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Poorly Managed Excess Inventory Poses Threat to Supply Chain

A long-standing challenge in the electronics supply chain is the management of so-called "excess" inventory. When an OEM or EMS provider orders too much product, it is often sold in the open market to distributors that are not franchised by component suppliers.

The problems this creates for the authorized channel include the taint of counterfeit components in the electronics supply chain. Authorization—or franchises—are designed to protect suppliers, distributors and customers. From the customer standpoint, procuring product from an authorized distributor is similar to acquiring it directly from the supplier in terms of brand, quality and performance.

Authorization also enables distributors to take back a certain amount of product from OEM and EMS customers, which should limit the amount of inventory available to the open market.

Nevertheless, inventory is still sold in the open market, which increases risk for customers. Non-authorized distributors are not required to manage inventory the same way authorized distributors do; and counterfeit parts most often enter the supply chain through the open market. To combat counterfeits, the authorized channel is re-emphasizing the importance of direct-supplier relationships. “Counterfeiting persists because there are too many willing buyers and a number of ready sources profitably supplying products acquired outside the authorized commerce channels,” said John Denslinger, president and chief executive officer for the Electronics Components Industry Association.

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