Letter re: "A Suggested Process for Detecting Counterfeit..."
March 24, 2009 |Estimated reading time: 6 minutes
As I mentioned to you on the phone this particular article caught my attention as I have personally been communicating my perspective of this situation with a number of high level executives within our industry.
I would like to take this opportunity to give you my observations after having a successful 20 year career in franchised distribution as a Director of Sales and having observed the paradigm shift that was taking place back in 2004. We will continue to see significant changes in the semiconductor and electronic component supply chain for years to come ("If you are doing things the same way you were five years ago, you are probably doing something wrong").
I have been observing the industry and the different organizations that have been focusing on counterfeit issues over the past four years since I started Axis Electronics as an Independent Distributor and solutions provider to its customers.
I continue to read articles reiterating the same issues, seminars on how to identify counterfeit products during the receiving and inspection process. Unfortunately the market in China continues to invest in improving its counterfeiting process and reverse engineering of key components with lead-times associated with them. This problem is too large for any membership organization or government official to fix anytime in the near future.
Why are we wasting so much time talking about the counterfeit issues and not investing the time and energy needed to provide a solid tangible solution to this perpetual problem? We need to eliminate the requirement for independent distributors who still procure products from China and go through the process of utilizing x-ray equipment and the costly decapulation process and die testing to verify if the risk buy they gambled on is a factory original product. These are good precautionary steps if an organization secures products from Asia, but it will always put the independent distributor at risk with the OEM and CEM’s. This is a very costly and risky proposition to put to customers and could lead to a potential manufacturing crisis and loss of revenue.
We have watched the mergers and acquisitions of franchised distributors and silicon manufacturers take place at a rapid pace over the past 10 years. Every publicly traded company is doing everything possible to increase sales, improve profitability and lower its rising cost of sales. The sales channel has been reduced significantly and I believe there is a significant opportunity for the semiconductor and electronic component suppliers to take advantage of a very large global sales channel that is not being utilized today due to an old "broker" stigma.
There are over 1200+ independent distributors in North America who have invested a significant amount of money on inventory to supplement the franchised distributors whose inventory levels continue to be reduced to avoid locking up "working capital."
OEMs and CEMs do realize the need to partner with professional independent distributors who consistently provide quality products secured directly from U.S. suppliers. The independent distributors who understand the significant upside to grow our business in many markets are utilizing our global market intelligence to make speculation purchases, manage EOL products and offer asset recovery programs to keep factory original products in the channel.
The non-franchised, Independent Distributor’s who are financially sound and demonstrates strong business practices and ethics will continue to grow in our industry at a very rapid rate. This can open up a new way of thinking and an opportunity for the semiconductor suppliers that have never been done before. It is an excellent time to at least consider the possibility and upsides for their organizations, our U.S. economy, continued outsourcing issues, POS tracking and most importantly eliminate the need for our industry in North America to rely on the underhanded and corrupt dealings with China and reduce the need for importing these substandard products into the U.S. market place.
Key Points:
-- Suppliers will reduce their cost of sale being able to offer independent distributors the ability to stock additional factory original parts at a competitive rate based on their COS (cost of sales) savings and increase their inventory levels in the U.S. market.
-- Increase their U.S. POS revenue based on products purchased from independent distributors.
-- Based on special pricing allowed to the "Qualified" Tier 1 & Tier 2 independent distributors the OEMs and CEM’s will not be penalized by having to pay a higher price because the franchised distributor of choice did not have the appropriate pipeline of inventory in place to keep their manufacturing lines up and running to generate revenue.
-- The non-franchised market is growing at a faster rate in total sales than the franchised distributors.
-- All products would be sold to the qualified independents as N/C N/R eliminating any inventory returns or revenue loss and keeping their products in the U.S. channel.
-- The suppliers would increase their marketing channel significantly based on the headcount throughout North America at no additional cost.
-- Increased commodity products in the U.S. channel that we see requirements for daily from thousands of end users.
-- Continue to have the franchised distributors focus on their core competency of demand creation by designing in proprietary devices and selling design intensive products based on their franchise agreements.
-- This paradigm shift will help the U.S. based CEM's maintain and increase their business levels having products available, eliminating the need to outsource to Asia in most cases due to improved performance and delivery time.
-- There is a significant amount of funds available throughout the independent distribution network to invest in inventory at competitive rates that would be available as a result of the lower cost of sale model we can provide.
With the issues with the economy, increased outsourcing and globalization we are losing our power as a country and in the electronic industry in North America. The cheese has been moved (Who Moved My Cheese? by Spencer Johnson) and it is time for our industry leaders to think outside of the box and realize the value of the true independent distributors in the U.S. market. OEM’s and CEM’s have already realized the need for additional non-franchised suppliers due to the reduced number of franchised distributors and their inventory levels at an all time low. We have an opportunity to make a difference at a critical time rather than continuing to just reiterate the same information and data "We have a counterfeit problem being created by products being brought in from China."
I welcome any feedback in regards to this thought process and strategy. After reading today's EMS007 article I felt compelled to get this message out and start planting some seeds and give the industry a new challenge to offer a better solution to all of our customers. As previously mentioned, the counterfeit issue is larger than any industry organization, membership group and our own government. Certainly this issue is so out of control that the Chinese government is unable to wrap their arms around it even if they wanted to put an end to this corruption.
It will require every semiconductor and electronic component supplier to realize that independent distributors are allies and not the enemy if we are able to address this critical situation. With the systems and IT in place at each supplier, this opportunity can become a reality that everyone in our industry can benefit from and minimize the risk of bringing in counterfeit products into the North American procurement channel if we can start reducing the need to do so.
Regards, Thomas Johnson
President & CEO, Axis Electronics, Inc.
tom@axiselectronics.com
www.axiselectronics.com