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Top 5 risks of purchasing components from the grey market

The grey market is essentially a group of suppliers (approved and/or unapproved) that are outside the normal distribution channels from the OEM. These suppliers trade components (incl. semiconductors) that may have been resold, returned, or become obsolete. While most components sold in the grey market are fit for purpose, the risks are greater than if ordering from OEM distribution channels.

The top 5 risks associated with ordering components from the grey market are:

Closeup of electronic circuit board with electronic components
  • Poor traceability:
    • It is important to know where a component has been manufactured along with its manufacturing date and batch code. This information is usually documented in the Certificate of Conformance or in the procurement document. Suppliers usually provide this information before you purchase, but in some cases, you might need to ask for it. If a supplier is not able to provide all 3 pieces of information, then you are at a risk of purchasing an unreliable part.
  • Poor storage:
    • Components need to be stored in ESD safe packaging and at correct temperature and humidity levels. Components available in the grey market are sometimes not be stored in proper, required conditions – and this can significantly reduce the lifetime of the part or lead to part failure.
  • Previously failed units:
    • In some cases, some products available on the grey market have been previously rejected and returned by other manufacturers. These parts end up in part-bins and resold to smaller suppliers, who might not offer return policies. This recycling of rejected parts can lead to failures when installed on a PCBA.
  • Non-franchised suppliers:
    • Some suppliers (including those that are approved resellers) are not franchised and don’t have a buying relationship with OEM or main distributers. These suppliers don’t purchase components directly from OEMs but instead buy them when excess parts become available in the grey market. This is usually considered normal, however some suppliers may not have suitable inspection standards. This leads to a decrease in quality and documentation standards (for example: some components might not come with the OEM Certificate of Conformance).
  • Counterfeit components:
    • Oneida Research has claimed that around 5-20% of available parts may be counterfeit, which is the greatest risk of all. Only a few years ago it was estimated that less than 5% of components in the market were counterfeit and now those figures are hitting 5%-20%. Whilst it is impossible to eliminate the risk of counterfeit parts it is important to mitigate the risk as much as possible.

How is Precision manaing these risks?

  • Traceability:
    • Our quality system outlines that we can only order from approved suppliers. To become a Precision approved, all suppliers must:
      • Provide a quality certification (ISO:9001 is a must),
      • Sign a supply agreement that acknowledges a certain level of inspection, quality, documentation, and transparency. This agreement outlines how components are purchased, tested, stored and the paperwork required.
    • The suppliers we use have been part of our supply chain for over 15 years and we usually do not add new suppliers to our approved list unless necessary.
Showing inner brains of the microchip.
  • Supplier Management:
    • We use a Tier system to manage and grade our supplier’s performance. All suppliers start off at Tier 3 status and progress to Tier 1 if they continue to meet our quality requirements. If a supplier provides questionable or counterfeit components, they will drop to a Tier 3 status. They will then be required to provide corrective and preventative actions to improve their supply or risk being removed from the approved supplier list. Read more about how we qualify an approved supplier.
  • Increased quality control:
    • While we can’t control everything that is supplied to us, we can control how it is inspected and tested once it arrives to our facility. Some of the ways we do this are:
      • Our Inwards Goods Control team inspects all parts and documentation when it arrives to our facility in Melbourne. We receive thousands of parts daily and while we can’t check every single component, we thoroughly check documentation and batch check parts to see if they have the correct labels and codes.
      • Once a component is approved, it will only then be placed into an approved kit for the job at hand. If a part does not have the correct documentation, label or is in fact the wrong part, it is placed in quarantine and our purchasing team raises a non-conformance investigation with the supplier. The parts do not leave quarantine until the issue is resolved. This can either mean the required documentation is sent through or we receive replacement parts that meets our standards.
      • We have our own Xray machine that we can use to check the inside of components and to check if a component is counterfeit. It also helps us identify what a real component should look like compared to what we have received.
      • Automated Optical Inspection is used to look at and inspect our PCBAs as we assemble them. The AOI will check the top of the parts and establish if the code/label are correct on the component. This check allows us to make sure we are using the correct parts.
      • We also maintain our Internal Quality Issues Register, where operators across all production departments enter and submit issues they encounter during assembly. Our Quality & Operations Manager then investigates these issues and implements any process changes, if required or provides training to ensure we continue maintaining our high-quality standards.

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