Supply chain shortages have become a global concern and a drag on the economy. The shortage of electronic chips has plagued the automotive industry since 2018. In automotive, chips control many of the features of a car, from heated seats to Wi-Fi hotspots. Without them, manufacturing cannot continue at the level consumers expect.
Supply chain disruptions are nothing new; they have become something electronic parts distributors have come to expect. With low-cost components in chronic shortage and extended lead times for delivery, manufacturers are considering relying on independent distributors to get parts on-time at the lowest possible cost without assuming additional risk.
However, for many companies, sourcing parts from the independent channel requires a significant shift in mindset.
Some companies make the decision to place orders with independent distributors the very first day they are in operation because they understand the market and how it operates. But others are hesitant because chipmakers and franchise distributors have invested millions over the years to de-incentivize their customers from going to the open channel.
Keeping auto manufacturing running
At the beginning of the pandemic, automotive suppliers estimated a decline in consumer interest in purchasing a new vehicle and adjusted their projections accordingly. Chip manufacturers then followed suit, prioritizing other sectors such as consumer electronics as they anticipated a reduced automotive manufacturing capacity. However, demand for new vehicles exceeded expectations, leaving the industry with a demand it could not meet.
The accelerated demand for chips in the automotive sector is going to remain steady for some time due to the current backlog. This means the long-term prognosis for those manufacturing chips for automotives is positive. And while things are beginning to slowly return to normal, at present, the price of hard-to-get components like chips has skyrocketed.
The shortage has led to major car manufacturers eliminating certain features in newly made vehicles because they are unable to obtain enough chips to ensure full functionality. This is where having an independent distribution plan comes into play.
If you are a manufacturer, you need to have as part of your supply chain strategy an independent distribution plan. How should manufacturers engage? They probably hesitate giving a broker business and taking it away from a franchisor or authorized distributor. But right now, independent distributors are the ones that can be strategic and can get parts that work when needed at a competitive price.
Independent distributors’ sourcing expertise should include knowing where to find alternate sources of component parts through surplus inventory, strategic relationships with other franchise or authorized distributors, and taking advantage of local and overseas markets.
Investigating sources
One mistake that some companies make during the chip shortage is being duped by counterfeit products. It is an easy trap to fall into because counterfeit items available today are impeccably made and almost impossible to distinguish from the real thing. When looking for an independent distributor, it’s important to take a good, hard look into any company to ensure both the company and its offerings are legitimate.
The situation can be described like this: your company needs a part, but none of the major, trusted sources have it in stock for at least 52 weeks. What do you do? Most turn to the internet and search for a distributor who might have the chips needed in stock. However, it is easy to set up a website and pretend to have stock that does not exist. There is also serious financial motivation with chip prices skyrocketing to produce counterfeits.
What happens when the online search produces a list of company names you have never heard of? How do you know which are legitimate and which are not? It’s best to work with an independent who knows all the players overseas. Be sure they have conducted rigorous audits and met the owners. A good independent distributor knows which companies are legit and which should not be called.
While it might be tempting to purchase a chip from a company you have never heard of that says it has the chips in stock, if a reputable independent channel source says, ‘Sorry, there just aren’t any of these chips available’ and you have an unknown entity telling you they do have the parts, it would be wise to listen.
An independent distributor can also offer supply chain management along with a rigorous quality inspection process to ensure the authenticity and quality of each component received. Use a company that relies on a quality management system (QMS) and holds certifications such as AS9120B, a requirement for distributors serving the aviation, space, and defense industry.
The process for determining if the parts are good quality means conducting a detailed risk profile that takes into consideration the known reputation of the vendor, the part, and the end use of the item. In addition, it is necessary to know the requirements for age of the components (by using date codes), traceability back to the factory, and other factors.
Mike Thomas is vice president and general manager of Classic Components a global company. Thomas has more than 25 years of independent distribution experience.
Editor's Note: Independent Distributors of Electronics Association (IDEA), a trade group, offers counterfeit mitigation programs and other services for Responsible Procurement Solutions.