Confidently sourcing electronic chips on the open market

Author: Mike Thomas, president and global general manager at independent distributor Classic Components.

Electronic chips are at the heart of virtually all sophisticated equipment today from automobiles and medical equipment to consumer electronics like smartphones. So, when manufacturers must purchase electronic parts that are no longer available from authorized distributors, are obsolete, out-of-production, or only available from overseas sources, they often face a moment of reckoning as to how much risk to assume.

The challenge is that most manufacturers rely almost exclusively on chips sourced from authorized distributors and so are unprepared – even out of their depth – when these components must be purchased on the open market.

Purchasing agents often search the internet for electronic component suppliers, many of whom are located overseas. However, it is important to navigate this market cautiously, as it can be filled with risks. Inexperienced purchasers may unknowingly engage with unfamiliar or disreputable sources.

For many companies this introduces a level of risk that, at a minimum, makes them uncomfortable. For others, it is simply unacceptable.

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 [without delivering the parts], and some purchase bad parts they ultimately cannot use.

Manufacturers who prioritize risk management can greatly 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 extensive expertise and long-standing strategic relationships to explore alternative sources. These sources may include regional authorized/franchised distributors, direct connections with manufacturers, or access to surplus/excess inventories from other customers.

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 conducting a comprehensive survey with the manufacturer to gain a thorough comprehension of their unique specifications, which include chip age and the ability to trace it back to the factory. Subsequently, all potential suppliers undergo meticulous assessment, taking into careful consideration the reputation of their parts within the industry.

Should any red flags or other concerns emerge throughout this process, the independent distributor reserves the right to elevate the level of scrutiny to even greater heights, including implementing sophisticated product inspection procedures.

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 that the parts are of high quality. The risk mitigation and quality assurance steps are meticulously documented, including detailed photographs and measurements. As a result of this comprehensive process, independent distributors frequently offer long-term warranties on these parts.

Protection from open market risks – know your source

Over decades, independent distributors have developed a very sophisticated method of identifying and eliminating risk. To achieve this goal, independent distributors such as Classic Components make 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, thoroughly 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. In response to any of these factors, indefinite suspension may be imposed.

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. A systematic evaluation is conducted to identify any concerns linked to specific parts, commodities, brands, or vendors.

If there are any known issues associated with the part, a warning will be displayed.

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

The chip is scrutinized as well. This includes inspection for physical arrangement in packaging, surface-mount packaging damage, pin orientation, coplanarity, surface scratches, cut or bent leads, lead blemishes, discoloration, rust, tarnish, evidence of remarking, lot codes and country of origin, as well as evidence of sandblasting or blacktopping.

To ensure the legitimacy and high quality of chips, the authentication process is considerably more comprehensive for items with higher risk profiles.

When it comes to products like medical devices, for example, there are numerous necessary steps involved that can be both costly and time-consuming. However, these steps are crucial in ensuring the safety and effectiveness of the final product. So, we perform in-house inspection and testing, and we may call on a third-party partner to conduct additional testing.

When manufacturers have an urgent need for quality chips but cannot easily acquire them or risk substandard electronic components, working with an experienced independent distributor that will fully mitigate the risk is a safe, cost-effective option.

As Vice President – General Manager, Thomas is responsible for all aspects of Classic Component’s global corporation with a focus on renewed vision and growth. With over 25 years of independent distribution experience, Mike has successfully climbed the ladder to leading a premier multi-national distributor.