Supply chain disruptions currently affect 73% of manufacturing companies per year. The root cause of production delays time and time again is down to the lack of essential electronic components. These parts can no longer be sourced from the usual, traditional distribution channels and are very quickly discovered to be ‘out of zero inventory’. It is then discovered that the component has been discontinued by the manufacturer and will not be produced for several weeks. As the part affected is downstream of this component within the company’s product range, there is a growing need to locate this essential part online.
Component Scarcity Realities
A shortage of parts in the electronic components market is often a complex set of problems including limitations on the production capacity for the components, for the raw materials required to make the components and geo-political problems which stop the components from being distributed to where they are required.
Legacy components, or active components that are no longer being produced by the manufacturer, are the hardest components to source. As a rule of thumb, a component will be ‘sold out’ by the distributors within a few months after the manufacturer has announced discontinuation of production. After this, the component is allocated to the customers who placed their orders first. After a while, it becomes clear that the component is no longer available in the usual distribution channels. This is known as allocation hell. Companies that need these components will have to look for an alternative. The problem is that many original equipment manufacturers have entered into long-term contracts with their suppliers for components. These larger companies will be able to purchase the remaining components on the market in the best of cases at inflated prices. As a result, the component market is divided into two markets. The first market consists of components that are being sold on the regular market by distributors. The second market consists of components that are being sold on the gray market at higher prices. Smaller companies are at a disadvantage in this market.
Authorized Distributor Networks
The three major players for current production parts are Digi-Key, Mouser and Arrow Electronics, the three major authorized distributors for current products. Their part search is refined to allow for very specific searching by product details, package type, etc. as well as real-time availability of the parts you are searching for along with expected ship dates for in-stock items.
The biggest down fall for Authorized Distributors is that they usually exhaust their complete inventory of discontinued parts within 12 to 18 months from the time the part was discontinued by the manufacture.
Secondary Market Platforms
There are numerous Independent Distributors available who have vast amounts of stock of discontinued and obsolete parts. Most of these components were purchased in excess by the distributor or the manufacturer and are now for sale. Examples of such a distributor would be Fusion Worldwide who have a huge stock of “hard to find” components available through their Fusion Worldwide shop.
Parts distributed through secondary sources can be priced in relation to the part’s current scarcity level, and not necessarily by the MSRP suggested by the part’s manufacturer. The lead time for these parts can vary greatly, depending on where the secondary distributor sourced the parts from. Many parts distributed by secondary sources have the potential to have been stored for long periods of time under less than optimal conditions.
There are independent distributors of hard-to-find electronic components, but their inventory of any one part can be good or bad. The greatest strength of an independent distributor is that they can keep almost any part, no matter how old, in good storage. Thus, they can be a great alternative to the inventory of an authorized distributor that will exhaust their entire supply of a discontinued part within 12 to 18 months after the manufacturer has announced that the part is discontinued.
Broker Networks and Spot Markets
There are many component brokers worldwide. In general they are based in the production hubs for the electronics industry and thus you can find high concentrations in Shenzhen, Hong Kong, San Jose, Santa Clara, Los Gatos, New York City and other electronic manufacturing centers in Europe and North America.
The prices on the spot market can change greatly from time to time, so it is wise for any procurement professional to gain some knowledge of costs to complete a purchase from the market.
A Component Broker can be either a Specialist or a Generalist. A Specialist is someone with particular knowledge of certain Components, Products or Markets within the Electronics industry. A Generalist has knowledge of Components in general but lacks particular knowledge of certain Components or Markets. There is always a risk when purchasing Components from a Generalist that the Components purchased are not suitable for the particular application for which they are required. There is also the risk that the Component purchased could be substituted by another Component that is more suitable for the application.
Risk Mitigation Strategies
There is always the risk when purchasing via alternative distribution channels of purchasing components which are fake. However in many cases these items are so well produced that initially they seem to be alright when carrying out a simple visual check. Often the first time they are put to use in production, they fail. In worst cases the components even pose a safety risk. Moreover a defective component purchased this way could cause a product recall which could also bring considerable financial damage. Components which do not comply with relevant legislation also cannot be offered on the market and therefore must also be avoided.
Most distributors of second hand parts will guarantee the authenticity of the goods that they are selling. This is because they have been obtained from another source such as another manufacturer, retailer or wholesaler. The distributor will be able to supply a certificate of conformance for the parts along with a detailed paper trail of where the parts have come from and their history. Some distributors may even have the components tested by an independent testing facility for an additional cost and delay. The terms and conditions of payment and return to the supplier must also be established. It is also worth finding out the length of time that the supplier will offer a warranty for.
Components purchased from established suppliers (as opposed to from brokers or online auction sites) have a much better chance of not being counterfeit. These suppliers have a protocol in place for authenticating components such as reviewing a certificate of conformance, tracing back where a part came from, reviewing test reports, etc.
It is very important to evaluate potential suppliers while things are normal and a company has time to establish a good working relationship with the supplier. By doing so, the company can complete a supplier qualification process that will protect the company from having to search for essential components to complete a product when the company is in the midst of “allocation hell”. The way that the market for the sourcing of electronic components is changing and becoming more difficult due to the many different pressures on the supply chain of the component manufacturers, companies that are well informed as to the many different alternate methods for sourcing all of the components required by the products that a company makes will fare better in times of shortage than their competition.
