BY MATT VINCENT
Connector Specifier recently spoke with Robin Grey, executive vice president of the National Electronic Distributors Association (NEDA; www.nedassoc.org) and Debra Eggeman, general manager the Independent Distributors of Electronics Association’s (IDEA; www.idofea.org)—non-profit trade associations for distributors of electronic components.
NEDA represents companies dealing in manufacturer-supplier authorized distribution of electronic parts and components, computer systems and peripherals, and test, measurement, and control equipment. IDEA’s stated mission is to improve the business of its members through an industry inspection standard and quality certification program, along with educational seminars, while promoting the independent distribution industry through a media advocacy campaign.
Both distributor representatives offered their perspective on the state of their organizations and client relationships, as well as of the industry at large. And regarding issues of quality control and inspection, both Grey and Eggeman concur that counterfeiting is one of the most serious and widespread issues facing the electronics manufacturing industry today.
“It’s a huge issue,” maintains Grey. “It’s coming from China and it’s mostly organized crime, finding that it’s more profitable than drugs and a variety of other things. It’s also used by organized crime to launder money from illegal sales—they plow it back into making counterfeit goods, which is also illegal, but much harder to detect, and usually doesn’t get back to them.”
Concerning the Chinese government’s response, Grey adds, “If they really wanted to shut it down, they could become very aggressive, but they don’t. They do some ‘show’ things from time to time, but too much of the Chinese economy is tied into government officials or the military. So, enforcement usually goes against someone that isn’t paying the right person, or is competing against the wrong person.”
From Eggeman’s perspective, however, “It’s been very difficult, even to this day, to know what degree of severity counterfeit parts play in the marketplace. Really, no one has a good handle on it. It seems like what most people know is anecdotal. OEMs and CMs [contract manufacturers] have been reluctant, for understandable reasons, to publish much information about their experiences.”
Eggeman adds, “There are indications that the percentage of counterfeit parts polluting the marketplace is increasing, but no one’s really sure if that’s because there really is an increase, or because now we’re starting to talk about it. The independent distributors have been talking about it for quite a long time.”
Says NEDA’s Grey, “As counterfeiting increases in its seriousness and its impact on the world economy, authorized distribution becomes even more important to the customer, because that’s basically their only assurance, other than buying directly from the manufacturer, that they’re getting a genuine part rather than a fake part.”
But Eggeman counters, “It’s the OEM and CM who [must] recognize that they need to put mitigation processes in their businesses to be very careful about who they’re sourcing from. They need to source from independent distributors that show a strong history of doing very good, ethical business, and that also inspect their parts and are thorough in their inspection.”
Grey maintains, “They’ve got to trust who they’re buying from, but the harsh reality is that it’s not economical for anyone in the supply chain to thoroughly test every part that comes in. Nor can you be assured that in random sampling, you didn’t pull the genuine article out from the fake. So, you’re really left with ‘whom do you trust?’ And that’s about it. And there’s no guarantee you’re still not going to end up with fakes, unless you purchase from an authorized source.”
Grey reports that new developments at his organization have included a complete revision of NEDA’s model distribution agreement, a document that the association’s manufacturer members typically employ to expedite the set-up of distribution networks.
“They ask for the document as a basis for their negotiating with the distributors that they want to hire,” explains Grey. “On the flip side, it can be used by distributors who take on new supplier partners. It really covers some essential points, setting forth the relationship between a manufacturer and a distributor.”
As for the document’s revision, Grey maintains, “It was a significant re-write; [the document] hadn’t been updated in at least 15 years, and it needed to be updated to reflect the changing marketplace.” According to Grey, areas of significant revision include items pertaining to stock rotations, scrap allowances, and marketing support.
“There are also some provisions about return privileges,” he adds. “Just a refresh of the language, because most manufacturers these days don’t want returns; instead, they give distributors a scrap allowance. So, that’s where the changes [to the document] were made.”
Eggeman notes that IDEA is funded through a membership of independent distributors who meet certain criteria of ethical behavior and professionalism, as well as proof of a quality assurance and management infrastructure based on ISO 9000 accreditation and certification under an objective ESD [electrostatic discharge] program. Members are also required to maintain product liability insurance, and “must not have any open or unresolved issues with the ERAI (www.erai.com), which is basically our industry’s better business bureau,” notes Eggeman.
Through its funding, IDEA provides educational materials to its members and to the industry at large. “We do that primarily through an industry inspection standard (IDEA-STD-1010-A) that we developed and published back in 2006,” says Eggeman. The standard incorporates more than 100 pages of inspection criteria and information aimed at inspectors of parts that are traded in the open market.
“We sell that to the entire industry,” continues Eggeman. “We do have some materials that are exclusive to members only, such as our substandard parts list and our counterfeit parts list, which are both populated by the findings of IDEA members.”
Additionally, IDEA offers a certification program (IDEA-ICE-3000) for inspectors; the course culminates in a comprehensive exam of more than 100 questions, tailored exclusively for the independent distributor community.
“Again, the questions are targeted for inspectors that inspect parts in the open market,” explains Eggeman. “So, someone, say at an OEM, that just inspects parts received from franchise or from the original component manufacturer, probably would not be able to pass the exam if they didn’t study for it, or didn’t have experience in inspecting parts from the open market.”
Eggeman allows that, “the franchises and the independent distributors recognize that they certainly each have disciplines that are fairly unique, [which] they offer to a common customer. They also have some places where there’s definitely some competition.” She notes that OEMs and CMs routinely shop “the open market” in search of legacy product that’s still factory sealed.
“Obviously, OEMs and CMs are looking for all the price cutting that they can find, and certainly they can find that in the open market,” Eggeman says. “Many times, [independent distributors] are in a position where they can offer parts to the OEMs and CMs at a significant discount over what the OEM and CM can get at franchise. Certainly, you can understand that franchise would not be pleased at all for losing that business.”
“That’s a fair statement,” admits NEDA’s Grey. “That’s kind of [the independent distributors’] bread and butter—buy low, sell high, is their philosophy. They buy components that are no longer fast turns, then hold that inventory in hopes that the price or the demand will go up. If it’s a legacy item, the manufacturers stop manufacturing it, but there still may be demand.”
That characterization, points out IDEA’s Eggeman, is “what gave birth to this channel, 30 to 35 years ago.”
She summarizes, “I think if you talk to OEMs and CMs, they’ll tell you that probably 80 to 90% of what they purchase is from franchise; a smaller amount, they purchase from the open market, for whatever reasons. Maybe the franchise can’t make the part available to them on time, or can’t make it available to them at all because it’s an obsolete part.”
Eggeman concludes, “In this industry, an independent distributor’s customer today may be their supplier tomorrow and vice versa, because the independent distributors will source from each other when that becomes necessary.”
