Do you get frustrated when you see people hashing and rehashing a problem without ever coming up with a way to fix it, when you can see an obvious solution? I know I do. Sometimes when I'm watching the news out of Washington, I even get so annoyed that I find myself wanting to invoke my grandmother's fix for everything: "Give ‘em to me for one day. I'll make sure it never happens again!"
Well, I can't help but think that there's a parallel when it comes to solving the problem of counterfeit parts. This issue has become very high profile -- and for good reasons. Now, it seems to me that many companies are reacting out of fear instead of making a wise, thought-out decisions about where and how they acquire components.
From my perspective, it's a lot like the fearful reactions of banks and lenders in 2008 -- and the result then was that credit screeched to a halt. It seems to me that something similar could happen with parts acquisition, and that wouldn't be in anybody's best interest.
Let's look at a few examples where this is happening and a few "wise"-practices.
Because of the new anti-counterfeit legislation, many companies have said, "We will not use brokers or independent distributors." With all of the noise and confusion surrounding the issue of counterfeit parts, I can understand why they are saying this. However, that's a lot like throwing out the baby with the bath water. Reputable brokers and independent distributors play valuable and necessary roles in the supply chain. Refusing to work with them because some unscrupulous vendors are exploiting the situation is causing the whole industry to suffer.
There is a real solution: Follow the steps that many independent distributors have been following for years. These companies did not react out of fear or panic. They took a cautious and methodical approach to mitigate risk.
Organizations like the Independent Distributors of Electronics Association (IDEA) and ERAI Inc., saw this issue coming years before the masses started talking about it. In fact, these organizations and their members helped sound the alarm that created awareness of the risk. Beyond that, they encouraged member companies to self-police and helped to create standards to prevent substandard parts from entering their clients' supply chains.
Take a look at some fear-based responses and suggested wise-practices that could be implemented instead:
We are going to require testing on 100 percent of parts that are not from distribution or acquired direct from suppliers:
Require testing in accordance with the standard sampling profiles already in place in IDEA and military testing standards.
We are going to jump on every new testing method -- electron microscopy, for example -- even if it is not fully vetted:
While it is important to take advantage of new testing techniques, it is more important not to rush to use something that is not 100 percent founded or not yet part of any external standards body such as ASE or ISO.
We will not source parts from anyone but the factory/franchise:
One to 5 percent of an approved vendors list (AVL) has parts that cannot be procured from factory/franchise distribution. Companies need to be able to source these parts from alternative channels to meet their clients' needs.
Brokers and independents are causing the problem:
Brokers and independents are not causing the problem. Criminals are!
A wise strategy is the way companies that are not reacting out of fear are solving the counterfeit parts problem. Here's what they are doing:
Selecting their preferred independent distributors from the role books of IDEA and ERAI.
Implementing a program to assure "purchasing discipline" in their organization.
Establishing an internal system to make sure proper procedures are followed.
Completing regular audits (desktop and on-site) of their preferred independents.
Asking their preferred independents to come in and train on what to look for.
Asking for increased screening and testing where appropriate and requiring documentation.
Becoming part of the solution by minimizing e-waste and using a preferred independent to help recapitalize and dispose of stranded material.
Removing vendors from their preferred lists when they cannot or do not adhere to the requirements they have put in place.
Clearly, the counterfeit parts problem cannot be resolved in a day or a week. However, if everyone takes a step back, looks at the whole issue, and implements wise solutions to minimize risk, I believe it can be addressed without bringing the industry to its knees. What do you think?
A recent discussion with a "buyer" in the electronics industry confirmed to me that many in the market will continue to include independent distributors in their list of potential sources. They do so for various reasons but they are also emphasizing the issues of quality, pricing and availability. These concepts run across the industry -- doesn't matter whether or not the partners are franchise or independents.
I think there's a great point in here... look at the companies/organizations that have known about, been warning, and have already instituted policies on counterfeits, BEFORE you freak out and make fear based decisions.
We do that in every other area of our life don't we? We do our own research; look at what other people who have been dealing with it do. If I were married and found out my wife is pregnant, we should all agree it would be silly of me to go to friends who don't have kids and ask for advice or look to them for how to prepare. Especially, when I people who experienced the process and deal with it on a daily basis I can go to.
While the analogy may be poor, I think it proves a point. We need to look at people who have experience and have been dealing with counterfeits for years, instead of looking to people who are reacting to it for the first time...
When I first got into this business, I decided the same thing (out of fear), "We should only buy from Authorized Distributors", then as I learned more about the industry and counterfeits, and the steps being taken by certain independent distributors, I slowly pulled away from that belief. Companies that use the services that ERAI and IHS offer, and adhere to standards IDEA agrees upon are in a completely different class than those who don't and shouldn't be lumped in to the same category by any means.
Mark - there is a place for independent distributors. It is right in line after the fully authorized sources. The electronic component market is as much about people (or more) than about the value an independent brings outside that relationship. Reputable independents have their customers and take care of them. Good for them and as well they should! That doesn't mean those customers are attempting to purchase from authorized sources first. They go to who they know that they trust and try there first. The market value of component sales serviced by independents is not in itself justification for independents as much as it is a testament to the number of relationships they have fostered over the years. I don't think you say "we sold $x of components therefore the market needed $x from us". When it comes to "component testing" by independents, I have to step in and say that anything visual is a half-hearted or tiny step in validation of product. True dynamic testing with high fault coverage on a genuine product tester while measuring edge rates, timing and power really get the heart of whether a product is genuine or not. Expensive you say? No, that's authorized.
E-Waste is only part of the problem......there is also the fact that when you make die for a component, a certain % of the die is deemed defective or not up to 'snuff' to be packaged into an ic. that % is 'supposed to be disposed of properly and destroyed. if this known bad die has a $$ value if it were to make it's way back into the supply chain as the 'good product' then u can bet dimes to dollars that a counterfeiter has a contact on the inside of that semi mfg to get his hands on the bad die and have it made into the 'good' part. Bad die is not classified as 'e-waste' because it is assumed that it never made it into the market to eventually become a part on a pc board that becomes e-waste. Bad die theft / buying is rampant in Asia. Put a bad die under a microscope and chances are good that u will c markers that lead u 2 believe that u have a valid part........bad die is good biz for the counterfeiter.
Great Question...what value does an independent distributor play in the supply chain. How do you quantify their value. Here are some first hand stats:
1. The marketplace is $3B worth of transactions from OEM/CM's to brokers/independent. This means that thousands of companies see the value year after year of using independents. Their reasons vary but almost always come down to one theme: The independent channel serves my need best for this particular part.
Now for some specifics:
1. I know that during the last allocation we helped one publicly traded OEM hit their quarterly numbers that would have been otherwise impossible if they waited full lead time. The slight premium they paid us to make that happen was more than offset by being able to hit the analysts projections. The missed deliveries could have resulted in tens of million in lost shareholder value.
2. I know that after the tsunami, our company helped secure product for mid-size consumers of hard drives. They were left without product b/c the larger consumers (PC clients) got first crack at any available inventory. Without that product many of these clients would have no product to ship...Period!
3. We have successfully extended the lifecycles of fully functional projects ranging from municpal lighting, aviation, and industrial autoamtion products. Many of these products were designed years ago and have plenty of life in them if a supplier can help service and support the business with quality repair parts.
4. A critical flaw in the flow of product from distribution and manufacturing is that it is a one way trip. Many OEM/CM clients are left with stranded material and no recourse but to try and recapitalize it through an independent distributor.
Hope that helps answer your question....Thanks for the feedback! Keep it coming!
@Mark You make an excellent point about the difference between"fear-based responses" and "wise practices." One has to consider a rational approach with feasible solutions.
I really hope some of these companies take a good hard look at everything and think before they over react. If they stop using brokers, we could have some serious issues in the supply chain. Costs will rise along with lead times and inventory. If these companies would take a second and stop panicking they would be able to figure out there are solutions.
Nemos, The point many in the industry are making is that sometime the "broker" is also the "criminal." But as Mark pointed out, manufacturers shouldn't apply the broad brush of "criminal" to every broker in the market simply because they are not franchise distributors. Unfortunately, that's what has been happening so far.
For many people in the industry, if a company operates as an independent distributor or broker, it must also be a criminal, hence the view often expressed often that buyers should only purchase parts from franchise distributors. It's going to take a major push by industry players to change this mindset. It will also require that more brokers adopt many of the actions suggested by Mark in his article.
If they take a strong stance (like your fear based examples) it wil eventually force the suppliers to get in line.
@FLYINGSCOT, I agree with your observation, but the bigger question is what is a company loosing by not dealing with suppliers ? Am curious to know what role the intermediate suppliers play.
Strong relationships between suppliers and customers is essential. In the event counterfeit parts turn up, channels of communications are open and issues are easier to resolve.
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Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
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