Sustainability and recycling of electronic components is a problem that still has not been solved. This has led many industrialized countries to export their electronic waste to developing countries with very little environmental regulation. Unfortunately, one person's waste is another person's treasure, and electronic waste often becomes a source of reclaimed components, which make their way into the gray market. These components are handed off between brokers and resellers, potentially making their way into PCBAs at an EMS.

While many of these scrap components are used locally, the best quality scrap components making their way into the gray market have particular identifiers, and they can be identified through inspection or testing. Producing overseas creates greater risk that a scrap component or recycled component ends up in a PCBA. An important part of supplier qualification is to understand their inspection and testing processes, as this can help EMS providers and their customers avoid reclaimed or recycled electronic components.

Watch the clip below with Kenny McGee or watch the full Altium OnTrack podcast episode here.

The Takeaway

Smart PCB design decisions earlier in the product lifecycle may help reduce the level of waste. However, this approach is challenged by the fact that component manufacturers continue to reduce their product lifecycles, leading to many manufacturers marking their products obsolete. This results in reduced demand for those parts. Companies should do more to understand the lifecycle of their products to prevent overbuying and subsequent scrapping of inventory, which could then end up in the gray market.

Transcript

Zach: When you first described getting started with Component Sense, you mentioned walking through a client facility and seeing stacks of stock piled up in the warehouse. That makes me wonder—if your company wasn’t providing this service, taking excess genuine stock off companies' hands and redistributing it, what would happen to all those components?

Kenny: Typically, they would just sit in a corner. That’s how I could tell the stock was discarded—unlike production stock, which is neatly organized and well cared for, this material was just piled up haphazardly. It was mostly foil packs, and when I see a vacuum-sealed foil pack containing a brick, a 12-inch reel, or a 13-inch reel, I know there’s serious value in that. Companies don’t go to that level of packaging for components that aren’t worth money. So when you see stacks of those in a factory, sitting in a neglected state, you realize there’s a lot of capital just wasting away.

On average, about 10% of a company’s revenue accumulates in excess or obsolete components. Around 1% of that revenue is completely dead stock—components that will never be used again because they’ve been designed out. The other 9% consists of slow-moving stock that still holds potential value but is at risk of becoming obsolete. We often describe it as an iceberg—at the very top is that 1% of truly obsolete stock, and beneath that is the much larger portion of slow-moving components that will inevitably meet the same fate if they aren’t moved in time. Given how quickly technology evolves, components that sit for too long will eventually become unsellable.

If companies start thinking about their excess stock in financial terms—realizing that they may have 10% of their revenue tied up in slow-moving or excess inventory—they can act quickly to recoup that money. When they work with a company like ours, they often recover a significant portion of their investment. For billion-dollar companies, their buying power is so strong that we can often resell their excess stock downstream and get them close to full value. Smaller companies benefit too because they can purchase components at a lower cost. It’s a win-win: the larger company recoups money, and the smaller company gets critical components at a discount.

Beyond the financial aspect, redistributing excess stock helps prevent unnecessary waste. Components don’t typically go straight to the landfill—companies hold onto them, hoping they’ll be needed again. In the EMS industry, there’s a saying that buyers would rather be looking at stock than looking for it, which leads to a hoarding mentality. But the longer companies hold onto excess inventory, the greater the risk of it eventually being scrapped. When that happens, the stock either ends up in a landfill or gets crushed—an energy-intensive process that recovers only a tiny fraction of the component’s value. Given how many resources go into manufacturing electronic components, our goal is to ensure they are used to their full potential. Ideally, every device should have at least a 10-year lifespan before being discarded.

---

---

---

---