Whether boom or bust, potential electronic chip shortages or hard to get parts has some OEMs and Electronics Manufacturing Services (EMS) working to “bank” a supply of critical chips in preparation for whatever might come.
“Many companies – particularly those that build critical equipment like medical, military, industrial controls, and automotive – are now considering how they can protect themselves from future vulnerability. They experienced serious chip shortages and want to ensure a reliable, ready supply at a reasonable price without tying up capital,” says Mike Thomas, President at Classic Components, a premier independent stocking distributor of electronic components based in Torrance, Calif.
In response to the market need, premier independent distributors can hold sufficient supplies of quality chips, acting as de facto “chip banks” for companies requiring the service. Independent distributors play a critical role when franchised/authorized distributors are not able to supply the required parts by leveraging their extensive expertise to find alternate sources for chips through regional authorized/franchised distribution, manufacturer direct, or surplus/excess inventories.
To ensure there are no delays when the chips are needed, the independent distributor can be proactive about securing the required inventory without asking for money up front.
Independent distributors can lock in prices and delivery dates using a vast network of supply chains and partners for many months at a time. The chips are placed in long-term bond or long-term schedule contracts with applicable service or storage fees. The inventory can be shipped to authorized partners, contract manufacturers, sister companies, and subsidiaries on demand.
This is a unique offering within the independent channel that only the largest, most financially stable distributors are willing or able to offer. As an example, Classic Components has the benefit of being in business for more than 40 years. The company can usually deliver parts in 2-3 weeks that the OEM or authorized distributors may not have access to for 52 weeks or longer.
Price protection is also a concern for OEMs. In addition to guaranteeing chip availability, electronics manufacturers may seek to shield themselves from escalating prices caused by the scarcity of components and commodities, which can unpredictably surge in global markets.
“Manufacturers may want to place a year’s worth of electronic chips on order now,” explains Thomas. “If the price rises and it costs 20% for the same chips six months later, they already have stock for the rest of the year that is price protected,” says Thomas, adding that even the largest franchised/authorized distributors are unlikely to hold more than a few months of inventory at fixed prices.
To ensure the authenticity and quality of each part, the independent distributor offers a rigorous inspection process of each component received along with timely supply chain management. The company, for example, utilizes a quality management system (QMS) and holds certifications such as AS6081, a requirement for distributors serving the aviation, space, and defense industry.
For more information, visit www.class-ic.com; email [email protected]; call 310.539.5500.