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Electronics Production | September 24, 2009

Tip 4: Evaluating shortage suppliers on quality & timeliness of information

Research shows that buyers spend a full 40 percent of their time on shortages: a mere 1 percent of their annual spend. Why? Largely because of the need to watch their grey market suppliers like a hawk.

Too often, a grey market supplier, either broker or independent distributor, will claim to be able to fill a buyer’s shortage, but may not always have the correct date code, lot code or even the correct manufacturer. Most independents will have policies in place to prevent this type of blatant misrepresentation, but when the salesperson on the phone stands to make a substantial personal profit from a transaction, it can be awfully difficult — if not impossible — to enforce those policies. Tip is all about when and how information is delivered. Before resorting to the grey market, purchasing teams should have a system in place to track the breadth, quality and timeliness of suppliers’ information. The system can be as simple as a spreadsheet with a basic table. The point is to capture data on when grey market suppliers share information, what information they share and how accurate it ends up being. Component buyers know precisely what they need. When their primary suppliers have lead times too long to deliver the needed parts in time, they turn to the grey market and the games begin. Unlike their franchised counterparts, brokers and independent distributors usually will not have all of a part’s information up front. As a whole, the grey market is so unreliable that when a part is brokered, the only way to have any confidence in its description is to wait for the part to arrive and check it then. That creates all kinds of slowdowns and misinformation. What would a perfect world look like? What information do buyers need to make better decisions faster? Buyers have straightforward needs: availability, conformance, transit time and price. For shortages, availability is easy: the items must be in-stock and ready to ship. Conformance can include several attributes: date code, lot code, RoHS status, an item’s pedigree, etc. Transit time and price are self-explanatory. While a buyer will weigh each of these needs differently from one transaction to the next, all are required elements for a buyer to have enough confidence to place an order. In the perfect world, suppliers would list all of these attributes up front and allow buyers to filter for exactly what they need. That is what happens in franchised distribution: full information presented up-front and total buyer confidence in the accuracy of the data and reliability of the processes used to complete the order. In the imperfect grey market though, suppliers have imperfect information and are dependent on unreliable processes. As a result, buyers have to perform research at each step of the process to confirm information as it comes back from suppliers and evaluate it for trustworthiness. That is a slow and stressful process that takes time. Any supplier who can provide all that information to buyers early in the buying process and who can execute those orders reliably will have a compelling advantage over those that cannot. That is one main reason why catalog distributors have been doing so well in recent years. Tip 4 of this series is that purchasing departments should evaluate suppliers on their ability to provide the breadth, quality and timeliness of the information buyers need to complete their shortage transaction. For every order, buyers track what was promised, when it was promised and the eventual accuracy rate. Frequent reviews of supplier performance, tied to a review of the approved vendor list, will highlight which vendors save buyer time and cut buyer risk the most. When applied regularly, this simple process will reveal patterns that can make shortage purchasing easier, more reliable and faster. ----- Author: John P. Brown is co-founder and VP of Marketing and Strategy at Verical
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