Mike Thomas, vice president and general manager, Classic Components
Supply chain shortages have become a global issue in recent years, adding a stubborn wrinkle to the fabric that keeps the economy humming. One shortage that has plagued the automotive industry since 2018 is the shortage of electronic chips. In automotives, chips control many of the features of a car, from heated seating to Wi-Fi hotspots, and without them, manufacturing cannot continue at the level consumers expect.
Supply chain disruptions are nothing new; they have become something electronic parts distributors have come to expect. With low-cost components in chronic shortage and extended lead times for delivery, manufacturers are considering the use of independent distributors to get parts on-time at the lowest possible cost without assuming additional risk.
For many companies, sourcing parts from the independent channel requires a significant shift in mindset. Some companies make the decision to place orders with independent distributors such as ourselves the very first day they are in operation because they understand the market and how we operate in it. But there is an equal number of companies that are hesitant because the chipmakers and franchise distributors have invested millions over the years to de-incentivise their customers from going to the open channel.
Classic Components has been in business for over 40 years and remains one of the only premier independent distributors that is family-owned. Our maturity and resources allow us to deliver high quality products with shorter lead times than many competitors. In fact, we can usually deliver parts in two to three weeks that the OEM or authorised distributors may not have access to for 52 weeks or longer.
Keeping automotive manufacturing running
At the beginning of the pandemic, automotive suppliers estimated a decline in consumer interest in purchasing a new vehicle and adjusted their projections accordingly. Chip manufacturers then followed suit, prioritising other sectors such as consumer electronics as they anticipated a reduced automotive manufacturing capacity. However, demand for new vehicles exceeded expectations, leaving the industry with a demand it could not fill.
The accelerated demand for chips in the automotive sector is going to remain steady for some time due to the current backlog. This means the long-term prognosis for those manufacturing chips for automotives is positive. And while things are beginning to slowly return to normal, at present, the price of hard-to-get components like chips has skyrocketed.
The shortage has led to major car manufacturers eliminating certain features in newly made vehicles because they are unable to obtain enough chips to ensure full functionality. This is where having an independent distribution plan comes into play.
If you are a manufacturer, you need to have an independent distribution plan as part of your supply chain strategy. You may not want to give a broker business and take it away from the franchise/authorised distributors, but right now, independent distributors can be strategic and can get parts that work, when needed, at a competitive price.
Classic Components’ sourcing expertise includes knowing where to find alternate sources of component parts through surplus inventory, strategic relationships with other franchise/authorised distributors and taking advantage of local and overseas markets.
Investigating sources
Some companies are being duped by counterfeit products. It is an easy trap to fall into because the counterfeit items available today are impeccably made and almost impossible to distinguish from the real thing. Classic Components retains its competitive edge by taking a good, hard look into any company it wishes to purchase from to ensure both the company and its offerings are legitimate.
Think of the situation like this—Your company needs a part, but none of the major, trusted sources have it in stock for at least 52 weeks. What do you do? Most turn to the internet and search for a distributor who might have the chips needed in stock. However, it is easy to set up a website and pretend to have stock that does not exist. There is also serious financial motivation with chip prices skyrocketing to produce counterfeits.
You may ask, “What happens when the online search produces a list of company names you have never heard of?” and “How do you know which are legitimate and which are not?” Classic Components knows all the players overseas. We have conducted rigorous audits and met many of the owners. We know which companies are legit and which should not be called. That is what we do.
While it might be tempting to purchase a chip from a company you have never heard of that says it has them in stock, caution is advised. If a reputable independent channel source says, “Sorry, there just aren’t any of these chips available” and you have an unknown entity telling you they have them, it would be wise to listen.
An independent distributor can also offer supply chain management along with a rigorous quality inspection process to ensure the authenticity and quality of each component received. Classic Components, for example, holds certifications such as AS9120B Quality management systems—requirements for distributors serving the aviation, space and defense distributors.
When the parts arrive, we know how to make sure they are good quality. The process includes conducting a detailed risk profile for the customer that takes into consideration the known reputation of the vendor, the part and the end use of the item. In addition, the customer is surveyed as to the requirements for age of the components (date codes), traceability back to the factory, etc. Classic Components has developed a scoring system to establish the risk involved in each transaction.
The process of authentication is much more extensive for higher risk profile items to ensure the chips are legitimate and high quality. There are a lot of steps, and it is very expensive and time-consuming but critical when the product is a pacemaker, for example.
Unfortunately, for the foreseeable future, the automotive industry is expected to continue to experience significant supply chain disruptions. New technology for cars will also continue to increase demand for chips, particularly in electric vehicles and internet-connected cars.
Just as it did in 2018, the current chip shortage really reinforces the legitimacy of the independent channel. Classic Components is literally helping to keep automotive manufacturers’ production lines running in some cases.
We are not thinking simply in terms of the immediate future either. Given the environment, some independent distributors have stopped stocking inventory and are demanding prepayment for components with rigid ‘no cancellation and no return’ policies. We still stock components and maintain flexibility in our financial terms. We want to maintain our relationship with our customers beyond the current shortage.
Classic Components