Electronic Component Sourcing: Understanding the Supply Chain

3 months ago by Sam Holland

During the various phases of a product development lifecycle, electronic components are sourced from different suppliers.

Electrical engineers working in procurement roles or managing personal businesses need to understand the product supply chain and identify cost-effective strategies for obtaining the required components.

 

What is Electronic Components Sourcing?

Forces of demand and supply between engineering companies and manufacturers create a market for electronic components. Electronic components sourcing means facilitating the movement and storage of these products from the point of fabrication through to the place where they’ll be utilised. This task can be done by engineers and/or procurement professionals.

 

Electronic components example 1: a computer motherboard

Electronic components example 1: a computer motherboard. Image Credit: Pexels.

 

Needs Assessment

The preliminary stage of sourcing electronic components is the needs assessment. This is based on project specifications. In a needs assessment, engineers determine the type and quantity of components that will be required for new product development. (Some of this information can be obtained from preliminary engineering drawings and product designs.) Engineers typically liaise with finance and business development teams in order to both work out a budget adequate for the project and specify the requirements in a bill of materials (BOM).

 

Strategy Development

Strategy development involves everything—from choosing the primary and secondary vendors to gathering data (such as on part numbers, descriptions, and pricing) and reviewing the BOM for inconsistencies.

 

Supplier Relationship Development and Contracting

After completing the necessary documentation, vendors are contacted for business. Developing a relationship with a new vendor includes negotiating and signing service-level agreements (or SLAs). Organisations may carry out these activities simultaneously for multiple vendors.

 

How to Source Electronic Components 

Providing the project budget and size of your organisation is big enough, you can buy electronic components in-house or outsource the procurement to an independent firm. The most common supply channels involve buying directly from manufacturers, authorised distributors, or independent suppliers. All of these methods come with both advantages and disadvantages—as covered below.

 

Multiple PCBs with various surface-mounted components attached.

Multiple PCBs with various surface-mounted components attached. Image Credit: Bigstock.

 

Buying Directly from Manufacturers

Manufacturers both produce and warehouse electronic components in large volumes, and sell them through authorised distributors and/or directly to the end users. Additionally, manufacturers provide technical support and after-sales services to clients (see ‘Advantages’ below).

 

Advantages

  • The supply chain is short, so customers receive their orders much faster

  • Buying directly from a manufacturer minimises the risk of having faulty components, which may otherwise be brought on by improper handling and storage by third-party suppliers

  • Customers are offered technical support on all the products when they purchase them directly from manufacturers

 

Disadvantages

  • Buying components directly from manufacturers is costly for small and medium-scale companies—in fact, they usually specify a minimum spend value to complete orders

  • Customers have fewer products of the same type to choose from compared to when they buy from an authorised distributor

  • If (or when) a manufacturer ceases the production of one of its components, customers interested in the remaining stock are typically redirected to the manufacturer’s competing, authorised distributors.

 

Buying from Authorised Distributors

Authorised distributors act as the ‘middle men’ between individuals or engineering companies and electronic component manufacturers. Distributors may have warehouses where they stock authentic products from a variety of brands and websites where clients can place orders. Many manufacturers rely on authorised distributors to distribute their products throughout the market.

 

Electronic components example 2: a close-up on some of the electronic components of a printed circuit board.

Electronic components example 2: a close-up on some of the electronic components of a printed circuit board. Image Credit: Pexels.

 

Some types of distributors within the supply chain include:

  • Broad-line distributors: also known as ‘one-stop shops’, broad-line distributors offer a broad selection of components to clients who prefer to buy products from several brands via a single supplier—the obvious examples being Digi-Key Electronics and Mouser.

  • Specialised distributors: specialised distributors are companies that stock components that cater to a specific industry (consider automotive components, robotic components, and so on).

 

Advantages

  • Customers dealing with specialised distributors are offered a wider selection of products than buying from a single source, which allows clients to choose from products with matching specifications at cheaper prices

  • Authorised dealers are ideal for individuals and small-scale startups as they do not require a minimum spend value (unlike manufacturers, who often do)

  • You can buy components in small or large volumes and return excess stock when necessary

  • Most distributors provide technical and after-sales support on products

 

Disadvantages

  • Manufacturers reserve the right to update their distribution strategies (for instance, moving operations to a new market), which can affect existing agreements with authorised dealers

 

Buying from Independent Suppliers

Also called ‘brokers’, independent suppliers are neither manufacturers nor authorised distributors. Brokers have no formal affiliation to these brands but have experience sourcing for out-of-stock or rare components. Some companies also hire such services when there is market price volatility.

 

Advantages

  • Brokers can source components that would be difficult to obtain through manufacturers and authorised distributors

  • Brokers often deliver components in shorter time-frames than conventional suppliers

 

Disadvantages

  • The risk of buying defective or counterfeit products is much higher when using brokers

  • Products obtained from independent suppliers often have poor traceability

  • Most broker websites do not provide technical or after-sales support to clients

  • Components sourced through independent suppliers are relatively expensive during times of short supply

 

Electronic components example 3: a close-up image of a black and yellow computer chip

Electronic components example 3: a close-up image of a black and yellow computer chip. Image Credit: Pexels.

 

All in all, there are pros and cons to each and every way to source electronic components, and it’s the duty of manufacturers and customers alike to decide on their preferences and act accordingly. Fortunately, there is always like-minded people online (such as in this very website’s forum, of course) who can help advise you on the best electronic components that money can buy, which distributors to work with, and so on and so forth.

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