Gray Market and Counterfeit Components

Protect Your Brand. Prevent Margin Erosion. Recover Revenue.

The Challenge:

With numerous points of entry into the supply chain, the so-called "gray market" makes part traceability near impossible and increases the risk of bad parts entering your supply chain.

A 2008 study by KPMG and the Alliance for Gray Market and Counterfeit Abatement (AGMA) reported that as much as $58 billion of technology products were passing through the gray market. This accounts for approximately 6% to 8% of the total market revenue. Applying this to the $300 billion semiconductor industry, the gray market impact on the components supply chain could be up to $20 billion annually.

High-tech companies aren't the only ones that suffer from the gray market. Consumers and other technology end-users, including military and defense, are also negatively affected when products are advertised as new and authentic when in reality they could be used, refurbished, or even worse, counterfeit. The repercussions of using counterfeit or non-conforming parts on product performance can be significant - and in the case of military components, catastrophic.

Left unchallenged, the gray market poses significant risks and long-term impact on the entire supply chain including:

  • Revenue

    Where products are diverted from intended geographies or sold to the unintended end customer - allowing the end customer to receive a higher-than-normal discount - a brand owner's revenue and profitability may be directly impacted.

  • Cost

    When gray market products require after-sales product support or warranty, it affects a company's revenue and profitability because applicable support fees have typically not been paid.

  • Brand Reputation

    When end users see differing price points for the same brand in the market it causes confusion and may negatively affect a brand value. And if a gray market product is not supported by companies, then end users may be financially and operationally affected, thus lowering end-user satisfaction with the brand and potentially tarnishing a company's reputation.

  • Liability and Risk

    Buying from an unauthorized source increases the risk of counterfeit components due to the potential commingling that can occur in uncontrolled channels, resulting in risk to product quality, reliability and liability. The only way to combat this risk is to buy from a factory-authorized source.

Components Direct Platform Solutions

The November 2011 Senate Armed Services Committee findings have turned a spotlight onto the issues of unauthorized and counterfeit components. Although further legislation will enable better "crackdown" on countries most at fault, utilizing manufacturer-authorized distributors such as Components Direct is the best way to guarantee the authenticity of certified electronic components.

Components Direct is the premier authorized destination for excess and end-of-life components. As an extension of the manufacturer, Components Direct guarantees direct manufacturer traceability for all products with pass-through warranties where needed, along with the best-in-class warehouse and process controls such as ISO 9001, ISO 14001 and ESD 20:20 certification.

Furthermore, Components Direct's Platform Solutions provide suppliers with unmatched visibility and control of the secondary market. Armed with detailed secondary market data by region, date code and vendor, suppliers can trace the product leakage of their product into the secondary market and take action to protect their brand.