SDVoE LIVE! on demand
Season 2, Episode 4 – AV Supply Chain Disruption: Is It Our Own Fault?
Have you had any trouble sourcing equipment for your install jobs lately? We’ve all heard stories about chip shortages, port slow-downs, and even things like changes to trucking regulations affecting the global technology supply chain. But what are the issues specific to AV that are contributing? And are there any strategies that we as an industry could take to help relieve the supply chain pressure? Our guest Mark Coxon believes that to some degree, these issues might be our own fault! Tune in to find out why and what we could do to change things.
Western Regional Sales Director, HD Distributing
Mark has been in AV for 20 years in integration, manufacturing, and now distribution. He has designed residential, experiential, and corporate AV systems. He is a blogger and podcaster as well. He currently manages the West for HD Distributing, a leading provider of DVLED solutions.
Justin Kennington: 00:03
How about that pose, everybody. Mark Coxon on the intro slide there looking like a televangelist. That is great. Hello and welcome everyone. Welcome to SDVoE LIVE! I’m your host, Justin Kennington and this is TV for pro AV. We’ve got, I think a very interesting, very relevant show for all of you today: “AV Supply Chain Disruption: Is It Our Own Fault?” Our guest today is Mr. Mark. Coxon who you saw in the intro there doing this number. I love that photo. He’s the Western Sales Director for HD Distributing. So if anybody knows anything about supply chains it’s somebody who works for a distribution company, right?
Anyway, we’ll talk a little more about how we were inspired to have Mark on the show, but he wrote a piece for rAVe Publications with the same title as this episode, “AV Supply Chain Disruption: Is It Our Own Fault?” And I thought it would be very interesting to talk to him about what the heck does that mean, right? These are forces beyond our control. It’s the weather, it’s everybody getting sick, it’s the ships all stuck out at the Port of L.A, right? That’s the reason we can’t get our equipment, right? Well let’s dig in and find out.
Meanwhile, if you have questions for Mark or for me or for Matt Dodd, my co-host who you’ll meet in a minute, send them to us. Get them to LIVE@sdvoe.org, just use that email address. I’m actually able to see those as they come in live on the show. We’ve got a team of moderators in the chat, whether you’re watching us on the SDVoE Academy or on rAVe’s LAVNCH platform. So send your questions in the chat, send your questions to the email address. Just tell us what you want to learn about and we’ll put those questions to Mark as needed.
Don’t forget today we’re going to have time for that in our aftershow. So this show’s going to be about 30 minutes long. When you see the credits roll, I want you to stay right where you are, don’t push any buttons and you will be joining us for the aftershow. Where we’ll sit down with our guest, with your questions and find out what it is you want to know and what are the answers to it. So stay tuned for that. Without any further ado, it’s time for us to get moving onto the show. So I’m going to throw it to a quiz question before we go see our co-host, Matt.
All right. I’m here at my comfortable desk. We’ve got Matt working hard in the Hotline Central. Let’s go check in. Matt, are you there?
Matt Dodd: 02:51
Hello, good sir. How are you?
Justin Kennington: 02:54
Oh, I’m doing well, Matt. It looks busy as usual in there today.
Matt Dodd: 02:57
It’s really busy. It’s really busy back here. Yeah. Here at Hotline Central we’ve got a team of moderators ready to take questions that you want to ask Justin and Mark from HD Distributing. Now all of the most critical elements to the success of any AV system, of course, is the design process. And with over 20 years of experience in this exact discipline, Mark is the perfect person to tap into for tips, trips, and hints to execute the design process absolutely successfully.
So get your comments and questions in. And to do that the first thing you need to do is send them over to us. And there are a couple of ways that you can do that. Firstly, you can email us LIVE@sdvoe.org. Or if you’re watching us via the SDVoE Academy, of course you could always use the chat feature on the show page just below me somewhere here. There’s a link just down here somewhere. Don’t forget your questions or comments related to this particular show are really valid, but we also want to hear your feedback. That’s really important to us.
SDVoE LIVE! is a really powerful resource to help you connect with the leading industry resources that he sets us up with and you need help with to grow your business. We’ve actually already had a question in JK. Steven Buske from Katy, Texas asked, “What can a small integrator do if he’s facing supply shortages from key vendors?” So people are already hot on this topic.
Justin Kennington: 04:20
Oh, yeah. Yeah. That can be a tricky one, right? If you don’t have the purchasing power to push anybody around, which we might find out later is a theme here then what do you do? We’ll put that to Mark and we’ll find out. So Matt, why don’t you head on out for this hotline. Come join me on the stage here and let’s cover some news.
Matt Dodd: 05:00
Oh. It’s a bit of a drum down those stairs. It always is, with the death of me one day. How are you? So you well?
Justin Kennington: 05:08
I’m fine. I’ve got this comfortable chair and this great desk. I don’t have to worry about running down the stairs. Sorry, we really should have built this studio a little differently. We could have put the hotline in the office next door, but here we are.
Matt Dodd: 05:19
Well I’ve got myself a little chair for the aftershow, so I’m quite looking for forward to hopping on that and rest my pins. So we do some news. Let’s do some news.
Justin Kennington: 05:29
Let’s see what we’ve got.
Matt Dodd: 05:30
Well first up, got a couple of stonkers here. Out of stock. We’re out of stock. This takes a look at the AV supply chain and a great, a great piece here just in from Paul Milligan. He says that buying an AV product is only going to get worse before it gets better. So what were your takeaways on this one? I’ll let you go first.
Justin Kennington: 05:52
Well what I enjoyed about this one, and by the way you guys want to read this at home, look down below in the resources section you’ll find links to all the articles we discuss. This was a really comprehensive look into why are we having these problems, right? And just first thing about the magnitude of the problems. The fact that stood out to me was Apple, I mean obviously one of the largest companies in the world, but still they announced in Q1 this year a $3 to $4 million hit on revenue, in one quarter as a result of just supply issues. Not being able to provide the products that people want to buy from them. $4 billion, one company!
Matt Dodd: 06:31
Justin Kennington: 06:31
… One quarter.
Matt Dodd: 06:32
Yeah, billion. It’s just about as much money as they have in their back pocket. But then that doesn’t matter three to four billion is a lot of money. You’re right.
Justin Kennington: 06:40
That’s it. Anything stand out for you in particular?
Matt Dodd: 06:44
Oh, yeah. I mean it was a bit of a, “oh no”, “oh no” reading it through. And it’s you kind of know what’s going to happen next in the next paragraph, but products have become much harder to get, prices have increased. Pain is being felt by everybody globally. And over here in the UK we had Brexit before, that thing that’s been happening to us all, all over the place. Let alone a dinghy getting stuck in the Suez Canal, that really didn’t help things at all. And now Paul mentions a “Chipageddon.” Chipageddon it’s the new word, right?
Justin Kennington: 06:44
I love that word.
Matt Dodd: 07:21
The global tech manufacturer struggling to meet orders. Cisco Chief, Chuck, Chief Chuck from Cisco he’s been talking to the BBC, don’t you know? And ranks another six months of Chipageddon yet. Intel, Pat, Pat from Intel he also thinks it’ll be [crosstalk 00:07:37].
Justin Kennington: 07:38
You mentioned Brexit and that brings up some of the big geopolitical issues that are part of this, right? The U.S. and China trade war that kicked off in 2019 and 2020 set us up for a world where we were teetering on the edge of making this easy to happen, right?
Matt Dodd: 07:38
Justin Kennington: 07:56
So when everybody started getting sick, companies really, I think, contracted, became very conservative. They wanted to stop buying inventory, they wanted to slow down because they assumed that demand was going to correspondingly slow. And I think it did for a time, but then that leads all the core manufacturers, the chip makers, the steel producers, et cetera to slow down their production, which takes a long time to ramp up. And then of course what we’ve seen in the last few months is this massive spike in demand as people wanted to catch up on the things that they didn’t buy.
Matt Dodd: 08:28
Justin Kennington: 08:28
As people stuck at home getting bored wanted technology to play with as in our world, in the AV world, as universities, as corporations needed to change their AV configurations to handle hybrid work and hybrid learning. Suddenly there was this massive spike in demand at a time when core manufacturing had planned for a drop in demand and you get this massive mismatch. And then something that stood out for me in that context is that unfortunately some of the AV manufacturers end up at the bottom of the list.
When it’s time to go buy some chips to manufacture your commercial display or your AV over IP in coder, the big guys, the Broadcoms of the world, and the Samsungs of the world are going prioritize they’re large scale, what am I trying to say? Consumer-level products that sell millions of units instead of tens or hundreds of thousands, that’s I think a fundamental part of this challenge specific to AV.
Matt Dodd: 09:27
Absolutely. And that leads us quite nicely into the second, or not saying nicely, absolutely nicely really, but it leads us into the second news item. Which pushes it on from that, but talks about the impact on AV product prices and availability. It builds on that perfect storm that we’ve just been deliberating and chatting about. And AV certainly residential AV, an area which I’m still quite well connected to it’s become a tougher place to survive in recent years anyway, as a consumer tech market rises.
So an increase in prices and the shortage of supply is really just icing on the cake. One thing I found quite interesting here was Sam Taylor from Almo Pro A/V’s, his comments about one of the main culprits of the chip shortage being display drivers which send the instructions for illuminating screens on displays. Well that’s pretty much every display, right? And it goes on to talk about how integrators can respond, which is good. But I’ll come back to that in a moment. What about you, Justin? Your thoughts on this.
Justin Kennington: 10:33
Yeah. I think that’s the perfect high between these two articles for me. The first one explained how did we get here and the second one is a little more like, what does it mean for pro AV and for prices as commodity prices go up? Whether that means display drivers or steel to manufacture a housing. The manufacturers in pro AV, many of them are being forced to raise prices just to stay afloat, right? And so, then it comes a question of if prices are going up unexpectedly, if products are harder to get. What does an integrator do? How do you manage that?
And it came down to three things in the article. One was just absorb the costs, charge your customer the same and you eat it. One was try to work with the customer and say, “Look, the prices have gone up. If you need it now I can get it, but it’s 10% more.” Or to seek alternative designs, right? And that’s going to be an interesting segue into what we’ll talk about with Mark in a few minutes.
Matt Dodd: 11:30
Absolutely. Yeah. And there’s the big push to takeaway finally for me was the fact that it does mentioned knowing business profitability. It’s not all about tech, be really comfortable and confident about how you’re going to use the profitability in your business to help to get intel to get you out of this horrendously weird place we’re in at the moment. I’m going to leave you to it because you’ve got an interview to do. So I will catch you later.
Justin Kennington: 11:54
Thanks Matt. So our guest today, Mark Coxon is a Western Regional Sales Director for HD Distributing, 20 plus year veteran of the AV industry, and general man about the blogosphere. I hope he wouldn’t mind me calling him that. Let’s talk to him. Mark, come on in.
Mark Coxon: 12:12
Justin Kennington: 12:18
Good day, sir. How are you?
Mark Coxon: 12:23
Justin Kennington: 12:23
Excellent. I don’t have any audio from you, Mark. So do you know sign language?
Mark Coxon: 12:31
No. Sorry about that. No, I’m in. Sorry. It’s a gloomy-
Justin Kennington: 12:34
That’s all right.
Mark Coxon: 12:34
It’s a gloomy rainy day. Gloomy rainy day here in California. It’s a little dark in here, but yeah. No, happy to join you.
Justin Kennington: 12:43
I was led to understand that it never rained in California. That the crops were watered by water that just seeps up through the ground so you can always enjoy perfect weather. Is that not true?
Mark Coxon: 12:53
Magical agriculture fairies. That’s the term.
Justin Kennington: 12:58
Excellent. So let’s dive in, right? You wrote a piece with an awfully provocative title, “AV Supply Chain Disruption: Is It Our Own Fault?” Any of you who want to read it on your own, go ahead. There’s a link below. Check it out after the show. Come on, we’ll tell you what it’s about. Why don’t you first lay it out for us. What’s your argument. First of all, the title was a question. Is your conclusion that it is a little bit our own fault. And if so, why?
Mark Coxon: 13:25
So, yeah. My conclusion is that it is in a little bit of a way, right? So when we look at supply chain and when we look what’s happening right now with us not being able to get gear, my question for you is look in the rack and see how many chipsets you need to run that pile of gear. And if you look at that and think, how many of those pieces could be consolidated, how many of those pieces could be run with something else? Was there a way that we could have stayed ahead of this curve and became a little more efficient in the way that we produce systems and not be so dependent on as many processors, as many pieces of hardware in our systems. And that was part of my conclusion.
The other part of my argument there was, that we’ve, in a lot of ways, we’ve taken our integration firms and we’ve backed them into a corner being very dependent on one or two suppliers to deliver our systems. And just like we like, we want to look out and say, “Well geez manufacturer, didn’t you have a backup plan for chipsets if you’re main producer went belly up? You didn’t have a backup plan for that?” And I would say turn that question on ourselves, why don’t we have a contingency plan for with one of our main suppliers can’t get us gear? Why have we backed ourselves into that corner so much, so.
Justin Kennington: 14:48
Yeah. Good stuff. So how did we get here, right? If AV has been building these walled gardens for all these years, is there an advantage to that? I mean I can see the advantage to that a manufacturer might see for themselves, but is there an advantage to the AV consumer? Or is this just selfish behavior? How did we get here?
Mark Coxon: 15:26
Yeah. I mean, I don’t blame the AV industry wholly for the motivation of how we got here, it just kind of happened that way. I mean, we worked with brands. In the beginning the brands could do things that other brands just couldn’t do, right? So some of our manufacturers that make control systems, they just made products that nobody else made and we needed them in order to make these systems work. As time went on that environment got more competitive and there were more manufacturers that could do those things. But what happened is the manufacturers put a lot of pressure on us, right?
They start building out ecosystems, they start giving us quotas to keep our rates and all those things. They get us deep into having all of our engineers slated in doing one programming language. And because we don’t have this kind of level playing field of standards where if you can program one system you can program another, your whole business model is built on this manufacturer. And we did that because the margins were protected because customers couldn’t shop because we were able to make high margins on hardware equipment. But unfortunately over time, that may have created some liability for us and not just the advantages that we used.
Justin Kennington: 16:38
It’s funny, before the show there was a particular C word that I asked Mark not to say. I think he’s avoiding all C words now as a result. That’s funny.
Mark Coxon: 16:49
Justin Kennington: 16:49
Yeah. I totally get that. It starts out with just as you said, making things that nobody else is making. And then next thing you know there’s an ecosystem around that and nobody else wants to standardize to his thing. So without starting a fresh, with building towards standardization, it can be a real challenge. But I also wonder to what degree are the system designer and integrator community complicit? You mentioned in the article, I’m going to quote from you here, “Teams and Zoom was not our idea. The consumer had to grab the industry and pull.”
That resonated with me. It reminded me of, I’m going to go ahead and say it, we don’t mind saying it, I used to work at Crestron and I was in charge of their digital media product line. A big part of that product success was it was out there when nobody else had a digital video solution. And what I saw from my seat was integrators and designers sometimes being dragged into that future. They said, “You know what? We understand analog, it’s straightforward for us. Digital has all these HDCP and EDID problems, we don’t want it.”
And I saw their end customers drag them to it. It really was a reflection of me of what you said here about Teams and Zoom. Is there something about the AV industry? And this feels weird to me, we’re an industry about advanced technology and latest and greatest, and yet there’s something in us that doesn’t want to move to the next thing. What do you think? I’m talking a lot.
Mark Coxon: 18:19
No. Yeah, it’s good. I mean, I don’t think the motivations for that are all bad. I think integrators want to deliver solid systems to their customers. And the history had proven at those times that the solid way to do video conferencing was to use Cisco, Tandberg, and Polycom. And that was the solid AV way to make sure you had good quality of service, that things were secure, that they were encrypted. Maybe they had clients where those things were priorities for, and they didn’t want to change their whole business model to go to the cloud, right?
I also think our revenue models are built on hardware. One of the biggest, I think, challenges we have is integration firms and moving into this new world of virtualized equipment. Is if you go into a virtual control system where they charge you, you charge your customer $299 a room a year, how do salespeople get paid? How do engineers get paid? How company monetize that? How do you create a revenue plan? Or how do you know what the retention’s going to be year over year? So all of those things in a subscription service model are a lot different than running a business based on a hardware-based model.
So I think some of that has been part of the hesitation as well, as it takes a reimagination of what success looks like in an AV integration firm and what revenues need to come in to do that. And so you know it’s harder for sales people to talk about, it’s harder for executives to restructure payment plans and pay plans for their salespeople. So I don’t think it all stemmed from bad motivation per se.
Justin Kennington: 19:50
Mark Coxon: 19:51
I just think that a lot of times we’re running a business and as we’re running that business we’re trying to keep up and we don’t have a lot of time to work on what the future looks like.
Justin Kennington: 20:01
Sure. I agree with everything you said. And yet a thing that I worry about for the sake of our industry is that that kind of conservativism is also what opens the opportunity for disruption. For somebody to come in and say, “I figured out the better way.” And just suddenly take everybody’s lunch. So what should the integrators, even the manufacturers, what should they be doing to try and solve some of those problems, right?
How do you pay a salesperson on a recurring subscription instead of on a box sale? I feel like somebody somewhere has solved that. There are subscription services. I guess Netflix doesn’t have salespeople in that sense, but we know subscriptions can work. So what does the integrator need to be doing to make sure that he’s not the one that gets disrupted in the next few years here?
Mark Coxon: 20:59
Yeah. So I mean, I think number one, we need to reduce our dependency on hardware. And I think supply chain has shown us that. I think we need to move into products that are standards based. I know that’s a weird, bad word in AV for some reason, but if we can move into products that are standards based and are cross-compatible across brands. Because right now where we’re pigeonholed is a lot of times we’re stuck in an ecosystem. And if we can’t get that one brand we’re dead in the water.
But if we’re using a standard or protocol that a lot of brands use and that there’s an organization that controls the quality of, right? Then we have a lot better chance of being able to switch to another manufacturer if our primary goes down and still be able to deliver our systems to clients in a way that we’re comfortable with. So I think we need to be doing that. And I think we need to be looking at other industries, like you said, maybe Netflix doesn’t have salespeople doing a subscription model but guess what? Security companies do. And security companies have been selling on a subscription model for years. I mean, they sell monitoring contracts and they give away hardware for free to get the monitoring contracts.
There are examples of companies that have made that switch. A lot of the hardware companies like IBM used to be mainly a hardware company. IBM is now more of an AI, R&D, and software-based company, right? Like their main revenues are no longer from selling mainframes and RS/6000s, it’s from selling services to customers. And they sold off their low end hardware divisions. Lenovo bought all of the ThinkPad, ThinkCenter stuff from IBM because IBM saw that was a three to five point venture going forward and it wasn’t worth pursuing. So I think we need to really rethink our, I guess, our reliance on hardware and look at ways that we can start to deliver systems more efficiently that aren’t as dependent on the black box.
Justin Kennington: 22:51
Yeah, I think that’s perfect. I think you called out the example of Mersive in your article, right? I remember meeting those guys when they’d first developed their product, and it was a software solution and it could do some really cool stuff. And I remember giving them what I thought was the unfortunate. I was like, “Guys, this looks amazing, but I’m just going to warn you. You can’t sell software to AV. You need to put this in a box and sell the box.” And I think they heard that feedback enough and that’s where it went. It’s tough to push against the way that this market, that any market works even when there is maybe a better way.
Mark Coxon: 23:26
Well I think-
Justin Kennington: 23:29
Are there any examples? Go ahead.
Mark Coxon: 23:31
… I was going to say, I think it’s encouraging. We are seeing companies like QSC and Shure bringing their DSPs into software space with Intellmix and the Q-SYS, like the Q-SYS system. I mean we’re seeing a lot of that now. And so I think those are trends that we need to support and to invest in learning, right? We need to make sure that our people are up on those type of systems. And I think over time we’ll see more and more of those hardware boxes become services that run as virtual machines on one larger box.
Justin Kennington: 24:01
I completely agree. In fact my next question was going to be, are there examples of folks in AV doing this the right way? So you didn’t need to hear the question, you jumped right there. I was hoping you’d bring up Q-SYS in particular. I’ve always had my eye on them and been impressed with the way that they’re taking things that could just be software and actually making them just software. Because why not? There’s this big trend that I see that anybody who looks at technology can see, which is eventually a certain application. Whether it’s moving audio or video or being Netflix, right?
Gets to a point where a regular computer can do the job. You don’t need specialty hardware; you don’t need purpose-built chips. It’s just a question of when are the CPUs fast enough to finally do that job? And it always makes me happy to see people in the AV industry understanding and embracing that even despite some of the marketing challenges that come with it.
So, Mark, we’ve got one question from our audience at least already. But I’m going to push that off for time and say join us for the aftershow, and we’ll bring Mark with us. So sit tight and we’ll ask him all of your questions when we get to the aftershow. With that, why don’t we do a quick fact check for the audience.
Mattie, Matt, how did that sound?
Matt Dodd: 25:39
Great. Great interview. Really good to hear him talk about education as well. So, I’m looking forward to tapping into him a little bit about that in the aftershow, but great interview. And thank you all for your comments and questions so far. So please do keep them coming in. Our moderators are here ready to pass them over to Justin and Mark. And of course in the aftershow I should be there too ready and poised to hand them over the questions and comments from you.
If you’re watching today’s show via the SDVoE Academy, you’ll see below me some really useful courses in the resources section that relate directly to the content of today’s show. First off, we’ve got driving return on investment through interoperability. Don’t have lots of gins before you try and say that, but it’s a fantastic course which explains how to harness the power of SDVoE technology to drive ROI in ways that a proprietary system just never could.
Interoperability is part of our everyday lives. In fact, we do take it for granted. Imagine only being able to ring an iPhone from an iPhone or a Samsung phone from a Samsung phone, it’s just ridiculous. Interoperability is very much part of the SDVoE ecosystem as well. Because you need to have absolute faith, very important. Absolute faith when integrating products from different vendors. We’ve recommended three other courses to explain this as well. More importantly, to give confidence when demonstrating this to your customers.
The SDVoE and interoperability course lays out the building blocks for interop by explaining how it’s achieved through tried and trusted standards, standards which have been around for years. And the unified API takes that one step further by offering a deeper dive into how the heart to SDVoE, the application programming interface or the API drives that guaranteed interoperability.
And finally, why don’t you check out the interop in live events course to really help you understand how all this fits into the real world. Whether you’re an industry veteran of SDVoE or you brand new to the industry, SDVoE Academy is a free learning resource. It’s there to help you integrate, design, and deliver SDVoE business. It’s your free resource. The new courses being added every month and SDVoE LIVE! archive shows being added. So make sure that you stick with us here in the academy and be part of the SDVoE community.
Justin Kennington: 28:09
Well everyone, that’s our show. Thank you so much for joining us. I want to thank our guest, Mark Coxon. I want to thank our sponsor for this show, Semtech they’re a founding member of the SDVoE Alliance and they provide some of the key chipsets that make SDVoE work. So they’ve got a real spot in the supply chain for SDVoE as well and they keep pumping it out. That’s great.
Don’t forget to catch us on social media. You’ll find us on Twitter, you’ll find us on LinkedIn. Use #sdvoelive to find us. Boy, you guys really need me to keep up here, huh? Episode five is going to be with my dear friend, Raviv Kramer. We’re coming up in two weeks. It’s going to be just a couple of days after Christmas, so get out your special Christmas sweaters and join us. We’re talking about the details and how those are what make the difference between great and not so great user experiences.
We do this every two weeks, so don’t miss us on the 28th. But if you do, you can catch us on our YouTube channel at youtube.com/sdvoealliance. Don’t forget to come over there and subscribe to everything we do. I want to thank everybody watching in the SDVoE Academy, I want to thank everybody watching on LAVNCH. Once again thanks to our guest, Mark Coxon. And we’ll see you in two weeks. Goodbye everybody.