Direct sourcing of automotive electronic components used to be simple. An original equipment manufacturer (OEM) would order directly from the manufacturer or through authorized distributors.
Today, highly stressed supply chains are forcing many OEMs to rethink sourcing. With chronic shortages of low-cost components such as multi-layer ceramic capacitors (MLCCs), manufacturers must get these parts without long lead times, affordably, and without assuming additional risk.
Independent or hybrid distributors can supply long lead-time parts, meeting rigorous specifications while giving automakers the ability to trace components back to the original manufacturer. Channel sourcing requires a comprehensive strategy to identify distributors capable of on-time delivery of reliable parts.
Mike Thomas, vice president and global general manager at Classic Components, an independent distributor based in Torrance, California, says until recently, automotive supply chains have been stable, so OEMs haven’t changed sourcing strategies. “Many companies have not invested a lot of time or attention strategizing about how to use independent distribution channels effectively.”
Distinguishing among independent distributors involves a mixture of experience, reputation, and global network strength, making it critical to understand partners’ quality management systems (QMS).
Know your source
Independent distributors invest millions to manage global supply networks, rate/prioritize suppliers, establish preferred supplier relationships, acquire inspection equipment, and use QMS, Thomas says.
He adds that suppliers “have developed a very complex method of identifying and eliminating risk. That includes knowing how to inspect and test components that come into our facility.”
Distributors analyze sources to determine: What path did the parts take to get there? Who is the manufacturer? Where was it made? How was it shipped and packaged? Is demand strong enough to make its availability viable? Assessing these factors, in conjunction with traceability, mitigates risk.
For example, Classic Components buys MLCCs from a direct source – either a regional or foreign distributor, an OEM partner, or from the factory.
Traceability documentation verifies the chain of custody by identifying the name and location of supply chain intermediaries from the part manufacturer to the direct source of the product. Lack of traceability requires a risk-mitigation plan with distributors visually inspecting and conducting physical analyses on incoming products.
Many parts shortages are predictable, so distributors have identifed and invested in stocking and directly sourcing critical electronics. This protects the supply and locks in prices by buying before rates increase. For high-volume orders, a distributor can lock in prices and delivery dates for months to ensure inventory will be there. Some distributors make speculative purchases for a customer and/or provide financing.
Independent distributors have also expanded globally and placed sourcing experts in key markets. In addition to its 60,000ft2 facility in Torrance, Classic Components has 12 regional offices throughout the world. The company has nearly 200 supply chain, quality, technology, and logistics employees. Buyers can study regional supply chains to find quality component suppliers and leverage relationships to offer the best price and delivery terms.
“Regional quality centers and logistic hubs create the flexibility to purchase components from any country, in any currency,” Thomas says.
A customer in Mexico, for example, might ship components from Taiwan, due to availability. If the Taiwanese supplier only sells to local companies, Classic Components can purchase goods from its satellite office, transfer or sell them to another branch office, then ultimately deliver them to Mexico. The distributor can manage or avoid tariffs by shipping via international hubs in Hong Kong and the United Kingdom.
Classic Components Corp.