Supplier Risk Mitigation | Tips for Evaluating New Distributors

As the supply chain challenges continue within the electronic manufacturing industry, more procurement specialists are contacting new distributors. Looking at Ford, we’ve observed that a single chip shortage can halt a company’s entire product production line, shutdown facilities and put thousands of workers on leave. Ford further estimates this single chip shortage will result in a $2.5B reduction in revenue for 2021. Ford is not alone, however, as manufacturer lead times are at all-time highs and still accelerating, most manufacturers that require electrical components are experiencing similar situations. With mounting pressure, procurement specialists are simply looking for solutions, and rightfully so.

But – when a Distributor which you’ve never worked with before, is showing stock on parts that usual vendors don’t have, what do you do? Are these parts legitimate? Are they used and repackaged to look new? Why do they have them when nobody else does? These are all legitimate questions. The good news is, this article can help you navigate new Distributor interaction.

Before You Begin Sourcing

Franchised Line Distributors → Consider the start of your search with franchised and authorized distributors of part manufacturers. Even if you’ve purchased direct from the manufacturer before, 40+ week lead times will not work for your company. If they haven’t provided it to you already, the original manufacturer’s franchised line Distributors will be listed on their website. These Distributors are approved by the part manufacturer and purchasing from them can include full traceability.  

So, a Distributor gets back to you. They have stock and the price is within your target. This is the first time you’re seeing their company, and yet they’re requesting advanced credit card payment. The following steps can help you determine if you should purchase, or not, from this Distributor.

1) Be clear with your requirements. If, for example, the parts you seek require traceability, even if you mentioned it over the phone, send an email reminding the vendor of all your requirements. Miscommunication can result in costly hiccups. Being clear with your requirements and ensuring your requirements are referenceable in writing via email can greatly reduce the chances of encountering vendor problems.

2) Inquire on quality standards (i.e. AS6081)  

• If the vendor does not abide by any quality standards organization, consider not purchasing from them. Certified quality standards give you an inside look at how the vendor operates internally, and allows you to use your judgement based on critical information.  
• If the vendor does abide by a quality standard, but you don’t recognize it, consider researching the accrediting body to further understand how the vendor operates internally.  
• Once you’ve confirmed a quality standard, it would be wise to also confirm the legitimacy of their certificates of registration. When examining certificates of registration, ensure the date is valid and not expired.  
•  If the certificate of registration seems fishy, confirm their registration with their accrediting body’s registrar (you can do this by calling the accrediting body.) If they are not listed with the registrar, consider not purchasing from them.

3) Consider requesting a CofC  

• The Certificate of Conformance is a document issued by a relevant authority which validates that certain specifications exist in a given product. The CofC is usually tied to a Lot Number of a product and usually includes traceability back to the original component manufacturer.  
• The CofC is not always available when purchasing from a Distributor. If the parts are coming from the open market, your Distributor will inform you of the inability to provide a CofC. In this case, it would be wise to require your Distributor to test the parts at an electronic testing laboratory (i.e. White Horse Laboratories.) Depending on their certification, your Distributor may be required to test the parts before resale.

4) Consider Resources Such as ERAI, GIDEP, etc.  

• ERAI monitors, reports and investigates issues affecting the global electronics supply chain. Consider requesting your organization to obtain membership, if you aren’t already a member.  
• Searchable database of high risk suppliers. A comprehensive search tool enables members to search through thousands of records, providing a valuable supplier risk mitigation tool. It would be wise to reference this database with all new Distributors. 
• Searchable database of high risk and suspect counterfeit parts – ERAI is the largest source of suspect counterfeit and nonconforming electronic parts. Their searchable database includes nonconformance descriptions, images, and the name of the supplier if available. 
• GIDEP provides a similar service for government and defense contractors 
• Distributors with ERAI membership can be considered trusted and reliable

Lastly, as a procurement specialist, it would be wise to thoroughly research a new Distributor with all available resources. You may find negative BBB review’s which would turn you away, or you may realize that this new Distributor is indeed legitimate. Regardless of what you find, supplier risk mitigation can be achievable with the proper effort, research and resources. Your company is relying on your hard work to pull them out of this supply chain mess. Now go be a superstar!

(We will be constantly updating this article with the newest methods in supplier risk mitigation. Be sure to bookmark this page and check back frequently to stay ahead of counterfeits.)

By: Lior Gurshomov | IBS Electronics, Supply Chain Specialist

Connect with Lior: [email protected] (Linkedin)