Confidently sourcing electronic chips on the open market

As Classic Components explains, with risk mitigation measures in place, manufacturers can confidently purchase quality parts on the open market.

When manufacturers must purchase electronic parts no longer available from authorized distributors, obsolete, out-of-production or only available from overseas sources, they often face a moment of reckoning regarding risk. Most manufacturers rely almost exclusively on authorized distribution, so are unprepared when components must be purchased on the open market.

Purchasing agents often search the internet for electronic component suppliers, many located overseas. However, it is important to navigate this market cautiously. Inexperienced purchasers may unknowingly engage with unfamiliar or disreputable sources. For many companies this introduces a level of risk ranging from uncomfortable to unacceptable.

Classic Components’ president and global general manager, Mike Thomas, explained: “Sourcing electronic chips online without knowing who you are buying from is as naive as trying to buy a genuine Rolex watch in a back alley. I have heard of suppliers disappearing after the manufacturer wires over the money and some purchase bad parts they ultimately cannot use.” Manufacturers prioritizing risk management can benefit from collaborating with an independent distributor. By doing so, they can safeguard their production and reputation through the acquisition of dependable supplies of high-quality chips.

In contrast to authorized dealers, experienced independent distributors can utilize their expertise and long-standing strategic relationships to explore alternative sources including regional authorized/ franchised distributors, direct connections with manufacturers or access to surplus/excess inventories from other customers.

Thomas continued: “Experienced independent distributors play a crucial role in safeguarding manufacturers from the inherent risks associated with buying electronic chips on the open market. By acting as a buffer, these distributors help reduce the burden and potential liabilities that manufacturers may face when making these critical purchases.”

The initial step involves a survey with the manufacturer to gain a thorough comprehension of their unique specifications, including chip age and traceability. Subsequently, all potential suppliers undergo meticulous assessment.

Should red flags or concerns emerge, the independent distributor can elevate the scrutiny level to greater heights, including implementing sophisticated product inspection procedures.

Thomas added: “A professional [independent distributor] has the resources and experience to assess the risk and evaluate the sources. Depending on the level of risk, they can take different mitigating actions, particularly when hard- to-get, older or obsolete parts are required.”

Manufacturers can then proceed with confidence, knowing the parts are high quality. Risk mitigation and quality assurance steps are documented, including detailed photographs and measurements. Following this process, independent distributors frequently offer long-term warranties on these parts.

Independent distributors have developed a sophisticated method of identifying and eliminating risk. For example, Classic Components makes substantial investments in managing global supply networks, evaluating and prioritizing suppliers, establishing preferred supplier relationships, implementing efficient quality management systems (QMS) and procuring state-of-the-art inspection equipment.

The process begins with vendor qualification and management to ensure the independent distributor is collaborating solely with a reliable and approved supplier. A tiered supplier selection and approval system is used to assess vendors against rigorous standards. Each supplier is categorized, documented, regularly reviewed and subject to tier reclassification based on events and patterns observed by Classic Components or reported by third-party sources.

These sources include: instances of supplier non- conformance to product reliability and integrity; changes in quality status relative to industry standards; industry reports regarding overall vendor quality; alterations in financial conditions such as outstanding payments or accounting issues; shipping of substandard products; or repeated occurrences of product quality issues. Regarding any of these factors, indefinite suspension may be imposed.

Thomas said: “Internally, our vendors are evaluated and assigned a grade and ranking using an alphanumeric system, which depends on their distributor type. This encompasses original chip manufacturers (OCMs), authorized distributors, along with other traders and alternative sources.”

According to Thomas, when a manufacturer requests a part, an agent asks a series of questions and completes a flow-down risk profile form developed by the company. These questions determine the chip’s intended application, manufacturing date restrictions (day code) and material traceability requirements, which include proof of direct sourcing from the factory.

Classic Components supply chain and purchasing teams regularly undergo training to effectively utilize their system to detect potentially risky parts, identifying any discrepancies or other related issues. The company also adheres to established international quality standards such as IPC, ISO, JEDEC, AS and others when selecting and managing their suppliers.

At this point, the independent distributor’s buyers will begin sourcing from vendors ranked by reputation and will negotiate terms.

Compliance verification, which includes visual inspection, testing and physical analysis of parts, serves as an additional protection layer. Only parts having undergone QA control, in accordance with internal controls and established international quality standards, are shipped.

As part of routine quality checkpoints, technicians conduct inspections of external packaging for elements including original and sealed packaging, correct labeling, proper QC markings, accurate lot codes, consistent colors/fonts and potential bar code discrepancies. Internal packaging checks include the appropriate logo, labels, bar code, desiccant, dry pack, moisture barrier bags and vacuum sealed antistatic bags.

Chip scrutinization includes physical arrangement in packaging, surface- mount packaging damage, pin orientation, coplanarity, surface scratches, cut/bent leads, lead blemishes, discoloration, rust, tarnish, evidence of remarking, lot codes and country of origin, plus evidence of sandblasting or blacktopping.

Thomas concluded: “When it comes to products like medical devices there are numerous necessary steps that can be costly and time-consuming. However, these steps are crucial in ensuring the final product’s safety and effectiveness. So, we perform in-house inspection/ testing and may call on a third-party partner to conduct additional testing.”

Upon completion of the process, Classic Components offers a comprehensive five- year warranty and flexible net terms for payment, not due until the manufacturer receives and assembles the parts. Furthermore, the distributor provides substantial insurance coverage for the chips including: $10 million for general liability to cover costs related to physical injury or property damage; $5 million for technology errors and omissions to address expenses arising from sub- standard material issues; and $5 million for employee crime and dishonesty to cover costs due to part failures resulting from employee misrepresentation, forgery, fraud, or counterfeits.