Posted on 13 Jul, 2017 by Danielle Olivier
Whether you are manufacturing in house, or you have already outsourced to a Contract Electronics Manufacturer (CEM), you understand how important having a stable supply chain in place is.
When you buy electronic components, there are a number of different supplier types available to you or your CEM partner. From dealing direct with an electronic manufacturer through to using brokers, there are benefits and pitfalls associated with each.
Throughout the lifecycle of your product, chances are you will need to use a combination of supplier types along the way. In this blog we look at 4 different options and explore some of the pros and cons associated with using each.
Direct with the manufacturer
Electronic manufacturers design, manufacture and brand their own devices. They are responsible for releasing new technology to the market and phasing out older products when demand starts to decline. Unfortunately the latter can cause Original Equipment Manufacturers (OEMs) pain if they are not notified in time of planned obsolescence or don’t want to invest in a potential re-design.
Electronic manufacturers tend to sell their products two ways; either direct to the end user (providing the spend levels are high enough) or through a number of authorised distributors. As a buyer, dealing directly with the manufacturer is usually the most desirable way to purchase electronic devices. However as mentioned above, it’s not always possible to do so unless your company has significant levels of business to place.
- Shortest possible supply route. Dealing direct with the source reduces the risk of component issues occurring within the supply chain.
- Direct technical support and after sales service.
- Authentic and genuine parts. The parts you receive will be new and will have been handled and stored correctly.
- Full product traceability. The supply chain is short and with direct access to the manufacturer you know exactly where the parts have come from.
- Dealing direct often requires significant spend levels in order to qualify as a customer.
- If lead-times go out, or a part is placed on allocation, larger authorised distributors may get priority over you during times of disruption.
Buying electronic components through authorised distributors is one of the most common supply routes for purchasing professionals. Electronic manufacturers work in close partnership with authorised distributors who in turn distribute their products out within the wider market.
Strict supply agreements usually exist between the manufacturer and distributor and will detail conditions around pricing, stock holding/levels, targets, territory etc. Although the supply chain extends slightly, many of the benefits associated with buying through authorised distributors are the same as dealing direct with a manufacturer.
- Greater flexibility for the OEM or CEM as they have the ability to buy from multiple authorised distributors and are not tied to just one source.
- Reduced spend levels/expectations. Linked to the above, although authorised distributors may still require a certain level of spend to open an account, it is usually much lower than the expectations of a manufacturer.
- Full product traceability back to source. The distributors buy direct from the manufacturer and therefore have visibility back to source.
- Technical and after sales support. More and more we are seeing authorised distributors offering extra value to OEMs and CEMs such as ‘lunch and learn’ sessions, technical webinars and demo days in an attempt to differentiate themselves from the competition i.e. other authorised distributors.
- Manufacturers can revalidate their supply chain strategy in line with their business objectives, resulting in franchise agreements changing with short notice.
Catalogue suppliers (RS, Farnell, Mouser, Digikey, Rapid etc) have become increasingly popular with electronic component buyers over the years. As the name suggests, in the past these suppliers relied on OEM engineering and purchasing staff flicking through hard copies of their catalogues when they needed to design new components into their products or buy them. Holding a vast range of product lines, all in convenient quantities, available for next day delivery, catalogue suppliers still play a vital role in the UK electronics manufacturing sector today.
Whilst you might still find a well-thumbed catalogue on a hardware engineer’s desk, the internet changed the game and most, if not all, of their business is now carried out on-line. This type of supplier is a great solution if you need to buy components in a short lead-time or when you can’t commit to minimum order quantities (MOQs) or large pack sizes imposed by authorised distributors and manufacturers. But this service does come at a premium, and like most things that are ‘convenient’, the unit price you pay is often inflated.
- Large amount of stock lines held in small batch quantities. So, if you need a handful of parts the same day to prevent a line stop, catalogue suppliers are a great option.
- MOQ’s are not usually implemented, therefore catalogues may be more economical if smaller quantities are needed for production.
- Premium prices. However if a relationship is built up and a stable account is put in place, it may be possible to access preferred pricing (discounted) as part of your supplier strategy.
Brokers are neither manufacturers, authorised distributors nor catalogue suppliers. They are independent suppliers that usually don’t have any ties to a particular franchise. They ‘specialise’ in sourcing hard to find and obsolete parts. Unfortunately, buying outside of franchise can introduce a high degree of risk, sometimes with little technical and after sales support and of course, potential gaps in traceability.
As with any sector, when demand is high the market naturally heats up and prices offered through the grey market can start to fluctuate wildly. Unfortunately, in an allocation scenario for example, it’s not uncommon for the same stock to be sold (virtually) several times over. When looking on-line at ‘available’ broker stock always pay attention to the quantity and date codes (if they are advertised) on offer in order to get a better feel for what levels of stock are really out there. If you see lots of vendors advertising very similar quantities and date codes, chances are none of them have the stock physically and they are all talking to the same source.
Sometimes brokers simply can’t be avoided. Although the risk can increase it’s not to say you should never use them, as often they are the only way to source components, especially older technology. But if you do need to use them, we recommend selecting a core group of brokers which you audit regularly in order to minimise the level of risk you expose your business to.
- Specialise in sourcing hard to find/obsolete parts and usually have access to a wide (global) market.
- Can often deliver shorter lead times than authorised distributors or manufacturers.
- Reduced technical and after sales support. Their main business is to buy and sell, technical support isn’t usually a core offering.
- Risk of sub-standard or counterfeit parts entering your supply chain increases. Parts can move very fast between brokers so keeping track of who has what, where and how the parts have been stored and who originally purchase the parts in the first place reduces with each transaction.
- Minimal pricing negotiation. If they have the parts and they know you need them desperately, you’ll probably struggle to get the best price.
Hopefully this blog post has highlighted some of the different supplier types available when procuring electronic devices, along with the pros and cons of each. As mentioned already, it’s likely that the teams responsible for your material supply chain will need to access all of these at certain points during a particular project or product lifecycle.
It’s also worth noting that the lines between supplier types continue to merge and blur. For example, a number of authorised distributors now offer cut down/small batch quantities in an attempt to compete with the catalogue suppliers. And likewise, some catalogue suppliers will now happily sell full reels of components and pack sizes to attract larger clients.
Although some risks can increase the further down the supply chain you go, having robust supplier selection strategies and audits in place can significantly reduce these. If you currently build your own products in house then you should be aware of these policies. However, if you are outsourcing, or considering it, we recommend you focus a significant amount of time in this area to make sure you have confidence in your assembly partner’s process.
Image by Oliwa