Market Intelligence | Keep Your Franchised Rep Close... And Your Broker Closer

Chuck Norris vs. Communism

For Each Part Number Revision... Keep Your Franchised Rep Close and Your Broker Closer
by Frank Massouris

I couldn't believe it myself when it was recently reported that chip manufacturers are in it for the profit. Crazy right? Even top manufacturers need to sell customers their latest flavor in order to fund the next big thing. And even if the customer's current revision could keep them operating for many years, chip manufacturers and their reps want and have to sell the newest devices even when customers aren't ready for it.

Faster speed usually means better but sometimes a new revision may only be some superficial bells or whistles that some customers might implement. And why go offline to fix something that isn't broken

But in order to grow and keep up with the pace of the newest technology, MFG's inevitably come out with new revisions before customers come up with a reason to upgrade. Savvy customers know the term "new REV" is not necessarily synonymous with upgrade, and "drop-in replacement" usually means the complete opposite and could require major work-arounds, debugging or worse… re-spinning the board which is extremely costly and time consuming.

Believe me when I say I’ve seen many hard deadlines spend months on life support due to new REV parts. So, what do customers do when the drop-in is not a seamless process? Begin the debugging? No, go back to the old part right? Wait, not so fast. Once customers “REV-up”, sometimes the only option (if it’s still available) the MFG can offer is an LTB (Last Time Buy) on the old device. And forecasting the demand for an LTB part is no easy task because of the financial risk. If the buyer orders too many components, the company will end up with a large inventory of obsolete parts that will either have to be liquidated for pennies on the dollar or scrapped. If too few components are purchased during LTB and the old REV goes EOL (End of Life) the customer is now SOL.

At that point, customer's options are either to buy the new REV, bugs and all, or go to the broker market and buy the now "obsolete" part at a higher price. So, when doing the risk analysis of any new REV, drop-in or not, customers need to factor in debugging, work-arounds, down time and broker costs, at a minimum.

Customers who include their broker early in the decision making process are better informed than those who don't. With new inventory tools, CRM solutions and stringent quality processes in place, brokers can provide key intelligence to their customer’s procurement decision-making processes. Brokers have their finger on the pulse of the discontinued and EOL market and customers should take advantage of that experience and expertise before a potential problem arises.

In full disclosure and as a broker, I fully admit that most components are usually cheapest when buying direct from the franchised distributor. In fact, the price per unit typically goes up a lot when they are discontinued/EOL’d. But the tradeoff is the customer can keep their production online longer.

So, with the proper analysis, a decision to stay with the existing REV can keep customers’ operation running until next generation components emerge to officially warrant the capital investment. At the end of the day, broker-sourced discontinued/obsolete parts can extend the operation's lifetime for years to come or at least time enough for the resident gear heads to make the necessary modifications and test the new REV component before the operation goes offline with minimal downtime.

My advice to customers; next time your broker offers to take you to lunch, say yes

Author Note:
Frank Massouris is the President of G2 Components; OEM Procurement Intelligence for discontinued and hard to find electronic components. Prior to founding G2, Frank cut his teeth at Wyle Electronics in Irvine, CA and Arrow Electronics in Foothill Ranch, CA.

Current Intelligence Briefings: September 2016

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