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Distribution_Dispatch
December 19, 2013
 
Editor's Note 
BarbaraJorgensenIn spite of the best of intentions, a lot of business remains unresolved at the end of every year. One such issue came to light in mid-December when chip maker Xilinx revealed it was suing Flextronics for fraudulent chip resales. The issue of component resales has dogged the supply chain for a long time and the suit raises some interesting questions: what rules govern the resale of components and what constitutes a violation?
 

The topic raised some lively debate on Electronics Purchasing Strategies. Many readers said that any party that buys a product - component or otherwise -- should be able to resell those products at will. Several readers pointed out contractual obligations may or may not include the right to return components; and others found the discouragement of resales restrictive. If the suit plays out, it may lead to some kind of clarification of these issues.

 

 One thing that muddies the process in the supply chain is the issue of "ownership" when an EMS may buy a product at a customer's behest. Who owns the product - the OEM or the customer? Moreover, many components aren't really paid for at the time of purchase-they are put on consignment; prices may fluctuate or credit may be extended. Some products are non-cancellable/nonreturnable (NCNR); others aren't. Most of these issues are handled in contracts.
  

A second layer of complexity is added when the distribution channel is involved. Distributors may or may not be able to take back components depending on their agreements with suppliers. Returns are a privilege extended to authorized distributors that also provide other services to suppliers. When components are resold, they often enter the non-authorized channel. Non-authorized distributors don't generally receive return privileges. A fraction of the independent market, brokers, often buys components on spec and waits for a market fluctuation. In times of shortages, prices become highly inflated. Non-authorized channels may also undercut prices authorized distributors and suppliers are charging. So the practice of resales is discouraged by component makers and authorized distributors.

 

The third and most dangerous issue is counterfeiting, which is also raised in the Xilinx-Flex suit. One solution to the problem, DNA marking, is also spurring debate. It's unlikely one suit will resolve these issues to the satisfaction of all, but it will continue the debate that's ongoing in the channel.

 

Need to find a part in a hurry? EPS has added a new Distributor Inventory Search tool. Search by part number, distributor or manufacturer.

 

Barbara Jorgensen

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