According to a survey by the U.S. Department of Commerce Bureau of Industry and Security's (BIS) Office of Technology Evaluation (OTE), all segments of the commercial, industrial and defense supply chains have been impacted by counterfeit electronic components. The number of counterfeit incidents rose from 3,868 incidents in 2005 to 9,356 in 2008.
At best, these cases cause a loss of revenue through manufacturing downtime. At worst, counterfeit electronic parts result in product failure and can be directly responsible for injury or death. Outdated, obsolete and incorrectly posted inventories are making matters worse, consuming valuable time and resources.
While organizations and companies in the U.S. supply chain are vaguely aware of the infiltration of counterfeit electronics parts and the challenges in securing the right parts in a timely manner, little is being done to stop it. According to a report by distributor Rochester Electronics, LLC, the reasons for the lackadaisical responses are many:
- Organizations in the U.S. supply chain do not communicate with one another
- Organizations and companies assume "someone else is checking" for counterfeiting
- Common lack of traceability of parts
- Only a limited number of organizations keep track of counterfeiting incidents
- Unaware which government agencies to report counterfeiting to
- Unaware of legal requirements and liabilities related to counterfeiting
- Insufficient testing protocols and quality control practices
In an effort to halt the rising incidents of counterfeit electronic parts, the OTE developed a list of best practices for organizations in all industry segments that deal with electronic components.
Policies and Procedures
The OTE states that institutional policies and procedures and employee training are key. Every worker along the supply chain must be made aware of and adhere to the written guidelines set forth by the company including one hundred percent tracking, tracing, and documentation from incoming purchasing to inventory and storage to outgoing sales and reporting/disposal of potential counterfeits if necessary.
Returns and Buybacks
According to the survey, 51% of authorized distributors remark or recirculate returns and buybacks, but only a small percentage required parts to again undergo quality control and screening prior to recirculation. Before placing components into inventory, it is crucial that parts are screened and tested for authenticity, especially returns and buybacks, using testing protocols that conform to the latest industry standards: surface testing, x-ray analysis, destructive physical analysis, electrical testing, temperature of thermal cycling, and burn-in. For an added layer of protection, it is suggested that these test results be verified by contract testing houses.
OTE urges organizations and companies to report all suspected and confirmed counterfeit components to federal authorities and industry associations and maintain an internal database of counterfeit incidents. As per the survey, only 3% of cases were reported to the government in 2008 because companies didn't know to whom they should report the incidents. Once defective, damaged, or substandard parts are discovered, it is crucial that they be physically destroyed and properly disposed of by a binding recycling facility so they cannot re-enter the supply chain.
To help stop the infiltration of counterfeiting and streamline sourcing, thus improve efficiency and costs, the component sourcing industry has taken steps to unify itself and make the supply chain process simpler. Many have implemented best practices proposed by OTE and some have gone even further to bring order to the chaos.
Buying parts directly from authorized distributors helps keep the system honest, according to OTE. Admittedly, avoiding purchases from parts brokers, independent distributors, and the gray market may not be practical for systems that require out-of-production or obsolete parts. OTE suggests maintaining a list of trusted suppliers with information including basics such as the name and contact information, but additionally, the number of years in business, references from past and present customers, counterfeit screening, tracking and testing procedures, adherence to industry and government standards, industry association memberships, records of previous problems, quality of warehouse and storage facilities, existing counterfeit avoidance policies, and other relevant criteria.
Creating such a list, however, can be a daunting task. Resources are now available which have already done the work, providing direct access to the credible factories.
Component Search International, for example, partnered with IHS Global, the leading provider of technical specifications, to develop and launch what it is calling "Google for Components", a subscriber based, comprehensive search engine for electronic and mechanical components.
After two years in development, the site is fully operational with over 800 suppliers, 15 million unique parts and 350 million data sheets. The site employs a team of experts dedicated to the vendor and data verification process, which includes a thorough screening and self-policing policies.
When working with a new company, it may be beneficial to engage a third party escrow service to hold payments until parts' authenticity are confirmed. Additionally, review the Official Manufacturers' Distributor Authorization Reference Manual that lists authorized dealers by manufacturer. The manual was developed by Rochester Electronics, which also formed the Anti-Counterfeiting Task Force in partnership with the Semiconductor Industry Association (SIA).
The extent of counterfeit electronic components infiltration is widespread throughout U.S. military and industrial supply chains. Best practices and recommendations can counteract the counterfeit problem if organizations and companies better communicate, track, and report instances. By working together and taking an active role at every junction of the supply chain, the electronics components manufacturing and sourcing industry will be better as a whole.
Component Search International
List of authorized dealers by manufacturer
Learn more about reporting counterfeit incidents
Report defense-related counterfeits to the Defense Criminal Investigative Service (DCIS) by calling 800-424-9098 or visiting http://www.dodig.mil/hotline
Report aviation counterfeits to the FAA Suspected Unapproved Parts Program by calling 800-255-1111 or sending an email to [email protected]
Report commercial counterfeits to a local FBI office, found at http://www.fbi.gov/contact/fo/fo.htm
About the Author
Joe Bilotta is the CEO, and one of the founders of Component Search International LLC. From 1987 to 2007 Mr. Bilotta was the CEO of Ergo 2000. Ergo was started as a post-production studio design/build company in 1987 with $100 in the bank, and reached sales of $38 million in 2006. Mr. Bilotta also created the KVM/LCD Keyboard drawer in 1994 that was subsequently used by HP, APC, and IBM. Ergo 2000 sold more than $100 million worth of KVM drawers in less than 7 years. In addition to the keyboard drawer, he invented an audio monitoring device for musicians. Mr. Bilotta is also the CEO of XS Micro and Posse Audio.