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The supply chain serving the fiber optics industry is complex and changing rapidly. Widespread consolidation, where large companies are purchasing their smaller counterparts in order to provide national coverage and one stop-shopping, characterizes much of the recent activity in the industry. The fiber optic specialist is a dying breed, as growing distributors and installation companies discover the benefits of crossing over into a wide variety of communications media, including electronic cabling, which is increasingly used in tandem with fiber optics. The fiber-optic supply chain is a myriad of distributors that offer a full line of connectors, cables, installation equipment, polishes, abrasives for the polish and most other supplies used by installers. According to a study conducted by Cable Installation and Maintenance Magazine, 80% of material in the fiber optics market flows to installers and end users through distributors. The remaining 20% are purchased directly from the manufacturer. At least 135 companies in the fiber optics marketplace classify themselves distributors, yet 95% of fiber-optics material flows through the six largest distributors, which are: - Graybar - Anixter - Anicom - Communication Supply Co - Sprint North Supply - Black Box The distribution chain in the fiber optics industry is characterized by low profit margins. Increasingly, profit depends on large volume sales, which is driving much of the industry consolidation and motivating some distributors to require minimum purchases from installers. At the same time, end users are demanding more in terms of performance and reliability of their fiber optic networks. Consequently, installers are increasing their demands on the distribution chain, as distributors are now expected to produce parts overnight and back their products with longer warranties. As the market environment becomes more competitive, distributors are finding methods of increasing their level of service through a variety of value-added services. These services can involve: - Custom cable cutting - Just-in-time onsite delivery - In-house testing of products - Installer training and certification - Technical support - Software packages that assist with fiber optic network design and other technical aspects of installation Distributors that are also manufacturers have the advantage of offering product customization, and these companies tout their ability to be more responsive regarding individual client needs with issues such as repair and calibration. As consolidation takes hold in the fiber optic industry, relationships between manufacturers, installation companies, and distributors also change. Partnerships between distributors and installers, where leads are exchanged and complex subcontracting relationships drive much of the installation work are becoming commonplace. While distributors generally do not install, they will often bid on jobs and act as project manager, designing the cable network and farming out the installation work to selected installers - usually the ones that buy the most material. By the same token, installers often reciprocate and frequently find installation jobs and ensure that the distributor's product is used. There is some indication that installers keep the consolidation activity of the largest distributors in check. There have been instances where distributors have sought to enter the installation arena, either through acquisition or expanding their own operations. In some of these cases, installation companies have objected causing distributors to preserve client relationships and back off from installation endeavors. Companies that have executed successful vertical integration of the supply chain have done so in a way that avoids (perceived) conflict of interest. Consolidation is further slowed by increased outsourcing of installation work, which is often the most cost-effective method for mass distributors to bid on large installation jobs nationally. There is only one installation company, Ohio-based Henkels and McCoy, large enough to have a national presence, the rest being small shops. There is plenty of room in the industry for small installers as the big ones that bid and win the large jobs never have enough employed installers and must hire a network of smaller subcontractors to complete any job. As a result, the smaller more specialized shops have more work than they can handle.
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