires Cable Management Group
  • Thomas & Betts Agrees To Acquire Swiss Manufacturer PMA AG
  • Eaton Acquires CopperLogic
  • Eaton Acquires Tuthill Coupling Group
  • Schneider Electric Agrees to Buy Cimac
  • Schneider Electric Agrees to Buy SCADAgroup
  • Schneider Electric to Buy APW President Systems
  • Avnet Agrees to Buy Bell Microproducts
  • Avnet Agrees to Buy Tallard
  • EIS Acquires Fay Electric Wire Corp.
  • Cooper Industries Acquires Eka Systems
  • Anixter Buys Clark Security Products, General Lock
  • Wesco Distribution to Acquire TVC Communications

Strategic Sourcing Considerations

Any MRO Electrical Buyer’s strategy should include the basic strategies outlined below:

  • Work with engineers, end-users and requisitioners to commonize and / or standardize material requirements to a single sub-category manufacturer where possible. There are often many competing manufacturers or brands for an electrical product category (Bussmann vs. Littelfuse or Thomas and Betts vs. Panduit). A key goal should be to standardize and leverage purchases to one key manufacturer where possible.
  • The above manufacturer standardization concept works for distributors as well. Buyers should leverage purchase dollars to as few key suppliers as possible to maximize volume and associated discount levels.
  • Additional standardization benefits can come from negotiating Special Pricing Agreements (SPA’s) by working directly with OEM’s to identify and implement their products exclusively, typically at discount levels higher than what most distributors can provide alone. If significant purchase volume exists, SPA agreements can help achieve significant additional discounts and associated cost savings.
  • Work with distributors specifically on volatile products where prices fluctuate regularly. Daily or weekly spot pricing can wreak havoc on purchasing systems and clouds a buyer’s ability to understand whether or not their pricing remains competitive. Frequent quoting and purchase order revisions to correct pricing and associated invoice payment issues are inefficient and costly. Conversely, insisting on long term pricing for volatile products will likely result in non-competitive pricing since the supplier has to factor in the risk of large market increases into the price. The wilder the market swings, the more “risk factor” that has to be built into the price. An agreement term of quarterly or semi-annual price reviews for volatile products seems to be the sweet spot between managing frequent price changes and avoiding non-competitive pricing. Tying volatile product categories to an indices (PPI, Comex, etc) with negotiated deviation points (price stability for +-5% market fluctuations) is another good strategy to manage volatile items and mitigate exposure to a fluctuating market price.

Major Distributors

Company N.A. Headquarters 2009 Revenue Employees No. of U.S. Locations
IESC/Rexel/GexproDallas, TX4.86 Billion7,850567
Sonepar USAPhiladelphia, PA4.57 Billion31,440 (global)617
WESCO Distribution Inc.Pittsburgh, PA4.49 Billion6,100 (global)365
Graybar Electric Co. Inc.St. Louis, MO4.38 Billion6900240
Anixter InternationalSkokie, Il3.61 Billion7811 (global)166
HD SupplyAtlanta, GA1.4 Billion15,000770
W.W. Grainger Inc.Lake Forset, IL871.1 Million (Electrical)18,000 (total)437
Consolidated Electrical Distributors Inc.Westlake Village, CAPrivate6200584


References

  1. “2011 Customer Mix” Electrical Wholesaling. n.d. Web. January 2011.
  2. “The Industrial Market” Electrical Wholesaling. n.d. Web. January 2011
  3. "Personal Protective Equipment to Exceed $30 Billion by 2010, According to New Report by Global Industry Analysts, Inc." Global Industry Analysts, Inc. July 16, 2007. Web. October 13, 2010.
  4. “Copper Charts and Data”, Kitco. n.d. Web. January 2011
Back