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Determining Factors for choosing semiconductor suppliers

 

Author: Schuyler Glidden SG Industries Inc. ISO 9002

In the past several years one large issue seems to have crept into the supply chain of OEMs and EMS providers. Specifically, substandard or even re-marked semiconductor devices – imitations that do not meet the fit, form, and function of the part number. The volume of these substandard parts has increased due to EMS cost saving initiatives and quick-turn artists responding to spot shortages. Fly-by-night, ethically challenged Chinese suppliers are the primary sources of these goods. American/Canadian re-sellers then promote these parts at discounted prices. In many cases the smaller re-seller has no idea that these parts will not meet the product specification.

GSMs are managing hundreds of chip suppliers in a losing game of “Whack-a-Mole”. Bad suppliers just keep popping up. How can you as a buyer stop the possibility of bad parts hitting your dock? Frankly, you can take precautions and source from Franchise only – but even then, at times, they will source devices in the open market. In short, you need a robust supplier qualification process and you need to personally meet the people who are getting parts to your shop floor.

So, here are some basic guidelines that may help your buying team learn the business and create a template for determining who they should choose in the Open Market.

Insurance?
Does your current supplier base carry Errors and Omissions insurance specifically covering substandard parts contaminating a board? What is the face amount per occurrence? $US 1 Million per occurrence should be the minimum.

ISO Certified?
Not “pending certification” and not “ following ISO certified standards” : If they do not have a valid Certification delete them from your system .

Quality Process?
What are the documented incoming inspection processes of the supplier? What techniques, programs, resources, and equipment do they have to inspect goods and determine viability of the goods? Is the process working? You can tell from their RMA rate – Ask for it. Anything more than 3% returns should be a red flag.

Size?
How many offices do they have and in what countries?. Are these real places with addresses and phone numbers. Use: http://www.local.live.com/ or Google Earth to locate said offices. How many people are employed by the firm? Are they ranked by any independent organization that is reputable? Yes, the size of an organization matters. Why? Because when the going gets tough you will need support from a supplier with the resources capable of dealing with big problems. A good supplier relationship is like a good marriage; sometimes you will need to scream and yell to work through issues. Having clear communication and setting clear expectations along the way will be the key to a long term relationship.

Headquarters location?
Surprisingly many chip vendors work from home and are quite small. Google Earth will give you a quick snap shot of who is real and who is not.

Financial?
What is their D & B rating? What is their credit line with their bank? Anything less than a seven figure balance/line of credit should be a cut off point.

Experienced?
Who exactly is the management of the company? Are they accessible? How the company is structured is important. The principals of the organization should be involved and actively managing the company. They should also each have 10-15 years of experience in the OEM/CM marketplace. Your company contact or representative should be well trained and understand the marketplace. Keep in mind that your company representative may move on, so knowing the management team is key to solving problems. Be wary of slogans like, ” 95 years of combined business experience”.

References?
Deal only with suppliers who can provide you with references from actual, employed people at the stated referral companies provided. Get a phone number if you can and call them (ask first). These references will be a great resource. Most companies have Non Disclosure Agreements signed so respect that and ask general questions. You will find that buyers will want to help you.

Once these hurdles have been overcome then you can overlay the standards or custom evaluations that you already have in place for supplier performance.

Schuyler Glidden Author Schuyler Glidden

SGI’s mission: to create a safe haven for the trading of electronics for its global customers.




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