We’ve all experienced it. From toilet paper, exercise equipment, toys, cars, and everything in between, the supply chain during COVID has been blamed for many consumer goods shortages, and rightfully so. During lockdown, how many of us stalked our local warehouse clubs for that elusive delivery of toilet paper, scared of the implications if none was found? Or maybe you tried negotiating the price on eBay for a set of weights that was 3-4x the usual cost? Those shortages seen by the average consumer also heavily plagued electronics manufacturers and their customers as well.
Now imagine being a start-up during COVID. A start-up in the electronics industry. A start-up in competition for those highly demanded, severely constrained electronic components. A start-up with no name recognition, no history, and no relationships with manufacturers and / or distributors. Seemingly simple items like capacitors and resistors saw 20+ week lead times, with other parts advertising lead times of 52, 98, and even 104+ weeks. That’s what the supply chain looked like for Oxide in 2021, and in many component categories, still looks like today.
Our Operations Team has been hard at work since late 2020 trying to secure supply for a product that, throughout 2021 and into 2022, has continued to undergo design changes. The procurement function became a delicate balancing act taking into account lead time, cost, industry outlooks, and working closely with our engineering team regarding upcoming design changes. How much faith could we put in the demand for a given part today, when we knew an updated Bill of Materials (BOM) would be published in a few weeks? For parts with lead times that would extend past our first customer ship date, how much supply should we purchase 12-18 months ahead of schedule, knowing our design was not finalized? Working with borrowed money (literally, from our investors), we needed to quickly put in place a robust procurement system to balance the issues we faced. We needed an actionable plan that solved supply issues on many fronts. So, we did what the average consumer did during COVID; we stalked the stores (in our case, online distributors) day and night, weekdays and weekends waiting for restocks. We negotiated with suppliers, investigating whether there was additional inventory available but being held back. In some cases, being a start-up and only needing small quantities was helpful. We were able to get sample quantities of parts that would last us through our engineering build cycle. However, being a small start-up also meant we were up against the big guys. Getting recognition of our existence, let alone inventory allocated to us, was often a stressful, tedious process. What have we found that helped our team the most? Strategic supplier relationships.
There is not enough that can be said for setting up strong, trusting relationships with your suppliers. All of us on the Operations Team at Oxide have extensive backgrounds at some of the world’s top manufacturing and supply chain companies. We’ve seen and heard it all. We know the lengths many procurement professionals will go to in order to secure supply during allocations. They may inflate demand knowing their allocation quantity is based on their demand, or they may communicate required dates that are several weeks or months ahead of when the supply is actually needed. However, those responsible for the supply allocations usually realize this. When the truth comes to light, that company’s future demand is often taken with a grain of salt. It becomes difficult to trust that company again. That’s where the Oxide Ops Team differentiate ourselves. Oxide’s principles and values truly drive our everyday work. We’re firmly committed to our principles of Integrity, Honesty, and Decency, and integrate them into all of our business practices. We strive to balance our sometimes conflicting values in order to strengthen our vendor relationships. Here are a few of the Oxide values and how we showcase them in our supply chain relationships.
Candor — We’re upfront about our needs, including quantities and dates. As these items change, we do our best to proactively communicate those changes to our suppliers. We know there will be times we need our suppliers to jump through hoops for us, to expedite, to get supply not otherwise allocated to us. However, we also understand these should be one-off instances and not the norm. We want our supplier reps to succeed just as much as we strive for success at Oxide. Being candid helps ensure we are all set up for success.
Rigor — We demand a lot from ourselves, but we also demand a lot from our suppliers. If a date slips or the component quality isn’t as expected, we request our supplier proactively communicate, root cause, and implement corrective action as needed. We have a small team and we rely on our suppliers to have the same sense of rigor as we do at Oxide.
Teamwork — We look at the relationships with our suppliers as extended team members. We want to instill in them a sense of pride for the Oxide product, just as much as we support them and their company. Successes and failures are shared amongst everyone involved. We will not be successful at Oxide without our extended team.
Thriftiness – We’re a start-up with maniacally focused founders, a very involved board of directors, and limited capital. We’re building a massive product while being very cognizant of costs. Given our small size and start-up status, we rely on our relationships with our suppliers, coupled with massive amounts of internet searching and price comparing, to try and get the best costs we can. We know we’re paying more for items than the big guys, but we’re trying to close that gap as much as we can. Getting our suppliers on board with our vision, and getting them excited about the Oxide rack, is instrumental in price negotiations. We’re also sure that one day we’ll be one of those big guys. :)
Aligning ourselves with suppliers we can trust and partners invested in the success of Oxide has allowed us to successfully navigate the current supply chain conditions. Treating others with respect and kindness cannot be underestimated. Building strong relationships on an unfaltering basis of Integrity, Honesty and Decency is key. Adhering to our principles and balancing our values will continue to drive our successes.
When Allocation Hits the Fan
Allocation. A term no supply chain professional wants to hear. Even more so when you’re a start-up in a critical test phase of your new product which has yet to launch. Founders, investors, manufacturing partners and others, all anxious for an update. That timing device, tiny in size, but mighty in nature, gating your entire build process. Your product can’t run without it. There are no suitable alternates and there is no supply via your normal channels. There is, however, a large supply showing in the broker market. Over 100K. Wow, score! You may have just solved your high-profile supply constraint. Now the only thing left to decide is which of these companies will get your business.
Before you get too excited though, you need to pause, step back, and analyze the situation. Could there really be over 100K of this highly constrained part on the broker market? That $0.38 part is showing for between $1.10 and $7.08 on the broker market. How could there be that much variation? Is the higher priced part “real” while the lower priced part possibly counterfeit or stolen? What would happen if you were to receive a counterfeit part? The brokers typically all provide some sort of generic “guarantee” on their website. How bad could it be? You could order the part, have it tested, realize it’s not real and get your money back, right? Sounds easy, though it rarely is. From reading reviews of brokers, speaking with people who have had bad experiences, and my own search for broker parts, many of the broker websites are not legitimate. Embrace your inner pessimist and begin your search being wary of everyone. While there are certain countries which automatically throw up red flags, there are also plenty of US based companies I wouldn’t consider doing business with. It’s ok to be pessimistic now and then. You need to protect your company, your product, and your reputation. What sorts of issues could you face with parts purchased from a broker? You could end up with parts that have old date codes, have not been stored correctly in humidity controlled / ESD bags, damaged, or downright counterfeit. Things to look for when evaluating an online broker:
Misspellings & Poor Grammar. Sure, we all make mistakes from time to time. I had to make sure “misspellings” was spelled correctly! However, a professional website should not have misspellings, blatant grammar issues or obviously poor translation.
Authorized Distributor Claims. Make sure to go to the actual manufacturer’s website and look up their authorized distributors. If a broker claims they are authorized and aren’t listed, do not order anything, ever.
100% Guaranteed Claims – Authenticity, Quality, etc. Read the superfine print. Understand what is being guaranteed. A phrase such as “guaranteed to function like original part” should make you pause given use of the word “like”. Most sites seem to offer some feel-good blurb on how they’ve had the parts tested in-house or by a third-party tester and results are available. What are the qualifications of the tester? What were they testing? Some websites will even tell you they support you having the part tested. If your tests show the part is not original, you can return the part with your test data. However, reading deeper into their return policy, often found in a different section of their website, will reveal that you cannot return any part that has been opened and / or is not the full quantity ordered. Return windows may also be abnormally short, not affording you enough time to test the parts. Unfortunately for you, in order to perform a physical and electrical verification, you must open the packaging and use several for testing purposes. You have now invalidated your ability to return the part.
Payment Terms – Be extremely cognizant of payment terms, types of payment accepted, and the entity you are paying. Research the payee and bank information. There are certain payment methods that are more secure and better for this type of transaction than others.
Do Your Research – Spend some time reading online reviews. Take note of who / where any good reviews are coming from. Pay closer attention to the negative reviews. While it’s true more people are likely to leave a negative review than a positive review, if you see consistency in the negative reviews, it’s probably best to move along. Common negative reviews of brokers include no communication after payment sent, payment sent and part not actually in stock, payment sent and part not received, and parts do not work as expected (old date code, damaged, counterfeit). A quick search can open your eyes to a lot of questionable activities!
After checking out many of the websites showing stock on the part you desperately need, you’re back to square one. You’ve realized you can’t possibly trust one of these unheard-of websites to provide an instrumental component in your product. You’ve spoken with the manufacturer and distributors and nothing is available, not even samples. What next? Give up? Tell your founders and investors the timeline is in jeopardy and all forward progress must come to a halt? None of those sound like great alternatives.
I’m blessed in that I have a history in the broker market from a previous job in the computer industry. I’ve been exposed to all sorts of people and stories, some that make you just shake your head in disbelief. I already have the handful of people I feel comfortable and enjoy working with. These are a few areas I look at when deciding to work with any broker.
Certifications (ISO, OSHA, R2, eStewards, etc) – While these certifications are typically for manufacturers and / or refurbishers, it gives me a sense of comfort in knowing that a company has achieved any of these certifications. Can a certification be “bought”? Sure, though no one involved would admit it. Don’t make this your only deciding factor but do take it into account. Physical site visits can help clarify any outstanding questions.
Length of Time in Business – The good ones survive the times. Some not-so-great ones survive as well. Some new ones have yet to make a name for themselves but may be great options and provide amazing customer service. Or, they may cut corners to try and increase the bottom line. Do your research and talk to respected members of the secondary market community.
Reputation – Not everyone will agree on a binary assignment of “good” or “bad” for a company. Again, speak with people in the industry about the company, its leadership, and its employees. Do your research on how the company started, how they’ve grown and changed over time, employee turnover, focus for the future, etc.
Component Testing – As we’ve seen, many companies say they do component testing to verify legitimacy of a part. Ask questions, ask to see sample reports, inquire where they do their testing (in-house, 3rd party), etc. You may even consider asking if you can be present during the testing. You can learn a lot from how that question is answered, even if you don’t plan on actually being present.
Warranty – Do they offer the same level of warranty as the manufacturer? What is covered by the warranty? How are warranty claims made?
Trust – Trust the people you’re going to be working with and choose people you’re going to enjoy working with. There are a lot of good brokers out there, so you do have options. Find one you sync with, and the relationship will be off to a positive start.
In the end, choosing a broker to work with is both a tactical and personal choice. We don’t often get to choose who we work with, but when presented with an opportunity to do so, make sure you choose wisely. The quality and security of your product depend on it, and oftentimes, so does your sanity.