The importance of warranties

Importance of warranties

Official manufacturer's warranty vs. free market warranty on electronic components - Essential differences to discuss and understand with your supplier

The grey market for electronic components refers to the trade of products on the open market and not through official channels

According to Alessandro Nardo, founder and sales manager of Electronic Partner, an independent distributor with proven track record over 22+ years as a professional and reliable supplier, electronic components found on the open market are often genuine, but are sold outside the official distribution networks for various reasons:

  • Price differences between different regions of the world;
  • Supply shortages from authorized suppliers;
  • Need for obsolete components to make their manufactured products work;
  • Finding a better price for surplus stock to free up warehouses and to plug holes in balance sheets;
  • Reducing e-waste by purchasing components that would otherwise be discarded.

Benefits and Risks of the Grey Market

According to Nardo, the grey market is an important source that should not be overlooked for a number of reasons, including:

  • Lower prices: this can be particularly attractive to cost-conscious buyers who need to maximize margins on their products while containing costs.
  • Better availability: the grey market can provide access to components that may not be available through official channels in certain regions, and can be particularly useful in areas where specific items have limited availability or excessive lead times.
  • Greater variety: Buyers can find a greater variety of components in the grey market, including those that may be discontinued or difficult to source through official distributors.

He warns, however, that buying on the open market carries significant risks. “Some of the risks include the activities of unscrupulous traders and fly-by-night vendors looking to make a quick profit, as well as the increasing risk of counterfeiting,” he states. Other risks buyers need to consider, include:

  • Warranty and Support Issues: Components bought on the grey market are often not covered by official manufacturer warranties and do not offer after-sales service.
  • Quality and Authenticity: There is a higher risk of encountering counterfeit or substandard components, as some players in these channels do not always adhere to the same quality control standards as authorized distributors. Furthermore, excess stock held for long periods may not have been stored in optimal conditions, which can affect performance and the lifespan of these items.
  • Regulatory Compliance: Obsolete or legacy genuine components may not comply with required safety, environmental, or quality regulations, exposing companies to legal penalties and reputational damage.

Says Nardo: “By understanding the factors that characterize the grey market, companies can make informed decisions about their sourcing strategies and avoid the potential pitfalls associated with grey market purchases.

Manufacturer’s warranties vs. open market vendor warranties

Nardo adds that the issue of manufacturer’s warranties versus open market warranties are another key issue for buyers to be aware of. He explains that official manufacturer’s warranties for electronic components usually have the following features:

  • Coverage: Typically covers defects in materials and workmanship. Some manufacturers also may cover collateral damage caused by the faulty component, but Nardo warns that this always depends on the details of the manufacturer’s warranty policy, which is usually available on its website. “It is essential to check the manufacturer’s policy carefully to understand its scope,” he says.
  • Duration: Often ranges from one to five years, depending on the component and manufacturer.
  • Service: Operates in accordance with the conditions stated on the manufacturer’s website. If technical reports and replacement of faulty parts are requested, the distributor must first contact the parent company to follow the above procedure.
  • Cost: Is included in the purchase price and does not involve any additional costs for the consumer, unless the problem with the parts is real; otherwise, the manufacturer may charge for carrying out the necessary checks, such as failure analysis.

“On the other hand, open market suppliers are generally only liable for replacing the defective component or refunding the buyer for the purchase amount,” Nardo says. “Some companies believe they can mitigate this with an all-risks product insurance policy, but they need to be sure that the policy covers collateral damage from electronic components purchased without a manufacturer’s warranty.”

He adds, “There is also another crucial factor in managing non-conformities in cases where a distributor stocks the items until required on behalf of their customer as a value-added service. This is a case that requires carefully determining what recourse the customer and the distributor have if the batch proves to be defective, or if there are problems with the open market supplier.”

According to Nardo, it is important to be aware of these warranty differences and to communicate them to customers prior to delivery for a number of reasons:

  • Clear Expectations: Ensures both parties understand the extent of coverage.
  • Risk Management: Allows them to assess potential risks and thus choose the best warranty or insurance option.
  • Legal Compliance: Ensures all parties are aware of their legal obligations and rights, reducing the risk of disputes.
  • Worst Case Scenario Planning: Pre-purchase worst-case scenario planning allows possible solutions to be identified in advance. Ideally, customers and distributors should discuss the terms and conditions of supply and purchase before the deal is finalized to determine how their respective legal departments would react in the event of a dispute.

While the grey market can ensure cost savings and provide access to a broader range, hard-to-find or obsolete components, it also comes with significant risks and potential legal issues. Understanding this is crucial for buyers of electronic components to make informed decisions.

He says, “One important way buyers can protect themselves is by partnering with a professional independent electronic component distributor like Electronic Partner, who deeply understands the dynamics of the open market, has tried and tested procedures for managing the risks, and has a proven track record over time.”

He concludes that this type of partnership allows companies to better navigate the complexities of the grey market and make choices that align with their needs while mitigating the potential risks.

Article originally published in Italian in the print edition of Elettronica AV.

Electronic Partner article in the edition 30 of Elettronica-AV

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