The issue of counterfeit and substandard parts is turning out to be both a challenge and an opportunity for the top 10 independent electronics distributors.

It is a challenge because independent distributors are blamed for spreading counterfeit parts in the electronic supply chain, even though bogus parts have also been sold by franchised distributors as well (see story p 24E9).

It is an opportunity because some buyers like to buy parts on the open market to get a lower price providing they can be assured the parts are genuine. An independent distributor that has a robust quality process and stringent incoming inspection that screens out bad parts will get more business from open market buyers.

That's why more buyers and quality engineers are visiting the facilities of independent distributors. They want to make sure that the nonfranchised distributors screen parts and only buy from legitimate sources.

Independent distributors say major OEMs and electronics manufacturing services (EMS) providers are cutting back on the number of independent distributors they buy from and are using the site visits to help determine which ones are worthy.

Site visits serve a useful purpose. "A good OEM purchasing manager needs to be able to sort out the wheat from the chaff," says Schuyler Glidden, president of SG Industries, an independent distributor in Beverly, Mass. Some parts brokers operate out of their garage with a cell phone, while other large independent distributors have operations similar to franchised distributors.

"The buyer needs to know the people who say they have parts in stock vs. the people who can physically touch the parts vs. the people who says the parts are two weeks away," says Glidden. In other words, site visits determine which independents are for real.

John Irving, executive vice president of Fusion Trade in Andover, Mass., says a growing number of OEMs and EMS providers have lists of approved independent distributors. They use site visits to determine which distributors get on the list. He says the number of approved independent distributors on the lists is getting smaller.

As more companies do site visits, they discover only a few independent distributors have the capabilities that buyers are looking for, according to Irving.

Not many independent distributors have the "back-office infrastructure, the quality process, the capital equipment, or the direct relationships with the OEMs to vet out bad product. We do testing to make sure we are delivering quality product."

One company that visits independent distributors is Cisco Systems, based in San Jose, Calif. "We visit approved independent distributors on a regular basis as part of the qualification process, including to audit their incoming inspections, quality and overall material handling processes," says Cisco's Lori Osterback-Boettner, director, materials management, worldwide manufacturing. "We use a select number of independent distributors that are subject to a rigorous screening process that mirrors our existing component supplier qualification procedures in terms of cost, quality and delivery terms."

The ability to test and screen products is growing more important because the issue of substandard and counterfeit parts shows no signs of letting up and many in the supply chain say it is getting worse. During site visits, buyers need to review distributors' testing and screening processes.

"We have seen an incredible amount of product come through our front door and not go to our customers," says Glidden. "It is stopped because of the receiving process and relationships with chip manufacturers."

He adds in some cases SG Industries actually bought the product to keep it off the market. "We scrap the parts and the chipmaker pays for it. They need a third-party entity so we quietly go to the market to identify who sold the bad part," he says.

Chuck Magee, executive vice president of America II, an independent distributor based in St. Petersburg, Fla., says his company averages about 12-15 sites per quarter.

"It's not just buyers, it's quality managers coming in to make sure we have all the processes in place to effectively source their products," he says. "They say 'show us you are not sourcing from the bad guys out there,' " says Magee.

He says OEMs and EMS providers want to use only a handful of independent distributors. "Just like they may want Arrow, Avnet and Future on the franchise side, they want America II and a couple others on the independent side, " says Magee.

He says the screening OEMs do on independent distributors is much more stringent than with franchised distributors. "It has to be because when you buy from a franchised distributor, the product will come in a factory-sealed box from the component manufacturer," he says. "When there is a quality issue, it typically does not come from someone with a factory-sealed box." However, if buyers choose the right independent distributors there is no risk, Magee says. "The distributors that cause the reputation damage in the marketplace are a relative few that source from vendors that they shouldn't be dealing with," he says.

He says America II has a "disqualified vendor list" which has become a critical part of site surveys. These suppliers have sold substandard or counterfeit parts.