There aren’t may start-ups in electronics distribution, and even fewer that specialize in end-of-life (EOL) components. Flip Electronics has just celebrated its fifth year focusing on the “bleeding edge” of technology.
Flip manages EOL parts for component suppliers and customers. “I’d say five years is proof of concept,” said Jason Murphy, Flip’s founder and CEO. “I think one of the biggest reasons is we focus on our culture and having the right team for the job.”
Flip Electronics is No. 343 on the Inc. 5000 list that ranks the nation’s fastest-growing private companies. The distributor’s three-year revenue growth was 1318.04 percent.
Obsolete parts are a conundrum in the electronics supply chain. To focus on state-of-the-art circuits, original component manufacturers (OCMs) discontinue older product lines. OEMs that designed those parts into long lifecycle equipment – military, aerospace, automotive and medical – want them available indefinitely for maintenance, repair and operations (MRO). Few businesses want responsibility for inventory that might be needed in the future.
EOL is unwelcome news to OEMs, Murphy explained, which may face a board redesign if legacy components aren’t available. OEMs have the option of last-time buys of the devices they use -- a big and possibly unnecessary investment. Meanwhile, the OCM is deciding the number of parts to produce in the final run. There is very little information coordinating supply and demand.
Independent distributors are willing to risk buying EOL inventory -- often considered excess --hedging on a demand spike. These distributors, which are not necessarily authorized by OCMs, may not adhere to suppliers’ quality control and storage requirements. This increases the risk of part failure in the field.
“We first and foremost try to help OEMs to avoid the gray market, where there is abundant risk, including counterfeits,” Murphy said.
Broadline distributors have business units that buy EOL inventory used by multiple customers. They often test incoming components for authenticity and performance. Testing adds cost.
“We want to eliminate the premiums involved with testing and bring value to the OCM as well as the OEM,” Murphy said. “If you need a $100 worth of parts and end up having to pay $5,000 on testing, it doesn’t make sense. That’s where the grey market [option] comes in. Additionally, counterfeiting is still prevalent.”
“We provide a model that addresses slow-moving or obsolete products where an OCM has an avenue to gain relief on excess inventory.”
Flip, which is authorized by about a dozen suppliers, works directly with OCMs and customers to plan for obsolescence; estimate demand for obsolete parts; and buy and sell inventory. The distributor has to provide real value to secure a spot in the EOL marketplace, Murphy said. “We have conversations with [customers] and get them thinking about [EOL] before placing an order. Larger distributors are not set up for this – they are focusing on new orders or demand creation activity.”
Flip also works to get its suppliers on OEMs’ approved vendor lists (AVL) . “If the supplier is a new name to that customer, they have to go through the same audit process as anyone else,” Murphy explained. “We are able to get a pretty good pulse on what products the market is using and share that information with suppliers. We help them continue their customer service while they focus in new technology.”
The key is understanding what customers need in the short term and long term and communicating with OCM factories, Murphy added. “Suppliers have a wide customer base they deal with and we are an intermediary to try to add value by securing AVL privileges. We will be that company that has factory safety stock and what they need for today. The more data they share the more we will be able to align customers’ objectives with suppliers’.”
Flip invests in inventory that’s not already committed; buys product families; and takes a position on inventory for a wide customer base. “In cases of shortages we may ask the manufacturer to consider reopening a product line, and we’ll take a position on [component] mix with quick turn and slow turn products,” said Murphy. “Customers are willing to pay more to avoid a redesign or incur testing costs. They key is to be transparent about all of your processes.”
Inventory balance has improved as Flip has evolved, Murphy said, and partners understand the value of sharing planning data. “That can make the process smoother. If we do take a large inventory position our customer understands everybody wants safety stock and they understand we are partner and we take on risk.”
EOL parts can command a premium, and there are issues with OEMs that have contract prices for such products. Distributors such as Flip offset those prices by taking possession of inventory. “The math doesn’t always work but customers are usually willing to pay a premium if we take the inventory off of their books,” said Murphy.
It’s like shopping at a convenience vs. big box store for milk, he added —you may pay a little more but you have it when you need it. It also avoids turning to the grey market.
Flip is intent on maintaining relationships in the channel and an open dialog within the organization. “Our team is not just experienced – we enjoy coming together to build something,” said Murphy. “We listen to every voice at the table, which often slows things down in a bigger organization.”
“It’s also refreshing to be on a first-name basis with everyone,” he added.