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The routes companies actually use, and what each one is really worth

There are more ways to deal with excess electronic components than most companies end up using. When a list reaches us, the only alternative anyone tends to mention is scrapping it.

This is the second piece written from the buying side. The first was about what decides the number once a list is in front of a buyer. This one is about everything before that: who is actually entitled to sell the stock, who might take it back, what scrap does and does not mean, and why the order you sell in can matter more than the parts themselves.

• Establish who owns the parts before anything else. The company holding the stock is often not the company entitled to sell it, and the owner frequently does not know it exists.
• If someone handles your excess for you, understand how they make money on it. Buying it back at a share of cost and reselling it is a legitimate model, but the margin is then theirs rather than yours.
• Cheap, heavy lines are priced differently from light, valuable ones, because moving them costs more relative to what they are worth. It is why the same parts can be straightforward in one consignment and awkward in another — which is only ever settled by pricing the list.

This sounds like a formality and is often the whole problem. In outsourced manufacturing the material and the shelf it sits on frequently belong to different companies. An OEM may have bought and paid for the components while a contract manufacturer holds and builds them. Elsewhere the contract manufacturer purchases in its own name and the customer never takes title at all.

So the company with parts in its warehouse is often not the company entitled to sell them. And the company that does own them may not know they are there — nobody reports leftover material with any urgency.

We hear the consequence of this regularly, usually phrased as a relief: the components were bought and are owned by the customer, so the excess is not this company's responsibility. That is often entirely correct. It is also how material sits untouched for years, because the party who can see it has no authority and the party with authority cannot see it.

Whoever holds title is the only one who can turn the stock into cash.

Three things are worth establishing at the outset: who holds title to the material, who internally can authorise a disposal, and whether any contract gives another party first refusal on it. That is usually a short conversation, and it decides whether anything else in this article is even available to you.

Some supply agreements allow material to go back where it came from. A contract manufacturer may take parts back from its customer, and occasionally a manufacturer will take back its own product. We hear of it from time to time rather than routinely. Where it does exist, the convenience and the price are separate questions, and it is worth separating them before treating it as the obvious answer.

What is worth understanding is how the price is arrived at. A take-back is often set at a share of what you originally paid — half of cost, for instance — rather than at what the part is worth in today's market. Where the company taking it back also runs its own excess channel, it can then sell the same material onward. That is a legitimate business model, and for a busy manufacturer the convenience may well be worth it. It is simply worth knowing that the difference between those two numbers is their margin, earned on your stock.

The asymmetry matters most when a part has gone the other way and appreciated. Shortages do happen, and a line bought at a normal price can be worth a multiple of it two years later. A clause that returns a fixed share of original cost does not follow the market upwards.

More generally, anyone who both holds your material and reports to you on it knows more about it than you do. That is not an accusation about anybody; it is the ordinary consequence of not having eyes on your own stock. It is also the reason a few dull habits pay for themselves:

Handing the job to whoever already holds the stock is certainly the least demanding option, and that is precisely what is being paid for. The gap between a share of original cost and what the same material would fetch in today's market is the price of that convenience. It is worth knowing roughly what that gap is before deciding it is a good trade.

People often assume this is the obvious first move. Franchised distributors do sometimes carry stock rotation arrangements, which let a customer return a limited amount of unused material. They are negotiated rather than standard, and they come with conditions that excess rarely satisfies: a share of recent purchases rather than any quantity, a time window running from the original invoice, unopened material in original packaging, and sometimes a restocking charge or an offsetting order.

In practice we rarely hear of it working. Where it does, it tends to be the very largest manufacturers dealing with the very largest distributors, and even then not as a matter of routine. Some of our own larger customers have that kind of relationship and still sell their excess on the open market.

There are a few reasons for that. Excess is often heaviest in exactly the material that cannot go back: parts bought on the open market during a shortage rather than from the franchised distributor who would have to accept the return. Windows expire long before anyone reviews the stock. Packaging gets opened. And the allowance, where it exists, tends to be used up by ordinary day-to-day returns.

Which is the heart of it: the arrangement seldom reaches the material that actually becomes excess. By the time stock has been identified as surplus, the window has usually closed, the packaging has usually been opened, and a good part of it was never bought from that distributor to begin with.

A fair number of the enquiries we receive are requests to scrap, on the assumption that a components buyer pays scrap prices and recycles. It is worth saying plainly what we are: an independent distributor and trader. We buy parts to sell them on to somebody who will use them. We are not a recycler, and we do not handle material for destruction or materials recovery.

That rules out used board-level components — parts desoldered from finished assemblies — and it rules out damaged stock. There is one narrow exception worth knowing about. Processors, graphics parts and memory that can be removed without desoldering are sometimes of interest, provided they are in genuinely good condition and come with their original packaging. Those are harder to sell than factory-new stock, and that shows up in the price, but they are not automatically a no.

On scrap value itself, expectations are often high. On modern surface-mount components there is very little recoverable material in the parts themselves; the gold-bearing scrap people picture is mostly in older assemblies and connectors rather than in a reel of capacitors. What makes a component valuable is that it works, that its origin is known, and that somebody needs it. Very little of that survives being processed for materials.

Recycling is genuinely the right answer for some material: parts with no legible markings, anything water or heat damaged, quantities too small for anyone to price. But a valuation costs nothing and takes minutes, and scrapping is the one step in this process that cannot be reversed. We wrote more about that in the first article.

One thing that moves the answer on a list has nothing to do with the parts themselves: what else is travelling with them.

Lists reach us at every stage. Some are complete; on others the integrated circuits, memory, processors and relays have gone and what remains is passive material — capacitors, resistors, diodes, transistors. Those are perfectly good parts, and plenty of them sell. They are simply cheap per line, widely available, and heavy in relation to what they are worth, so the cost of moving them weighs more heavily on the answer.

Where a list has strong lines on it, we can frequently take weaker material along with them. That is an option rather than a rule, and never a condition of buying the good lines — a list of three strong lines and nothing else is a perfectly welcome thing to receive. Equally, where the strong lines have already gone, the remaining material is judged on its own merits rather than dismissed.

The reason is unglamorous. We arrange and pay for collection, and freight is charged mainly on weight, with size playing its part as well. Components differ enormously in how much value they carry per kilo.

A few trays of processors weigh almost nothing and can be worth thousands. Reeled passive parts fill pallets and are worth a fraction of that. On a mixed consignment the lighter, more valuable lines absorb a good share of the freight, handling, counting and storage for everything travelling with them. That is why weak material is sometimes easy to include and sometimes not.

None of which makes selling line by line the wrong choice. It frequently is the right one. It turns the strong material into cash quickly, it lets you hold back anything you are not certain about, and for a company that wants a fast clean result rather than an empty shelf it is the better answer. It is worth asking who pays the freight, though, since that varies from buyer to buyer and can quietly move the number. We arrange and pay for collection ourselves, wherever the stock sits.

Where the stronger lines have already been sold, the rest has to stand on its own. Sometimes it does: light material, a warehouse near one of ours, or a line that turns out to be worth more than anyone expected. Sometimes what is left would realise less than it costs to collect, receive and re-list, and no buyer can make it work. The point is that it genuinely varies, so it is worth finding out rather than assuming.

What a line is worth to a buyer depends partly on what travels with it.

This is also why a declined list is rarely a judgement on the parts, or on you. It is arithmetic, and it is the arithmetic that changes rather than anyone's willingness. It follows that if you have already sold some lines, say so when you send the list. It takes nothing away — we would rather price what is genuinely there than discover it later.

Everything above could be read as a reason not to bother sending an awkward list. It is not, and the reason is worth stating clearly: what a company considers its tail and what we consider its tail are not always the same thing.

Lists written off internally as leftovers regularly contain a line or two in real demand. One genuine winner in a long list of ordinary material can change the arithmetic for the whole of it. We cannot tell which lists those are by looking at the covering email. We have to price them.

The same goes for lists where the strong lines have gone elsewhere. It is harder, not impossible. Where the material is light, the warehouse is near one of ours, or one line turns out to be stronger than expected, the numbers can work perfectly well. We would rather look and tell you than have you assume the answer.

And there is no minimum. A list worth a few hundred dollars can make sense if the freight is short and light. There are too many variables for a threshold to mean anything, which is why we do not publish one.

If you are unsure whether a list is worth sending, that is the case for sending it.

Most of what happens to excess electronic components is decided before price ever comes up. Find out who owns the material and who can authorise its disposal. Where a contract does allow stock to go back, weigh what it pays against what the same material is worth today rather than treating convenience as the whole answer. Distributor returns rarely reach material that has already become excess. Get a valuation before anything is scrapped. And send the list in whatever state it is in. What a buyer can do with the cheaper, heavier lines depends on the consignment as a whole, which makes it a question to be answered rather than guessed at.

Before you decide what to do with excess

• Confirm who holds title to the material, and who can authorise a disposal.
• Know whether any contract restricts who you may sell to, and on what basis material can go back.
• Where a partner holds your stock, ask for a statement of unused material and reconcile it.
• Where a buy-back is on offer, compare it against what the material is worth in today's market.
• Get a valuation before anything goes for scrap or destruction.
• Decide how you want to sell — line by line or as a lot — rather than selling the strong lines first and offering the remainder later.
• Send the list even if the strongest lines have already gone. It changes the answer rather than deciding it.
• Say what has already been sold, so the buyer prices what is actually there.
• Include the awkward lines rather than filtering them out first — they are often easier to place than they look.
• Send it even if you think it is too small or too odd to be worth anyone's time.

If you are weighing up stock at the moment, the first article covers what decides the number once a list is being priced, how it works sets out the sequence from list to payment, and our page on selling excess electronic components explains what we buy.

For anything else, general or about a particular list, our FAQ covers the questions that come up most often, and you are very welcome to email us at hello@quanta-source.com.

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