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June, 2019

Low-Risk Component Sourcing in a Constrained Market

By Jeff Elliott D

irect sourcing of electronic components for the medical device industry used to be fair-

ly simple. An OEM would order directly from the manufacturer or through authorized distributors to obtain any required components. There was usually no need to look any further. Today, the challenges of a high-

ly stressed supply chain are forcing many medical device OEMs to rethink the way they source compo- nents. With parts such as multilayer ceramic capacitors (MLCCs) and other low-cost components in chronic shortage with extended lead times for delivery, manufacturers must be able to get these parts on time at the lowest possible cost without assum- ing additional risk. As a result, many are turning to

independent or hybrid distributors for long lead time parts. The primary caveat — the components must meet certain specifications, avoiding com- promising the integrity of the end product. In other words, medical device manufacturers want compo- nents that can be traced back to the original manufacturer. For many companies, sourcing

parts from the independent channel requires a significant shift in mind- set. It also requires a comprehensive strategy for identifying and working with reliable independent stocking

not invested a lot of time or attention strategizing about how to use inde- pendent distribution channels effec- tively.” The process begins, he says,

with understanding how to distin- guish one independent distributor

ment systems (QMS). “Over time, companies like ours

have developed a very complex method of identifying and eliminat- ing risk,” says Thomas. “That includes knowing how to inspect and test components that come in to our

and location of all the supply chain intermediaries from the part manu- facturer to the direct source of the product. If this traceability is unavailable, a risk mitigation plan is required. Finally, visual inspection, testing and physical analysis are per- formed on all incoming products.

Purchasing Power The truth is that many of the

shortages were predicted some time ago. As a result, leading independent stocking distributors,


Classic Components, have spent the past few years engaged in a long- term strategy of identifying, and investing in, directly sourced critical electronic components. By doing this, independent dis-

tributors protect the supply, but are also able to lock in lower prices by making purchases before the inevitable changes driven by reduced supply and increased demand. To protect high-volume orders,

Independent stocking distributors, such as Classic Components, offer a flexible source for components, while providing the traceability to mitigate risk.

from another. This often comes down to a mixture of experience, reputa- tion and the extent of the supplier’s global supply network. Therefore, it is critical to understand the quality

To mitigate risk in sourcing, medical device OEMs are demanding components from distributors that can be traced back to the original manufacturer.

distributors to ensure that they get components they need, when they need them. “For medical device manufac-

turers, there has been harmony in the supply chain for most of the past decade, so the need to identify alter- native suppliers has not been as pressing as it is now,” says Mike Thomas, vice president and global general manager at Classic Components, an independent distrib- utor based in Torrance, California. “That means many companies have

management systems of independent partners.

Know Your Source According to Thomas, the

mantra in this industry to eliminate risk is to “know your source.” To accomplish this, leading independent distributors invest millions to man- age global supply networks, rate and prioritize suppliers, establish pre- ferred supplier relationships, and acquire the latest inspection equip- ment and effective quality manage-

facility, but also goes well beyond that.”

It also means analyzing and

inspecting sources with an investiga- tive diligence. What path did the parts take to get there? Who is the manufacturer and how is that rele- vant? Where was it made? How was it shipped and packaged? Is demand of a component strong enough to make its availability viable? Only through examination and assess- ment of all these factors, in conjunc- tion with traceability, can the risk be truly mitigated. “When we purchase components

like MLCCs, for example, we are pur- chasing from a direct source,” explains Thomas. “That could be a regional or foreign distributor, an OEM partner or directly from the factory.” To verify the chain of custody,

traceability documentation can be provided that identifies the name

a distributor can lock in prices and delivery dates for many months at a time. This ensures that the inventory will be there when the customer needs it and not sold to someone else. In some cases, they can even

make speculative purchases for a customer and provide financing to purchase inventory when a qualified client has capital constraints.

Global Networks Another direct source for high-

demand parts comes from tapping into a large global network. Because of the worldwide demand for compo- nents, independent distributors have expanded globally and placed sourc- ing experts in key supply markets. For example, in addition to its

60,000 ft2 (5,574m2) facility in Torrance, Classic Components has established 12 regional offices in strategic locations throughout the world to support its global distribu- tion business. The company has nearly 200 employees, who specialize in various aspects of the business, including supply chain, quality, tech- nology, and logistics.

Continued on page 55

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