Every purchasing person knows that from time to time some suppliers are not going to be able to help with either emergency shortages or alternate source component research and subsequent supply. When this is the case, things around the factory start to heat up and depending upon the urgency of the requirement, the company firefighters such as component and sustaining engineers and purchasing/procurement professionals are called upon to save the day.
As the fire grows from red hot to white hot, purchasing might make the decision to try and buy from previously unknown and non-authorized distributor – and dare I say the “broker” supplier? This is what the broker lives for; the greater the emergency, the higher the sales price that will be quite arbitrarily determined by the broker. (Hint…Don’t ever let a broker know how desperate you are.) The grey market broker route should only be the last, desperate path a buyer travels.
A savvy buyer can begin to make calls to other OEMs, contract manufacturers, and even visit the in-house PCB scrap pile to see if any boards can be “cannibalized” for the required parts. Also, there may be parts in another kit that is part of a work-in-progress (WIP) for another scheduled product build. If the materials planner says that the WIP kit is a build-to-forecast marketing composite and not a build-to-order customer demand, then he or she may let the purchasing person snag the needed parts on the condition that an expedited kit backfill order will be placed immediately.
But if the fire continues to spread, another firefighting tactic may be employed: Visit or call the brick and mortar, local electronics surplus business that typically house millions of components purchased at deep discounts from surplus inventories of both OEMs and electronics manufacturing services (EMS) companies. If you find yourself looking at a surplus house as a potential source, here is a list of basic questions that may be modified to fit your company’s requirements. Ask the owner:
- How long have you been in business?
- Do you have any franchise deals with any OEMs? If so, who are they?
- What contract manufacturers do you purchase from?
- Do you buy from brokers?
- Do you have new in-the-package- components as well as used bulk inventory?
- What percentage of your inventory is SMT vs. leaded?
- Do you track date codes?
- Do you have an incoming test operations to be able to certify component values match packaging labels?
- Do you screen for counterfeit parts?
- Where does most of your business come from? Walk-in? Internet? Brokers? CMs?
- Where do you get your inventory?
- Do you track your inventory in real time?
- What percentage of your business is walk-in vs. Internet?
- Can you provide the company names/references of your repeat business transactions?
Now please understand that some surplus houses run a very sloppy ship while others take pride in their operations to the extent that they hire very knowledgeable staff, have professional database management systems, and stock viable inventory with excellent shipping and handling operations. Most surplus houses fall somewhere in between. Asking the above questions will help you identify the level of risk you are taking and may also help identify and establish a good source of supply when you find yourself in the next shortage pinch.
In the next installment of this article, I will include an interview with Robert Ellingson, President of Halted Specialties Company, HSC. HSC is an electronics surplus house located in the heart of Silicon Valley and has been operating successfully since the mid Sixties. It helps to understand an operation from both sides of the counter and in fact, cultivating a strong, working relationship with a surplus house can actually save on R&D materials costs and keep those free-stock bins adequately supplied for just pennies on the dollar.