For all the technological advances the electronics industry has ushered into world markets, there is one problem that it continuously fails to address: counterfeit electronics. In fact, counterfeiting techniques are getting so good that it’s becoming much more difficult to spot falsified or outright fake components that are shipped from overseas brokers.
The challenge is in the test and inspection of components that come through procurement departments. Automating these tasks is time-consuming and requires specialized skills that most EMS providers and OEMs just don’t have in-house. This is a well-known problem among brokers because they basically act as middlemen.
The broker market is an important part of the electronics component supply chain that can give companies a lifeline when authorized distributors can’t fill parts orders. And yet, they are also the major source of counterfeit parts that come into EMS and OEM inventories. This ongoing problem continues to call into question the risk associated with using component brokers, and we’ll explore this topic in this article given today’s supply chain challenges.
Why Companies Use Brokers
The reason companies use brokers is very simple: they are a last resort when authorized distributors have no inventory for required parts. Authorized component distributors are the first stop for procurement specialists and small design firms, so they will be the first to run out of inventory. When these companies run out of an important component, and there are no suitable replacements readily available, buyers either need to complete a redesign, or they must order from a broker.
Keeping a production schedule on-track and avoiding redesign costs are attractive reasons for using an overseas broker. However, there are risks. Aside from the perpetual issue of counterfeit components, risks include getting stuck in customs, components may be contaminated or mishandled, or delivery of previously used components.
Because of these risks, it helps to know a few telltale signs of legitimate and fraudulent brokers.
If you spend enough time on broker websites or component search engines, you may start to notice that some broker inventories look extremely similar. This happens because some brokers will quote another broker’s inventory as their own, and they will report that to prospective buyers.
There are two possible reasons a broker would behave this way:
- The broker wants to make deals as a middleman, but without holding inventory, allowing them to charge a markup and eliminate inventory holding costs
- The broker is masking the source of their components by claiming to hold another broker’s inventory while knowing the source is illegitimate
Both points here are dishonest and these tactics do not do anything to build trust in brokers. Aside from being dishonest, there is also significant risk to the buyer precisely because the supplier is masking the source of the components. It also makes another broker who may be acting truthfully to appear as if they are the ones reporting fake inventory!
Fast Response, High Price
Brokers are known for their markups, which in some cases can reach a stunning 10-20x the price from an authorized distributor. These markups can be extreme, but in some ways, they prevent the inventory copying mentioned above. The reason for this is that a middleman broker will not be able to reasonably apply any kind of further markup, so they will fake the inventory of a less-expensive broker.
Brokers who sell at higher prices, but who make immediate quotes and ordering available online, are probably legitimate, or at least they make a good faith effort to be legitimate. These companies are most likely reselling components that they purchased directly from authorized distributors in the US or Europe. They create an online portal to quickly move those components because they are actually holding them and they want to move that inventory to buyers.
Summary: Trust But Verify
In summary, building trust with brokers is a long-term process that can be risky. However, if an overseas broker allows you to place orders through an online platform and does not duplicate stocks of other brokers, then they are likely selling legitimate components. Fraudulent or middleman brokers will not take the time to create an entire website with product displays and an eCommerce portal just to scam customers.
If possible, electronic components should be tested when procured from brokers. Testing for counterfeit components is a lot tougher than it sounds, and doing this for an order with thousands of components is not a simple task. This requires some level of automated testing, but this topic will be saved for a future article.
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