Despite the sketchy name, purchasing electronic components on the gray market is an accepted and sometimes necessary process in supply chain management. And while this market is not exactly the wild west, there are several things businesses should keep in mind to avoid higher prices and headaches down the road.

What is the Gray Market?

The gray market refers to any number of resellers who trade in discontinued components. Electronics manufacturers work with these businesses to buy “bridge stock” if their inventory for a specific part of their bill of materials has run out, but they still need to keep their production lines going until they pivot to a new design or component.

The existence of the brokers is not without controversy. The Alliance for Gray Market and Counterfeit Abatement (AGMA) considers gray market activities to be a threat to intellectual property. The United States Chamber of Commerce estimates these unauthorized dealers cost domestic companies $250 billion a year. However, not all parts are obtained and sold illicitly. Many brokers buy soon to be discontinued parts from the very companies that make up the AGMA, speculating that manufacturing services will need them later.

Procurement partners like Arctos take the time to analyze serial numbers and dates codes. We can also test parts to make sure they function and are not refurbished being passed off as new.

Manufacturing businesses should try to avoid needing gray market goods if at all possible, because you lose the economies of scale and quality controls that you get through authorized channels. If you are looking for strategies to avoid raw material shortages, read our article here. 

Know your Vendors

Not all resellers are created equal. Knock-offs and bad parts are out there, so it’s best to work with someone who has pre-existing relationships with the resellers you use. Procurement partners like Arctos take the time to analyze serial numbers and date codes. We can also test parts to make sure they function and are not refurbished being passed off as new.

Be Mindful of your Communication

Time and again we see buyers for electronic contract manufacturers unknowingly raising the price on themselves by “asking around.” Resellers talk, and if they’re getting multiple inquiries on a specific component, that can be taken as increased demand with prices raised accordingly.

Reach out to Arctos today to see how our team can provide quality support for your supply chain needs.