The Counterfeit Solution – The Importance of Transparency to Mitigate Risk to the EC Supply Chain

Obolete and associated components escalate the motivation to produce counterfeit parts more and more every year. As hi-tech electronic industries grow, new and old manufacturers are subject to the risk of receiving counterfeit board level components more often if their suppliers lack proper inspection and testing measures.

In 2005, the US Department of Commerce reported 3,868 incidents of counterfeit components. In 2008, that number soared to 9,356, an increase of 140% in five years. This does not even begin to calculate the commercial markets that have been reported. An electronic part that is not genuine or is deemed counterfeit can broadly be defined as:

"An unauthorized copy, not conforming to original OCM design, model and or performance standards, not originally produced by the OCM or has been produced by unauthorized contractors, an off specification, defective or used OCM product sold as new or having incorrect false part markings and or documentation ". (Counterfeits & the US Industrial Base, Nelson, 2009)

The OEM & EMS Mind Set:
An open and transparent approach is critical for buyers to make informed purchasing decisions, leaving their customers and top management with peace of mind. Purchasing agents do not like to add new suppliers, especially independents unless they absolutely have to for a critical short purchase. OEM and EMS providers need to see a history of new and original components delivered time and time again.

The Scenario
In my experience with serving Buyers from OEM and EMS companies around the globe, I find that many times Purchasing Agents need price points not possible from North American or European sources. Other times parts are only available in Asia or from an unknown vendor.

One of the key ingredients to our success is being completely transparent to our customers about origin of stock. Being up front with our customers allows for informed purchasing decisions and testing preparations, most importantly no surprises of receiving defective product.

Although we have some outstanding sources in China, Taiwan and Singapore, there are still hundreds of other "non-qualified" sources that are considered high risk. We see these sources being used all too often by other independent distributors without the informed approval of the end user.

The Problem
Purchasing Agents are highly trained to negotiate for below market pricing and are under extreme time constraints for bringing parts in house. Situations like this create extreme pressure for the buyer, so they contact a few brokers to see who can quote the best pricing and delivery scenario.

The real problem lies within the quotes that are presented to a Purchasing Agent. Sometimes, there exists a consistent disregard or a complete fabrication given by some independents so they will "win" the order. For example, telling their customer that parts are coming from a proven source in Europe when they are really rolling the dice with an unknown source from Asia. This lack of transparency and integrity sets the purchaser up for failure, increasing production time and escalating cost unnecessarily. If defective or counterfeit components are used during a production run, thousands and thousands of dollars are lost due to board rework, labor costs and the re-sourcing of good parts, not to mention the frustration of losing production time. Situations like this can be avoided by qualifying your independent suppliers more effectively.

The Transparency Solution: (Authentication, Regulation, Information)

There are methods which we have adopted of performing detection and testing analysis for our OEM and EMS customers. The process is extremely effective, combining internal, external and electrical testing analysis to determine the authenticity of a chip. Using curve tracing technology, it is possible to verify the device's pin output to OEM spec documentation, identifying counterfeit or substandard components (including ESD damages).
As an example, our primary authentication screening includes:

  1. External Visual Inspection (Guideline: Mil-STD-883 Method 2009.9)
  2. Internal Visual Authentication (DE-Cap) (Guideline: Mil-STD-883 Method 2014)
  3. Electrical Testing to Manufacturer's Specification (10 Sample Run Per Lot)

Regulation & Accountability:
Most OEM & EMS companies work off an Approved Vendor List (AVL), which allows for accountability, and peace of mind that industry standards (such as ISO and AS9120) are being met. These lists generally consist of proven suppliers and sources who re-sell factory original product. The ISO certification ensures that if and when accidents do occur, the faulting party is subjected to a Supplier Corrective Action Report (SCAR). This is intended to add a level of accountability because when a vendor is SCAR rated for quality, they are often immediately removed from the AVL. Expecting the same level of assurance from your independent suppliers is a must in today's sourcing market.

Transparency means providing an unobstructed channel of information between the seller and purchaser. This must include an effective testing process that is both efficient and economic. Your independent distributor should allow purchasing agents to place an order based on the electrical analysis and authentication results of the part before they ever receive product. This has the added bonus of prohibiting purchaser to deviate from an AVL based on informed customer approval, when parts are hard (if not impossible) to source amongst their usual supply channels. In some cases, parts are on the other side of the world and it is difficult to determine the authenticity or electrical integrity of the part, but the customer still wants to bring them in. If your supplier can give you the critical concise information you need about the parts, those risks are largely mitigated as one can quickly to determine if the stock is authentic and non-defective product based on the specifications required. These processes can electronically confirm the input / output of the device to OEM spec documentation. The internal die of the device can also be analyzed for authenticity as well as the part marks, pin condition and package labeling. Even original new product can be compromised by the mishandling of static sensitive devices, highlighting the importance that a supplier must also adhere to strict ESD guidelines as well.

When using an independent distributor, make sure they are able to demonstrate a level of assurance that adheres to industry standards observed among the electronic components industry. Do not assume your independent supplier already has a proven method for identifying or combating defective / counterfeit components. Ask for a copy of their quality manual or documentation supporting their quality process. If a price looks too good to be true, it probably is.

Items like a $ 100 New DSP Chip should not cost $ 7.50. Do not substitute price for quality. If you have to pay ten cents more for parts that are still factory sealed, realize the potential risks associated with purchasing non factory packaged product or product available in 3rd party packaging. Be realistic with target prices, being unreasonable may force some independents to only look at the riskable surplus lots available because it is the only way they can compete on price. Do research on the independents you use, are they ISO Certified? Are they ESD compliant? Again confirm this with documentation they can provide. Transparency is a must, if your supplier is unwilling to provide detailed information allowing you to make an informed decision, build a relationship with a supplier who will.

Leave a Comment

Your email address will not be published. Required fields are marked *