It's a Jungle Out There
By Chris Johnson, Group Chief Executive of Paragon Electronics Ltd
May 15, 2012
Chris Johnson is Group Chief Executive of Paragon Electronics Ltd, the holding company for the Paragon Electronics Group of companies. For two decades he has wrestled with supply-chain strategies, both on behalf of companies in his own Group, and directly for his customers.
He is an ardent industry observer and has an invaluable perspective
on the issues surrounding global component sourcing. Here he talks about the many pitfalls to consider, the paucity of safe options for manufacturers seeking rare components, and his exasperation with the false economy of organisations that appear to shelve common sense at the first sign of a shortage. Founded on this experience, borne from operating at the heart of the kitting industry for demanding OEM and EMS companies, Chris shares his 'no nonsense' approach to getting things right first time, and explains his thinking in establishing an independent distributor focused exclusively on delivering 100% component integrity.
Since I started my career in the electronic components distribution business over 30 years ago, I have seen 'monumental' changes. Indeed, today's component supply industry is barely recognisable from that time. The 'globalisation' that took place during the late 80's, 90's and even up to this day has transformed the customer service experience and not always for the better. Countless SMEs have gone out of business; and there are seemingly endless rounds of consolidations in the forms of mergers, acquisitions and even rebranding at the top-end distribution companies. There continues to be talk of further significant M&A activity amongst major manufacturers and distributors even in these difficult times. Despite all of this, one thing remains the same: when OEMs need a fast, responsive service, or they encounter problems in their supply chain, there is still nothing like an agile, flexible, proactive, independent distributor to deliver the service levels required. The trouble is, in my opinion, there really has been nothing like a properly agile, fully flexible, determinedly proactive, truly independent distributor with a value proposition that really works! That's why we have established Vigilant Components, but more about our Vigilant proposition later.
Since we announced Vigilant, a question I have been asked several times is why, after 20 years in the market with the Paragon Electronics Group, do we feel that now is the time to establish an independent distributor? As you might imagine, there are a number of reasons for this but the main one is the very-real danger to supply chain integrity faced by buyers of electronic components. This has been created by the ever-converging paths of increasing demand and lengthening lead-times, driven by economically sound but nonetheless frustrating production practices by some of the component manufacturers, and the growing abundance of suppliers of questionable integrity around the world happy to cash-in on the needy. In fact, forget converging paths; it's more like a collision course!
So, ultimately, it's the age-old game of supply and demand. But this game has a dangerous dimension. Shortages or extended lead-times can leave OEMs with production obligations in a potential position of vulnerability, particularly when their regular, trusted supply partner cannot provide any solutions. The obvious approach is to look elsewhere and that's okay, so long as you don't throw out the rule-book in panic. Remember, you're into 'Caveat Emptor' territory now.
Even after all this time, it still amazes me that so many companies of all shapes and sizes across the industry - OEMs and EMS businesses alike - and no matter how long they have been buying electronic components, fail to have a formal process, or one that they actually follow, when they encounter supply chain issues! They seemingly bypass common sense, and all their carefully-conceived quality processes, in a desperate effort to locate problem parts. I'm certain that many of these will have discovered, first-hand, that the grey market for electronics components is a 'jungle'. In addition to the good brokers, there are plenty of 'others' and numerous counterfeiters preying on the unwary. To make a difficult situation worse, there is the rapid rise in the use of e-commerce, which makes it easy for counterfeiters to create a web site and a 'veil of credibility' and commence trading.
Don't get me wrong. I'm not so jaundiced as to suggest that this is true of the entire independent distribution market - far from it. But I've heard and witnessed so many horror stories where companies were promised delivery, then had to wait for days or even weeks with little or no communication and, frequently even then, received no parts. The latter being a 'double-edged sword' as, whilst it may sound a strange thing to say, not receiving the parts is always preferable to receiving counterfeit devices.
I'm aware of many recent instances where companies ordered parts from brokers they contacted on the Internet; these devices pass visual inspection but fail when fitted to their boards. Even worse is when these devices are fitted boards that pass through their test regime and make it out to the field, only to fail later. The cost of this can be immeasurable.
Two key questions would appear to emerge from all of this, which are; why has counterfeiting burgeoned in what seems like a relatively short time and why do OEMs or EMS companies ever buy from anybody other than directly from the device manufacturer or from a franchised distributor?
The answer is pretty much the same for both questions - it's all to do with a lack of availability. This is primarily brought about by the cyclical nature of the semiconductor and electronic component business, and how rapidly components designed in to OEM products are no longer available through the 'primary' channels as they have become obsolete, or replaced with updated versions which can exhibit compatibility issues in certain applications. In order to maintain production, support their products in the market place for longer periods and satisfy their customers, OEMs & EMS businesses accept that they must occasionally purchase these components from distributors that may be seen as 'outside' these channels.
Until now, these businesses were virtually alone with the trauma of validating the integrity of critical parts sourced in this way. The options were essentially to either invest heavily in a variety of specialist test equipment to verify the devices, which is rarely economically viable for just a few parts, or fit the parts and device test as best they can: an expensive strategy if the sub-assembly then fails board test but, as mentioned, immeasurably more costly if they fail later in the field - and that cost is not just about money; reputations are at stake here too.
These are just some of the drivers behind the decision to set up Vigilant Components. Our ambition is for Vigilant to be the UK's leading component sourcing and counterfeit detection service. At Paragon, we've been providing kitting and supply chain management services for two decades and - back to reputations here - have gone to great lengths to ensure we don't pass on faulty or counterfeit parts to our customers. It's an obvious policy, but it's one that demands investment in specialised test systems, training and watertight quality procedures. The costs of these are more easily justified when it's at the heart of what our organisation delivers: we're constantly testing components from every source.
The move to establish Vigilant was to add that extra dimension, one that companies who prefer to source their own parts can still use. Vigilant customers can use the company's supply chain contacts to have parts sourced for them knowing that they will be fully tested and authenticated, or they can elect to source their own parts and ship them to Vigilant. All those superb pieces of test equipment (we have just added a specialist component X-Ray system) and watertight quality procedures already exist: Vigilant simply deploys them on the customer's incoming parts, and that's the point: it's what the service is all about. As Vigilant is independent, in principle we have no restrictions where we source from! What we do care about is giving customers more options. With options comes choice; and who doesn't like to have a choice?
A primary reason for choosing the Vigilant service is for protection against counterfeits. The counterfeiters are getting ever more sophisticated and cunning. Simple inspection is no longer enough. Chemical marking tests help to weed out some candidates but cannot look inside the see if the chip is really in there. Decapsulation is also a process we use and now we have X-Ray in our non-destructive armoury, which is ideal for verifying difficult-to-find parts without writing some off in the test validation process. Although X-Ray has been widely used for some time, virtually all X-Ray systems are geared to PCBA inspection and therefore have serious limitations when used for component verification purposes. Our new system is designed specifically for component inspection and has specialist handling equipment which allows us to inspect parts throughout a reel, tube or tray without compromising the packaging.
We strongly believe that, in order to address these issues, OEMs and EMS companies need a strategic relationship with an independent component distributor - and they need to maintain that - it's where the trust comes from. With this sort of relationship, they can rely upon the distributor to man that 'gateway' and locate authentic parts in order to mitigate supply chain shortages and still achieve production schedules.
Along with this sort of trusted and professional relationship should come a commitment from the distributor to supply only tested and certified parts. How this is achieved may differ from one organisation to the next and the degree of certainty and confidence may also vary. However, it's a fact that few distributors will have an armoury like Vigilant's. Our view is that 100% certainty is worth paying for to get things right first time and eliminate expensive rework and the more haunting spectre of field failures.
All this talk about building business relationships may sound like pompous corporate posturing. But at Vigilant Components, our key objective is to build long-term business relationships with customers, integrate seamlessly into their existing supply chain and becoming a valued extension of their businesses. With a global network of suppliers and over 20 years of industry experience, we simply get the job done right - first time, every time. If the electronic components that our customers require are out there, we will find them. If they're not, and that does happen, our engineering team can advise on possible alternative solutions.
The key point about this is communication. Communicating throughout the process enables us to keep our promises, deliver the correct components at the agreed price and at the correct time. We know that our customers rarely like surprises or excuses, but they do like communication - and the foundation for the most effective communications is a strong, trusted and on-going business relationship. It also removes the need for companies to enter the precarious realm of one-off purchases from non-approved vendors. So, ultimately, OEMs and EMS companies that establish the kind of two-way committed relationship I'm talking about, with their independent distribution partner, won't get caught out; in short, they choose to restore the common sense; how refreshing is that?!
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