With Electronics now joining the ecsn as official member and media partner; in an exploratory, social media ‘crowed sourced’ article via a discussion group on the ecsn Linkedin network, we asked the question, “What would you do: Source components on the grey market or face a ‘stopped’ production line?” The following article explores some of the comments and responses it sparked

It’s the stuff of nightmares but almost everyone involved in the electronic components supply chain has been exposed to it in one way or another: Non-availability of components from conventional sources (authorised distributors or direct from the manufacturer) is threatening to stop the production line. Should buyers turn to the ‘grey’ market sourcing in a bid to keep the production line moving?

Adam Fletcher chairman of the Electronic Components Supply Network, believes that most supply problems in this electronic components market are a result of either an unforeseen change in availability from the component manufacturer, often brought about by a natural (i.e. earthquake) or man-made (i.e. factory-fire) disasters, or more usually poor procurement management.

Fletcher believes that internal failings of the customer account for 80 percent of production-threatening component supply problems, a situation frequently compounded by a ‘macho’ attitude “not a problem, we can source anything…” on the part of the buying department.

“A well organised materials management team should prepare and plan for a variety of potential supply disruption scenarios and be actively monitoring their supply network. Such procedures highlight potential supply problems, before they reach the critical phase, enabling the implementation of an effective recovery plan.

“It’s much better for an organisation to deliver a fully compliant product late than a defective product on time, with the attendant risks to both reputation and profitability”, Fletcher said.

Predictably perhaps, Fletcher recommends leveraging existing relationships with the components manufacturer and/or their authorised distributors but concedes that seeking electronic components from a locally based grey-market distributor with whom the organisation has established business relationship is a reasonable fall-back position.

“These organisations generally purchase from legitimate sources, be it a component manufacturer, an OEM customer or excess stock from an authorised distributor.

“But sourcing via the Internet from an unknown supplier who magically has just what you want when nobody else does is simply unacceptably risky. Alternatively it may be possible to substitute a problem component in the BOM, with the approval of engineering of course”, Fletcher concluded.

Sorting the good from the bad

Nigel Watts, MD of pan-European representative/stockiest Ismosys, is keen to point out that there are honest grey-market suppliers out there – he believes that they may even outnumber the crooked ones – but they too get targeted by fraudsters and counterfeiters:  “Components bought on the grey market may have ‘visited’ three, or four organisations before arriving at the customer’s goods-in dock”, cautions Watts. “As for component traceability in the grey-market, what’s that”?

Alex Grout, Distribution Manager EMEA at Omron Electronic Components Europe BV, believes that grey market sourcing represent a huge risk: “Omron customers who source outside the official channel turn their back on all the support the manufacturer provides.

“Obviously, we provide warranty cover for components that we’ve made not components that have had our label put on, or components that have been reused.” Grout said.

Buyer beware the ‘to good to true’

Authorised  distributor TTI is adamant that it will only ever buy from authorised sources: “Grey market suppliers have always been around, but the Internet has made them simple to find”, said the company’s General Manager Jamie Furness. “And while most suppliers are reputable you just can’t be sure who you are dealing with.” TTI will never condone buying from the grey market: “Counterfeit components can come in many forms. Wrong parts are easily identified but sometimes component markings are erased and over-printed or packages are supplied empty”, Furness continued.

“Unless a component is supplied by the manufacturer or an authorised and franchised distributor, there is a risk of sourcing a counterfeit component with all the associated consequences.

“Although a line stop can be costly, if you are prepared to buy components from non-approved sources you risk the integrity of your product, your company’s reputation, and in extreme cases, even lives. The answer is simple: work with the right supplier with the right sources approved to cover your options so that the situation never happens”, said Furness.

With the benefit of his background in procurement, John Bowman, Marketing Director – Semiconductors with distributor Anglia Component, takes a more pragmatic attitude: “We’re realistic about this; in the real world, most customers (with their back to the wall) will end up sourcing from the grey market sooner or later.”

He believes the risks are known and manageable but advises: “if you have to go there always, always, always check the components thoroughly before you put them on your board”.

But even with the most rigorous inspection, bad product can still get through, and if it is found then the customer is back at square one with no production taking place.