MFG Podcast Ep6 with Mark Pollard CEO of Astute
MFG Austin: Mark Pollard, CEO of Astute on supply chain shortages, tips on buying smart during a shortage, global trade conflicts and what it all means for Austin
By Jennifer Jones
July 10, 2021
I highly expect and anticipate more and more counterfeits, clones, refurbished parts to continue hitting the market. Bad actors where there’s massive demand and limited supply are going to make a quick buck like they would in any industry.
I think when you start discussing applications like national security, the networks that our federal government works on, satellites that provide surveillance to our military, advantages we want to have in advanced weaponry and warfighting equipment, and those types of things, then suddenly you realize, ‘Wow we are really at risk. We don’t have several layers of the supply chain upstream from the rarer to the silicon at the foundries to the semiconductor production right now.
Mark Pollard is the CEO of Astute, a global supply chain sourcing and project support services company.
In this episode of MFG Austin, Pollard shares his thoughts on supply chain shortages, tips on buying smart during a shortage, global trade conflicts and what it all means for Austin.
What does Astute do?(2:24)
We are a unique business and in most markets we kind of fly under the radar a little bit but astute supports its customers in three main areas:
- Supply chain services - we support them on shortages, which is obviously very relevant right now, leveraging our global sourcing teams we support them on obsolescence components they can’t get through normal distribution channels or direct with the manufacturer, and cost savings where we support them on reducing their standard purchasing price.
- Franchise distribution services where we represent a few dozen manufacturers from the design level all the way through fulfillment.
- Inventory solutions where we support customers on last time buys, inventory storage, vendor management, vendor consolidation and then on the back end of that is asset recovery where we take surplus or excess and try to recover cash from their excess inventory.
Supply chain shortage(3:33)
It’s impacted us significantly. We had customers that weren’t really operating, or they had orders canceled last year during the pandemic, which is still not over, but manufacturing and the economy has largely come back online. How it’s affected us is we’ve seen a 4x increase in our business in the last four months or so. We started to see it late last year. We saw signs we had a backlog business that was starting to be pulled in and we were noticing lead times were starting to go out and it was interesting. There were some price increase announcements there at the end of the year, but things really started to take off ironically pretty much right after the winter apocalypse. We thought between the pandemic and the winter storm, it’s like man and we had an ERP glitch where our system was down for a few days right around that time. We’re like this can’t get any worse for our business and then really it was just sort of an accelerant on fire. Customers across the board from high reliability to energy and industrial to consumer just came out of the woodwork.
Are you seeing an increase in counterfeits now that there’s such a shortage?(5:04)
We are not. We know the channels. Astute’s been in business 32 years; that’s a big part of our value add beyond what we do in our labs, x-ray analysis – what’s called de-capsulate or delid parts semiconductors where we verify the dye inside – which is highly proprietary and can’t be easily replicated or duplicated. We’re not seeing it just yet because we know the channels to avoid. We have procurement teams all throughout Asia, Europe and North America to protect us from that. However, I highly expect and anticipate more and more counterfeits, clones, refurbished parts to continue hitting the market. Bad actors where there’s massive demand and limited supply are going to make a quick buck like they would in any industry. I fully expect to start seeing some refurbished parts. The counterfeiters are getting very sophisticated. Every few years they keep up. Luckily, they’re behind the curve, but they’re more and more sophisticated these days.
You also have inexperienced buyers at massive companies. You’ve got engineers who say, ‘Oh my procurement team can’t find this part, let me go Google it and I’ll go find it.’ I can’t tell you how dangerous that is for someone who doesn’t have an established supply chain, know the markets or have a partner that can guide them through there to go and just source a highly allocated semiconductor or any type of electronic component out there just on the open web. We haven’t seen it Ed. I do have concerns. Our customers rely on us to go into markets we may not want to and we sort of take that risk with them. They know we’ve got the back end to catch that with all the inspection and the testing we do, but we take that risk for them. We communicate up front. I expect here over the next few months as inventory continues there’s just too little inventory out there where the bad actors are going to allow product into the market. Distributors or OEMs, procurement teams are going to go buy that product and it’s just going to happen.
Buyer beware tips(7:32)
Well, I can’t blame someone for trying to solve a problem and if they haven’t had the problem before and even buyers at big companies that have never been through this cycle, don’t quite understand what that risk is. Obviously, we’re happy to help them—they may not know who we are. I would verify some basic things about who you’re doing business with, ask for photos of the product labels in particular. The parts may not be counterfeit, they may be mislabeled or misrepresented in a way. Never pay in advance for product, really from anyone unless it’s someone you know and you agree to those terms for one reason or the other because there’s a chance you may not get anything at all. There’s bad actors out there basically committing finance financial fraud saying, ‘Hey I can get you this. Wire me the funds and I’ll send you these you know 20,000 units of this NXP chip.’
There’s ways to mitigate it:
- Photos of the product that you’re buying,
- Ask for trade references from your vendors: who are your other customers? Will they say that you’re reputable?
- Don’t pay in advance
- Ideally have someone and have a robust operations and quality department that provides the procurement teams best practices and stick to that. There’s a saying in our industry of the sweet feel or taste of low cost is quickly forgotten by the cost of poor quality. Right? Everyone likes to find a savings deal but even if you save 10% on something and you risk poor quality - poor quality can mean millions. Where a 10% discount on a component that maybe you’re spending $5000 on or even $500 on, if that goes out in the field, your cost, your exposure, your liability is some exponential factor so much higher. So, we don’t purport to be the low-cost solution in all cases particularly in shortage, but what our customers get is quality, they get confidence and peace of mind and they ultimately get the products they need to continue their production lines.
If it hadn’t been for COVID-19 and the freeze, would we still see shortages?(9:59)
I think we would, for a few reasons. There’s disruptive technology that’s just coming online. Electric vehicles are hitting critical mass popularity in major markets. 5G is still trying to come online. So there’s been a lot of development pulling demand and that’s high volume demand from the Huawei’s and the Ericsson’s and the Nokia’s of the world. You factor that also with mergers and acquisitions in the semiconductor world. These big players have been acquiring the smaller ones year after year for the last 15-20 years now. So whereas before these manufacturers had three or four different options, they have one now. Intel has acquired Altera. What was once AMD Spansion into Cyprus and now Infineon. Infineon is kind of that big fish. You see it with analog devices acquiring linear tech and maxim. Most customers used to have linear tech, maxim to analog devices [with] four to five options. So it’s almost like having more options at the grocery store: you go buy something and if one’s out of stock or doesn’t look as good that day, then you know you’ve got other options. [Now] this is a matter in some cases of only having one option. That’s a third factor in that as well. So, disruptive technology that would have led to shortages anyway, pandemic driven circumstances and there’s M&A. So, just this natural progression of the semiconductor market where the bigger players are eating up the smaller ones.
With global trade conflicts and COVID-19 exposing our vulnerability to foreign suppliers and a variety of products whether it be PPE or semiconductors we’re starting to see the U.S. government respond. I was encouraged to see the Senate come up with the bipartisan American for Innovation and Competitiveness Act which sets aside $200 billion for advanced technologies and manufacturing, $50 billion of which would go to semiconductors. Is this a response to us shoring up strategic needs in this country or is this more of an escalation in a trade war with China?(12:01)
It’s both it’s absolutely both. In recent history when we [the United States] have a singular foe, things happen. China is clearly that for us even though they’re a great trade partner and have kind of beaten us at our own game in some instances and maybe not played fair in other instances. A unified foe gets our federal government to act quickly which we saw with the bipartisan support and we are at risk where we are producing somewhere along 12% of the world’s semiconductors while some estimates have us [consuming] 50% of the world’s demand. That’s quite a bit out of balance. I don’t think the United States ever wants to be in a position where they’re dependent on any foreign entity much less one that we view as a foe for a variety of reasons.
I think when you start discussing applications like national security, the networks that our federal government works on, satellites that provide surveillance to our military, advantages we want to have in advanced weaponry and warfighting equipment, and those types of things, then suddenly you realize, ‘Wow we are really at risk. We don’t have several layers of the supply chain upstream from the rarer to the silicon at the foundries to the semiconductor production right now. I would say that it’s very much both. It’s helpful for us politically to say, ‘Hey there’s a foe and so we’re going to act.’ American people get behind that. Politicians obviously get behind that; they’re all trying to get reelected. But there’s a real concern and a real risk and I’m really encouraged that the government’s acting so swiftly.
After we let a lot of the lower tech manufacturing go overseas in the 90s and then saw the product know-how go as well. So we’re seeding whole industries. How will this investment impact Austin?(14:56)
I think Austin’s been an attractive place really since the late 90s when a lot of the California tech companies came out here to have a second campus or relocate which we’re still seeing now. I think Texas being business-friendly, the great universities that we have around here, and the space that we have to grow is going to attract large companies that are expanding, large companies that aren’t here yet, [allow the] medium-sized companies the ability to grow and hopefully identify some incredible technology they can scale up, grow and take to market. And [enabling] the small guys to have the resources to go and do what we did well for many years in the 80s and 90s and being leaders globally in research and development and innovation for semiconductors.
I think Austin’s in a great place to benefit. I hope that with the dollars, [with the] job market that’s already you know strained, that [the dollars] may alleviate some of the pressures as far as you know paying market value for these trained engineers and getting the brightest young minds in the lab working on these challenges [which will allow us to] come out of it four, six, 10 years later back in a position [to where] we’re not producing 40% but we’re back up to 20 - 25%. That might be a comfortable number where we’re self-sufficient. We’ve got allies doing what we’re doing and we’ve got enough where the threat, at least the China threat, is isn’t so overwhelming.