How to Verify Your Gray Market Brokers

We still live in a volatile supply chain environment, where a simple problem like an out-of-stock part with no replacements can derail a production schedule and product launch. As we get into 2023, we’ve started to see supplies come back to normal for some component categories, but there are many ASICs and semiconductors that remain low on stock with significant lead times. The current environment is still creating headaches for small design firms, startups, EMS providers, and large OEMs that can’t get component allocation.

When parts go out of stock with authorized distributors, designers will normally resort to finding compatible replacements, followed by a redesign around a functionally equivalent alternative. When you can’t get a redesign done in time, or there simply is no suitable replacement for your out-of-stock components, you might have to look to gray market part suppliers. If you are considering looking to overseas brokers for components, then consider these tips for spotting legitimate brokers and managing those relationships.

A Strategy for Broker Management

Over the past couple years, I’ve had to rely heavily on gray market brokers in order to find many important parts for client builds. As time went on, I learned how to spot a legitimate broker that actually holds the parts I need. Luckily, I have not been burned by a counterfeiter yet, and I’ve managed to build some trust with a few of the best gray market brokers.

While buying from brokers can be a risky proposition, the tips below can help you manage your broker relationships and determine if a broker is legitimate.

1. Keep a Whitelist/Blacklist

Over time, if you start dipping your toes into the gray market to procure components, you’ll eventually locate sources that prove their trustworthiness. Hopefully, you’ll learn to spot untrustworthy sources and avoid them. As you build relationships with trustworthy suppliers, put them onto an approved broker whitelist, and put the unscrupulous companies on a blacklist.

2. Verify Inventory

Take a look at a site like Ultra Librarian or Octopart; these electronic search engines will allow users to see inventories from authorized and unauthorized distributors. Over time, you’ll start to notice interesting patterns around how brokers report their inventory. Some brokers will magically have the exact same inventory as other brokers, or they will always report a nice round inventory number.

Occasionally, you will see brokers that claim to have an outrageous amount of inventory for a component, even if that component is not out of stock with authorized distributors and other brokers. However, when you go to their site, they require you to submit an RFQ instead of purchasing the component straight away.

This is all highly suspicious and it indicates that the company does not hold any stock of the components they claim to be selling. Most likely, these companies are just middlemen and you don’t know where they are procuring components for customer orders. When ordering for personal and client projects, I will never order from a broker that claims to hold inventory but can’t provide an option to immediately purchase parts on their website.

3. Reach Out to Your Network

There is one simple thing you can do to help verify whether a broker is legitimate: ask people in your social network. Get on LinkedIn and ask electronics buyers if the broker you are vetting is legitimate, and ask if anyone has had a bad experience. As soon as I hear a supply chain horror story about a candidate broker, they immediately go onto the blacklist. This has helped me avoid more than one counterfeiter posing as a legitimate broker.

The other side of contacting your network is finding an alternative source for a part. You just might get a lead on a company that has stock of the component you need for a build. I have even managed to set up trades for components just by talking to people in my network.

4. Hold Brokers Accountable

If a non-authorized distributor does supply faulty or fake components in your order, then you should take it up with the broker directly and try to hold them accountable. A broker that is complicit in counterfeiting, either knowingly or unknowingly, will either play dumb, deflect responsibility, or ignore you entirely when confronted. If this should happen, they should immediately go onto the blacklist without exception.

Some sourcing platforms that aggregate orders from authorized and unauthorized distributors will provide a warranty on component orders. If you can prove that a component they supplied was defective or counterfeit, they should issue a refund or replace the components without delay. At least, in this case, they can rebuild trust and you can think about sourcing through that broker in the future.

Be Proactive to Reduce Reliance on Brokers

The lowest risk path forward for an engineer or supply chain professional is to eliminate the need to work with brokers as early as possible. A design team that wants to reduce their reliance on brokers should take some important steps during the front-end engineering phase of a project:

• Plan to procure enough stock for multiple builds
• Learn to identify at-risk components
• When at-risk components are found, order those parts early or remove them from the design (just-in-case strategy)
• Identify replacement part numbers as early as possible
• Categorize and rank replacements as follows:
• 1. Pin-compatible in same package has highest preference
• 2. Functionally equivalent has moderate performance
• 3. Functionally similar has lowest preference
• If the design overhead is not extreme, create design variants that include replacements

Performing these simple steps early in the design stage can help de-risk a design and thus reduce reliance on brokers. Identifying replacements and building variants early also enables a more agile approach to sourcing and production, and a company can quickly react to changes in the sourcing environment for their parts.

If you're looking for support on navigating gray market brokers, Cofactr is a supply chain software used by electronic hardware teams to quote, purchase, and manage inventory of electronic parts with physical facilities that carry out the warehousing and logistics processes of electronic components. Their unique model is a comprehensive solution that includes sourcing, quoting, procurement, receipt of parts, electronics inventory management, kitting, and shipping to manufacturing, all in one place.

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