Electronics Production | September 11, 2009

Tip 3: What’s the Real Deal? Score your suppliers on inventory control

One of the many risks of purchasing from the grey, or “secondary,” market is the risk that the parts you purchased will not arrive on time. The broker claims to have the parts available, you place your order, and…nothing.
The broker might claim there are some delays with his overseas warehouse, perhaps there are some holdups in customs, or sometimes a botched delivery. At the end of the day they all amount to little more than the supply chain equivalent of “the dog ate my homework.”

While this failure can have many potential causes, the most frequent one is that the supplier never really had the parts in the first place. With enough time spent in the grey market, any buyer will get stung, but there are ways to protect against this frustrating practice.

Shortage buyers can turn to one of several sources to find the parts they need to keep the assembly lines moving smoothly. To deliver this level of confidence, suppliers should meet a list of minimum requirements:

- Be fully transparent in their dealings with buyers: not just on issues like pricing or item pedigree, but on operational issues like warehouse types, inventory audits, data freshness and inventory confirmations. To a shortage buyer looking for quick answers, a quick “sorry, no stock” is far preferable to false promises of an impending shipment.

- The inventory should be in-stock in a world-class warehouse facility managed by professionals with no financial stake in closing the order. Inventory lists would be fresh and the data would be ensured accurate by an independent contact. Does the supplier share their process with you? Does the supplier ask you to take their word, or is there someone who independently confirms the inventory is physically present?

Potential Sources and the Shortage Buyer
Authorized Channels: It should go without saying, but many buyers still fail to check their authorized channels when given a shortage to fill. Searching alternate part numbers can find stock that would not otherwise show up at a particular distributor. Since component manufacturers and franchised distributors have the best mechanisms for fulfilling orders out there, buyers should still go here first.

Marketplaces: An extension of the primary market, a fully operational marketplace will have controls equivalent to a franchised distributor. Warranties may not pass through with every order, and there are some technical challenges to bringing together dozens of suppliers, but a proper marketplace will handle data integrity, order fulfillment and payment processing. Pay attention to their policies on inventory handling — not all firms are created equal.

Bulletins: Basically a “list of lists,” these sites will combine the inventory reports from several suppliers without a quality check of the data or determination of whether the parts listed are even physically present. Many will present themselves as some kind of full service provider but will lack the network of systems and processes needed to ensure secure fulfillment. These bulletin boards are good for the first step of the search, but buyers should be wary of any who promise more than they can deliver. Read the fine print.

Independent Distributors: In recent years, the leading independents have made major investments in their warehousing capabilities. Anecdotal evidence suggests, however, that only 15-20 percent of revenue comes from orders where the parts are already in stock, limiting the total amount of protection buyers can expect when sourcing from independents. The other 80 percent of the time, independents are just brokering orders and are exposed to the delays and holdups of using “available” inventory from “overseas suppliers.”

Brokers: Brokers do not carry stock. A buyer asks them to find parts, and that is what they do best. With a buyer lined up, they will search high and low to find someone — anyone — with the parts the buyer needs. The better ones will volunteer stock-checks and confirmations, but too many will just process the order and try to find the right parts after they have a PO in hand.

Smart buyers instinctively know there are levels of trust and capability in the shortage market. Purchasing departments should measure suppliers for their transparency of information, the maturity of their operations, the level of control over the parts they list, and their responsiveness of communication. All of this work needs to happen early and be updated a couple of times a year. When the shortage happens, it’s too late to build confidence.

Author: John P. Brown is co-founder and VP of Marketing and Strategy at Verical
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