Purchasing electronics components in America

I am a little proud (but mostly embarrassed) that I still do basically all of the electronics component purchasing for Pololu. Today I am writing about buying components because their prices have a huge impact on the end price of our products, especially when we work to cut down other costs as I have been discussing lately. Buying parts when trying to compete globally is more frustrating than you might think, and I hope that writing this will help trigger some conversations that will help us do better and also encourage component manufacturers and distributors to better support small electronics manufacturers in the United States.

I buy almost all of the electronic components that go into our products from suppliers in the United States. That includes integrated circuits, discrete semiconductor products like transistors and diodes, resistors, capacitors, inductors, and so on. The only parts I do not buy in America are components like connectors and electromechanical devices like switches and buzzers. This post is mostly about buying components in the US from US suppliers, but I will briefly touch on the non-US components to provide some background and comparison.

There are two main reasons for those non-US components: they are much cheaper than similar parts in the US and we can evaluate that they are good enough. That second reason is important because counterfeits and fake parts are a big problem in the electronics industry. We can look at something like a 0.1" male header or an electromagnetic buzzer and see basically what it is. Once we can be confident that a component or supplier is good enough for the level of performance and reliability we need from our products, we can look at prices to see whether it’s worth the extra hassle (and that amount of hassle keeps going down) to get the components overseas, which pretty much means China (and Taiwan, in case that distinction is meaningful). And that price difference can be huge. When I started getting connectors directly from Taiwan over ten years ago, the price difference was approaching a factor of ten, meaning that for around a thousand dollars I could buy what would cost me ten thousand domestically. Some of the price differences seem to be getting smaller, but the components still seem to be easily three to five times cheaper in China. Early on (around 2005), local salespeople would ask me what prices I was getting in China, thinking they had some better deal or connection than I knew of; nowadays, they don’t even ask or try to compete.

With all the other component types, even for the most basic parts like resistors and capacitors, we are not really qualified to evaluate them, and I would not want to be responsible for doing quality control for millions of units even if we could analyze one particular instance of a resistor or capacitor and conclude that it is good enough. So, I only buy components from reputable brands through their authorized distributors, which means I buy basically all our components through American companies (with one exception I’ll get to soon that almost doesn’t feel like an exception, anyway). Those companies also tend to be the biggest electronic parts distributors in the world.

I still buy some components from the catalog-type sources that are probably familiar even to most students and hobbyists, like Digi-Key, Mouser, and Newark. Once upon a time, these companies printed large catalogs that were the best way to find out what kinds of components even existed (especially when I was growing up in Hawaii). Digi-Key stopped printing catalogs a few years ago; Newark apparently still does. In any case, these kinds of sources now have good online resources for finding parts, they tend to have a lot of parts in stock, and they are set up for small quantities, which is why they are great resources for individuals, too. Usually, it’s very easy to buy components from these sources, and I rarely interact with anyone when I do since I usually just place the orders through the web sites at their listed prices.

However, the prices usually are not the best at those most convenient sources, especially when my minimum quantities tend to be full reels with thousands of parts rather than a few individual parts. So for most of my electronics purchasing, I go with big distributors like Arrow, Avnet, and Future Electronics. These companies have local offices (though for Las Vegas, “local” tends to mean in Phoenix, Arizona or somewhere in Southern California) that have salespeople that I can talk to that can help me get lower prices. Future Electronics, being a Canadian company, is the exception that I mentioned earlier; but, working with them is basically the same as working with Avnet or Arrow since they have the local staff and things like a distribution center near Memphis, Tennessee (here is a video about it).

Back when I was a student and before I started Pololu, I thought electronics distributors just bought components from manufacturers and then sold them with some markup on their cost. I think some of that did happen and still happens today, but it’s less common and less practical now because there are so many different, specialized components that they cannot all just be sitting in stock somewhere, waiting for the unlikely scenario that someone would come along and buy them. When I buy from distributors like Digi-Key and Mouser, I am almost always buying something they have in stock; when I buy from Arrow and Future, it’s almost never something they have in stock (or it’s something they have in stock because they had good reason to expect me to order).

But there was a much bigger misconception in my naive view than just the timing of when a distributor bought some parts relative to when the end customer ordered them. The major thing I learned in the early years of running Pololu is that component manufacturers charge the distributors different prices for the same components, based on the end customer! In some ways, that’s frustrating because it means I have to do a lot more work to get a good price. I have to convince each distributor and each manufacturer to give me a good price, and sometimes I have to do that with each component. It can also be a good thing in that if I do establish a good relationship with some manufacturer and distributor, the hassle per part goes down over time as they get to know our business and what factors are important to us. And some of them probably do give me a globally competitive price sometimes.

The difficulty, and what prompted me to write this post, is with those manufacturers that do not. (That or counterfeits, which is sometimes the explanation or excuse I get back from manufacturer’s representatives.) Well, the really specific thing that led me to write this post is the AVR Freaks thread about my last post, in which I introduced our new A-Star 328PB Micro:

AVR Freaks post about A-Star 328PB Micro announcement, the motivation for this blog post.

The poster mentions a board similar to Pololu’s with an ATmega328P for $1.70 (and wonders about the chip authenticity). I went to look at the part price on Digi-Key, and this is what I saw:

Screenshot of Digi-Key price for ATmega328P with prices highlighted, retrieved 25 February 2018.

I have highlighted the relevant fields, which are the lowest prices: $1.77 each at 100 pieces, and alternately, on a reel of 2000 pieces for $1.83. 100 pieces is kind of low for a highest price break. A long time ago, I tried out the higher volume quote request option that is suggested under the 100-piece price, and after some back-and-forth, Digi-Key gave me an official volume quote for higher quantities with the exact same price as at the 100-piece break:

Excerpt from quantity price quote from Digi-Key (from around 2010)

I tried it a few more times with some other parts, but it was basically the same result every time, so I have not tried special pricing with Digi-Key since. That was close to ten years ago, so maybe it’s different now, and maybe it would be different if I had asked for 10k or 100k pieces.

Back to the original point: you can get the whole assembled board from China, in single-piece quantities, for less than the price of just the one component, even in volume quantities. And this Atmel/Microchip example is far from atypical or anywhere near the worst case. Here is an AliExpress listing for a small development board for the STM32F103C8T6 microcontroller:

AliExpress listing for an STM32F103 development board for $1.79 including shipping, captured 25 February 2018.

In this case, Digi-Key has prices listed for higher quantities than in the earlier example, and the 2400-piece reel has the best unit price of $3.04:

Screenshot of Digi-Key price for STM32F103C8T6, retrieved 25 February 2018.

I have been working on pricing for similar STM32 parts, and even at twenty thousand pieces (not through Digi-Key), they are not getting to the prices of just one of these complete boards, with double-sided assembly and a bunch of additional components (and free shipping!—though that is some separate scam that I do not blame the electronics component manufacturers and distributors for). Something clearly doesn’t add up, right?

As I mentioned earlier, some manufacturers will say the parts in the cheap boards from China are counterfeits. I believe that is the explanation in some cases, and we have our share of frustrations with knock-offs and counterfeits of our own products. But I had one experience around five years ago that makes me very skeptical that that is anywhere near the whole story. One of our more successful early products, at least by number of units sold, was a basic carrier for Allegro’s A4988 stepper motor driver. I remember being frustrated because Allegro seemed to have some deal in place with Digi-Key that gave them the best prices (and unlike the examples above, Digi-Key did have volume breaks up to many tens of thousands on that part). Digi-Key has been getting better on prices, but still, paying “Digi-Key prices” seemed like an insult when I was buying tens of thousands of these parts at a time.

It became more of a problem when the knock-offs of our boards started appearing on eBay and other sites for basically the same prices as just our component costs. I kept trying to get my suppliers to help me with my prices until I got the parts from Asia via Future Electronics. They assured me these were genuine parts through their global partners or subsidiaries, and they could do that for me because they were not authorized distributors for Allegro in the United States. So, that alone was a good indication that these parts were out there, through reputable sources, at lower prices than I could get in the US. But the conclusion to this story gets better: someone who could do something about it at Allegro finally got word that I was getting these parts elsewhere (they noticed the sales abruptly went away, and they wanted to see my invoices from other vendors) and reduced my authorized price, through Arrow, to almost half of what it had been.

This was over the course of maybe two years, and while it did help and we lowered our prices, I believe we missed out on a lot of potential sales because it took so long to get the prices down. The sad thing is that there are probably many more missed opportunities, not even just for Pololu, because of how components get priced in the US. The manufacturers seem more willing to cut prices after demand is proven and they start losing sales rather than up front to make the sales happen in the first place. And to be clear, I am not talking about small quantities like broken reels and cut tape that require extra handling and processing. I also understand that these modern 32-bit microcontrollers like the STM32 are such amazing achievements that it seems really unappreciative to complain about one costing $2. It’s just that when the same parts are costing one dollar somewhere else, we need to figure out how to get that price if we want to be globally competitive with our products.

Since I know many of you are also interested in open-source hardware, I should mention the ramifications component pricing has for openness with our designs. One of the factors that goes into how much information we release is how good I think our component price is. It’s easier to share key components that we use if I think we can keep making our products competitively.

Back to some of the comments that led me to start writing on this topic. I hope I have shown you a different kind of behind-the-scenes view than just the machines that go into making our products. Some of that “twice as expensive as a similar board from Ali / Ebay” goes all the way down to the basic component level. I hope you can see that I am working on addressing that. I would be interested in what other small manufacturers in America (and in other countries besides China) do. Should I just start sourcing more components from China? Should I be using smaller distributors in the US? (I am skeptical that would make a big difference because of my understanding that manufacturers are basically setting the prices). Or is there something else I’m completely missing? I know some of you who read my posts work for the electronics manufacturers and distributors; can you help push for getting better component pricing in the US? For all of you who like making electronics, wouldn’t it be nice to have the option (or for your kids to have the option) to do that without having to live in China or being limited to industries like aerospace and military where components costs might not matter as much?