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How to avoid the perils of the grey market in times of shortage

31st August 2022
Paige West

Supply chain shortages make it extremely difficult for OEMs to source electronic components, with many feeling that they have little alternative other than to use unauthorised supply routes to fulfil their customer orders. However, this option is fraught with danger and greatly increases the risk of receiving counterfeit products.

In this article, Peter Greenslade of Solid State Supplies, outlines the pressures on manufacturers and the potential consequences of their using unauthorised channels. He also addresses the benefits for customers of working directly with established component distributors and explains how a dedicated sourcing division can mitigate supply chains issues, ensure quality control, and greatly reduce the risk of substandard electronic components.

During the early 2000s, it was said that an excess of components in the supply chain meant that more than $13 billion worth of semiconductors was simply written off, or down, by the component makers, distributors, and customers, according to Barbara Jorgenson, Editor-in-Chief for EPSN. How happy would we be to have those components now?

More than 20 years later, supply chain issues have raised their head again, with many shortages making it extremely difficult for manufacturers to source the appropriate electronic components they need.

The latest electronic components shortage crisis appears to be an ongoing hot topic. But how did it start? Pre-Covid, there was already a shortage of electronics in some sectors and then lockdown saw a huge increase in demand for devices such as PCs and games consoles. This was then exacerbated with city-wide Covid-19 quarantines in China causing serious production and logistics issues for the country’s electronic component suppliers.

Intel, earlier this year, forecasted that the global shortage of chips will continue into 2024, while ZDNet highlighted that the global electronics supply chain shows promise for 2023 in an article this month.

Unfortunately, many either cannot or do not want to wait, feeling that they have little alternative other than to head to the grey market and use unauthorised channels to fulfil customer orders.

Expertise and experience

Navigating this potential minefield can be a huge headache for customers, fraught with the economic and reputational danger that comes with a greatly increased risk of receiving counterfeit or unsuitable products.

Understanding the pressures on OEMs and the potential consequences of using unproven suppliers, whether deliberately or accidentally, is critical. OEMs are obliged to turn over every stone to keep production going, and that makes the process very expensive and time consuming. For some, it is tempting to take the route of the unknown reseller but doing so can have catastrophic consequences.

Another example could be where OEMs have been offered out-of-date stock and feel compelled to purchase it because there is little else available.

If you are having to turn to companies you don’t normally deal with, but who have the stock you need, then they are unlikely to show you any loyalty and they are likely to be in the position of being able to sell to the highest bidder. They may be receiving numerous calls a day and with every call they get, the cost goes up as parts really are at a premium.

Internet sourcing

Many have decided to turn to the internet to solve the shortages. Now, there are plenty of people putting up good and convincing websites that are advertising products customers want, but as ever, if it seems too good to be true, it probably is.

With these uncontrolled buy or sale platforms, in theory, anyone can offer sourcing. However, a range of potential pitfalls and the abundance of counterfeit products now mean you need to take a great deal of care to stay safe. Online suppliers may well appear to have the product(s) you want, but it takes a great deal of knowledge and experience to separate the wheat from the chaff.

There are a range of efficiencies and safe practices to be had by working directly with a trusted, established component distributor who can address non-franchised supply in the safest possible way. A dedicated sourcing division can mitigate supply chain issues, ensure quality control, and greatly reduce the risk of receiving substandard electronic components.

A reputation to protect

At Solid State Supplies we take a comprehensive approach, providing the safe and reliable route for sourcing electronic components that our customers have appreciated and come to expect from us over the last 30 years.

With that experience comes an understanding of what is not ok. We benefit from strong, long-lasting relationships with supply partners across the world, which enable the business to source problem parts globally and leverage price variances for cost-effective supply. Meeting up with contacts face to face and having real conversations is still a very important part of the process.

We pride ourselves on a premium service with quality parts, a fast response, expert advice on alternative product recommendations and technical support where necessary. We also offer value-added services such as programming, testing and up screening. In addition, we are flexible in terms of buffer stock, schedules, and pricing.

Quality at the forefront

With the issues surrounding supply chain shortages and the difficulties of sourcing electronic components, working directly with a company like us is highly beneficial, as we mitigate the risks. Quality is at the forefront of everything we do; we always follow anti-counterfeit policy, and all our parts are quality assured and supplied with full warranty and return rights. We can provide product testing of fit, form and function to the manufacturer’s published datasheets and provide test reports – the level of testing required will always be customer driven.

We only deal with tried and trusted approved suppliers or reputable companies, regularly monitoring supplier performance and conducting reviews. We are a member of ERAI, a US based, world authority organisation, where we can report any rogue parts or problems. This gives us, and our customers, confidence around who we are dealing with. You don’t become part of the organisation if you don’t have any credibility.

Our supplier relationships are based on physically meeting our contacts in person, and we continue with face-to-face meetings and calls wherever possible. I think that is important for us, our suppliers and our clients.  We monitor trade references and keep abreast of known vendor problems – it is essential we know who we are dealing with.

Solid State Supplies also has a separate division to handle military and hi rel customers who have extremely stringent requirements. If full traceability is not attainable, we can test product to the AS6081 anti-counterfeit standard against the original manufacturer’s published datasheets and provide the relevant test reports.

Don’t gamble with your supply chain

At a difficult time in the current global supply chain shortage, we know that we are in a strong position to fulfil our customers’ orders and keep production running. We are a highly credible, well-known, and financially secure group that doesn’t take unnecessary risks and gamble with your supply chain.

I wonder whether $13 billion worth of semiconductors will ever simply be written off, or down, by component makers again? 

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