Electronic Components Industry Business Types

OEM – Original Equipment Manufacturer

·         Produce their widgets in-house.

·         Outsource production of widgets to contract manufacturer

CM – Contract Manufacturer – manufacture a product for an OEM

·         Assembly House

·         EMS – Electronic Manufacturing Services

·         Board stuffer

Kitting Business – Supplies all parts needed on a BOM (bill of materials) into one order for the assembly house or OEM.

Manufacturer – Makers of electronic components that make up part of the OEM’s widget.  They can also be classified as an OEM.

Representative – Reps represent the manufacturers as outside sales in specific territories to generate sales.  Reps make a % of sales in their territory as agreed upon with the manufacturer.  Reps work with authorized distributors to generate sales from OEMs.

Authorized Distributor – An authorized distributor has a signed agreement direct with specified manufacturers to purchase electronic components.  The authorized distributor could have a designated territory or free reign to sell the manufacturer’s products depending on the terms of the agreement.  Authorized distributors commonly hold stock of their manufacturers’ products for sale to OEMs. 

Independent Distributor (Broker) – An independent distributor does not have an agreement with manufacturers to purchase electronic components with said manufacturers.  Some manufacturers do allow all businesses to purchase direct.  However, the manufacturers will give discounted pricing to authorized distributors.  Independent distributors do not have manufacturer return rights, no engineering support and no warranty period. 

Some independent distributors purchase excess stock or have access to excess stock from OEMs.  OEMs may over purchase, redesign their widgets, or discontinue sales of widgets.  When this happens, the OEMs may have electronic components in stock they will no longer need to make their current or future widgets.  This excess stock is sold from the OEM to an independent distributor and sold to another OEM who may need to purchase the same electronic component(s).  This is commonly referred to as the “gray market”.

When purchasing from the gray market, businesses must purchase from reputable companies.  Electronic components purchased must be specified as factory new in original manufacturer’s packaging.  If the parts are not factory new, the parts could be pulls – meaning the parts were mounted onto a pc board and then removed for resale.  Another phrase for pulls is refurbished product.

Independent distribution is needed in the electronic components industry.  A need for excess stock is created when manufacturers discontinue production of electronic components that OEMs still use in their widgets.  Because parts are discontinued and there is still demand for the product or when lead-times are extended longer than OEMs have forecasted counterfeit product will be created for profit.  Most counterfeit products are for parts in the $1-$10 range.  However, keep in mind that any part can be counterfeited from a capacitor to a liquid crystal display.  In addition, parts can also be remarked to represent a different product.

Catalog Distributor – A catalog distributor is an authorized distributor that has a complete catalog of their products available.  Catalog distributors commonly have sample stock available for sale.  The most popular catalog distributors are Digi-key, Allied Electronics, Newark and Mouser.

Process of Making a Widget

·         An OEM generates an idea for the next great widget.

·         Marketing researches if the great idea widget will sell

·         The OEM will have in-house or outsource engineers to design their widget.

·         A prototype run is done to verify design concept to actual product is correct.

·         The OEM decides if they will manufacture the widget in-house or outsource to a CM.

·         The OEM or CM will buy the electronic components that make up the widget.

·         The OEM or Assembly house will solder all the electronic components to the pc board.

·         Testing is completed on the assembled widget for functionality.

·         Final assembly will be conducted to create the finished widget to sell to the OEM’s customers (like the general public) by the OEM or CM.

Sales Process of Electronic Components

·         Electronic component manufacturer has their own regional sales employees to sell their products. 

·         Manufacturers sign contracts with Independent Representatives to sell the manufacturer’s products to the OEM’s purchasing department and/or to the engineering department to get the manufacturer’s products designed in on the widget.

·         Manufacturers sign contracts with Authorized Distributors to sell their products to OEMs and to stock product for OEMs for sale.

·         OEMs can resell their excess electronic components to independent distributors.

·         Independent distributors can then resell the excess stock they purchased from the OEMs to other OEMs in need of the same product.

In order to reduce the risk of counterfeit parts, purchase from an authorized distributor.  When this is not possible, we offer the following guidelines:

·         Get pictures of the parts and label.  Send this information to the part manufacturer to verify validity.

·         Request samples for in-house testing

·         Send parts to a testing house for validation

·         Conduct a visual inspection of the parts

·         Provide a manufacturer’s C of C – Certificate of Compliance.

In order for Authorized Distributors to stop counterfeits being returned to them from all customers, strict guidelines must be in place.  Such guidelines may include the following:

·         The Authorized distributor must be able to identify the parts were originally sent from them.

·         The parts must be in the original packaging as shipped.