Brokers : How to determine if a supplier is a broker or not

[LesPiles]

(Background: We are a small company that assembles electronic boards).

How to determine if a provider is a broker? Can we say that if an entity is not an authorized provider, it is automatically a broker?

The issue is important:
• if a supplier is determined to be a broker, the part will be inspected;
• if the part is inspected, our warranty will apply.

Personally, I believe that there are 4 types of providers:
• Authorized distributors;
• Unauthorized distributors;
• “Reliable” brokers;
• The others!

For my organization, it seems that having 3-4 categories is beyond our means (eg would be difficult to manage).

So, our criteria (to know if a provider is a broker) would be:
1- Is it authorized by the part manufacturer?
2- Does he sell at a very high price (ex: 10x)?
3- Is the guarantee (very) limited?

While thinking, we asked ourselves questions about different scenarios, e.g. :
• Is Digiker a broker? (If so, all Digikey parts should be inspected???)
• Is Rochester a broker?

Purchasing recently changed the status of a supplier (from broker to non-broker). When asked what criteria they based their assessment on, they answered:
1- Absence of problems with this supplier;
2- The supplier has “certifications” (which are rather association memberships than certifications);

The meeting also deviated on whether a CofC could be considered as a guarantee and the role of a CofC.

We will also have to study next what should be the criteria for selecting a broker.

In short, it is important to be able to classify what is a broker and what is not because this will influence whether we must request authorization from customer to be able to buy from a designated supplier if the supplier is a broker or not, and also avoid any dispute.

We would also like to be able to present our criteria in a professional manner to any current or future client.

Another issue: given that we are growing, we would not want to have to rework a lot of electronic pcbs if we put down parts from a broker when we shouldn’t have.

Thank you in advance for your help !


LesPiles

 

[amberly64]

Using a broker adds great risk to your assemblies. Counterfeit parts can work but may be substandard, they can also be a completely different part inside, or not work at all. It is a gamble.

How to determine if a provider is a broker and the different scenarios:

There are different kind of distributors. In my experience a distributor can be authorized and be a broker. There are reputable brokers, but you must do your due diligence in vetting the broker. Depending on the product that your company produces, you can have a strict or more lax broker policy.

Do you have the distributor fill out a survey and a supplier information form during onboarding?

Do you have an option for the distributor to select what type of distributor they are (authorized, franchised distributor, independent, broker, or both authorized and broker)?

In my experience, if you give the distributor the option to let you know who they are they usually tell you the truth, but if you only have one option to choose (broker or authorized) they will always pick the more appealing option (authorized). They are not dishonest; they just don’t have a way to select both options.

You can learn a lot by researching the supplier and how they represent themselves on their website. You should also be able to find out if the location is in the US or overseas.

Do you perform onsite audits?

Do you verify if a part is authorized by the Manufacturer?

For example, one of my suppliers was onboarded as a broker. The buyer did some more research and found out that this supplier is also authorized for the manufacturer Microchip. Since this supplier must be set up as a broker in the ERP system counterfeit component testing is required for all broker parts. When the buyer wants a Microchip part, they will get a waiver for the counterfeit testing requirement due to the distribution agreement between the broker and Microchip.

The line card does not always mean there is an agreement between manufacturer and distributor. You must verify.

Changing the status of a supplier from broker to non-broker.

That should not be a decision by supply chain alone. You should not change what a supplier is due to absence of problems.

Inspection:

Broker purchases should always be inspected for counterfeit prevention. Does the customer care if they have counterfeit parts? Do you experience failures during product testing or with the end user?

CoC’s can be forged that is the reason for counterfeit inspection and testing.

Client expectations

Your contract with your client should state if broker purchases are allowed or not. Ensure you have a deviation or other document signed by the customer before installing broker parts. If you build prototype product the customer may not care if the parts come from a broker, but they will care if the unit doesn’t work after assembly.

Authorized (Franchised) Distributor - Distributor has a contractual agreement. Contractual Agreement terms include, but are not limited to, distribution region, distribution products or lines, and warranty flow down from the OCM.

Broker / Independent Distributor – Brokers do not have contractual agreements or obligations with OCMs unless they do both (authorized and broker) and parts can be purchased from any source.

I suggest you read AS5553 Fraudulent/Counterfeit Electronic Parts; Avoidance, Detection, Mitigation and Disposition.

 

[Miner]

Some additional clarification of the difference between a broker and a distributor.

• Broker - Services typically limited to procurement of product from 3rd parties, may not carry any inventory. Rarely has a long-term relationship with a manufacturer.
• Distributor - procures product and often provides additional services such as inspection, inventory management, market intelligence, and a distribution network. Will often be an authorized distributor of the product OEM.

 

[outdoorsNW]

Regarding your questions about Digikey and Rochester:

Digikey is an authorized distributor for most and possibly all parts they sell. I am unsure if they are an authorized distributor for everything they sell.

Rochester is a bit unique. They have two lines of business. One is being a broker that comes with all of the risks of using a broker. The second line of business is acquiring the rights and engineering data to manufacture parts that are no longer made by the original manufacturer. Rochester then makes or contracts to have manufactured these parts and sells them in the role of manufacturer. In this second role they are the OEM or authorized distributor.

 

[ChrisM]

Similar to outdoorsNW, I would say that some large and very large organizations may hold different status for the products that they supply. They may be authorised distributors for some manufacturers, brokers for others and an OEM for other products that they supply (and they may have an arrangement with manufacturers whereby they re-brand products as "their own"). It can be a bit of a minefield if you wish to apply a single category to such suppliers

 

[Tidge]

Some anecdotes, about past troubles:

In only one case am I aware of an authorized distributor being involved with a batch of faulty electrical components that was expired, and it was through the diligence and record-keeping of the distributor that we were able to determine that the PCBA manufacturer had essentially self-brokered the parts into our assemblies in violation of their contracts with us and the distributor. +1 for distributors!

In the past, I have seen a number of electrical components come though specialty manufacturers of obsolete designs as described by @outdoorsNW. I can't recall the name of the manufacturer. I also can't say that any of the components we purchased were ever defective, but it was not unusual that these types of components didn't quite match the performance characteristics of the datasheets for the original components. Functionally, these components would do what the originals did, but there could be subtle differences (and IC-to-IC variations) that had to be accounted for. I mention this because "sustaining engineers" often live their professional lives thinking that the worldwide web is the verification to all production problems. Usually repeating elements of design verification is enough for this approach.

I've seen mixed results with brokers. A majority of purchases have been fine. Some results have been disastrous, including counterfeits, defective "sweeps" off of a factory floor, faulty/expired components that were 'recovered' from somewhere. Depending on the provenance (if known) of parts, special processes for the parts may be called for prior to their use in assemblies. In all cases it is almost always necessary to step up test and inspection of the assemblies that use broker parts.