The counterfeiters are not winning and they won't. The industry is awash in news and research reports about surging incidents of counterfeiting in components used in aviation, consumer goods, and military equipment, but that represents only one side of the story. As counterfeiters have increased their supply of fake parts, corrupting the supply chain, so have concerned manufacturers and regulators intensified efforts to combat the trend.
Component manufacturers, distributors, electronic manufacturing services (EMS) providers, and OEMs won't be able to completely scrub the supply chain of fake parts, but, quietly and intensely, they are developing and waging a fierce campaign against the counterfeiters, according to industry sources I've spoken with in the last few weeks.
Some of the efforts can be attributed to the decision by Congress and the US government to make manufacturers responsible for certifying components supplied to the Department of Defense, but companies are also beginning to be strident in calling for a concerted plan to reduce counterfeiting, because the entire market gets a black eye with each reported incident.
The anti-counterfeiting provision in the 2012 National Defense Authorization Act (NDAA) has certainly lit a fire under the industry. Attendees at a seminar on counterfeiting hosted at ES-Live (an annual conference linking up component manufacturers and purchasers) in London were warned by presenter Bob Willis to pay greater attention to their sourcing strategies, especially if they sell parts to the DoD. "You may end up in an orange suit and headed to prison," he warned.
Willis, a mechanical engineer, consultant, and specialist in the detection of counterfeit parts, wasn't exaggerating the threat. The NDAA puts the onus on the manufacturer and supplier to prove components sold to the DoD were genuine. Failure to ensure this could result in prosecution and imprisonment, as other news reports have highlighted.
Congress has been alarmed by a sharp rise in reported incidents of counterfeit parts supplied to the US government and has prescribed stiff penalties to combat the criminals responsible. However, as IHS noted in a recent report, suppliers who unwittingly introduce fake parts into the defense supply chain may also get prosecuted. Here are the steps defense contractors are expected to take, according to IHS's interpretation of the NDAA:
Contractors are now responsible for detecting and avoiding the use or inclusion of counterfeit electronic parts or suspect counterfeit parts
Contractors are also responsible for any rework or corrective action that may be required to remedy the use or inclusion of such parts
Defense contracts will no longer allow the cost of counterfeit electronic parts and suspect counterfeit electronic parts or the cost associated with rework or corrective action to resolve the use or inclusion of such parts
Qualification procedures and processes must be established to use trusted suppliers and procure electronics from authorized suppliers
If these onerous burdens have been shifted onto suppliers and defense contractors, how come I still believe the counterfeiters are not winning? The answer is simple. Over the years and at all levels of the supply chain, companies have been introducing actions that have continually placed them several steps ahead of the counterfeiters. Also, many more companies are today willing to publicly address the subject and even admit to the discovery of fake parts in their inventories. This was not the case two years ago, when even the mere mention of counterfeit components in the same sentence with a reputable distributor's or manufacturer's name was seen as the kiss of death.
Today, many companies not only admit that fake parts have been discovered in their inventories, but they'll also disclose how such components could have infiltrated the supply chain. Such public disclosures are working against the counterfeiters, who can no longer rely on the silence of victims to cloud industry visibility into the scale of the problem. In fact, the reason researchers like IHS now have more data on reported incidents is because manufacturers (OEMs, EMSs, and component suppliers) are more willing to submit information on these.
Finally, manufacturers are hosting training and other educational seminars for employees, suppliers, and customers to equip them with the knowledge and tools necessary for combating, detecting, and reporting counterfeits and counterfeiters. Out of these activities have arisen technological innovations that are now being shared across the industry to fight counterfeiting. EBN blogger Douglas Alexander wrote about one of these in a recent blog, and other EBN contributors have similarly addressed the subject in various postings.
In my next blog, I will focus on some of these anti-counterfeiting technological initiatives. EBN will also be hosting a series of online educational sessions on this. Stay tuned.
Bolaji: If I were appointed as a Czar to find a solution to the counterfeiting of electronic parts, I would first look at determining which country is producing these counterfeit parts – China, India, other Eastern countries – and then set it up so that their supply of used parts is cut off. If we stop sending scrap material to these countries, they will have fewer parts - reclaimed from discarded circuit boards - from which to make the counterfeit parts. This means that we need to do our own reclamation. We either crush them to destroy them, or first reclaim their metallic content – lead, silver, gold, tin, copper, etc. – and then crush the residual ceramics. Ultimately, we would still need to crush the ceramic residual of the parts and that would probably be a part of the reclamation process anyway, in order to get at the microcircuit metallization metals. This, then, leads us to determine the effects of putting this excess ceramic material into a land fill – its toxicity, if any, etc. Ultimately, we are putting off the disposal of the material to further down the chain, but at a point where the counterfeiters cannot use our waste product any more. While this might lead to a "cottage industry" of scrap reclamation, but, ultimately, the ROI on such an investment will determine if such a process would be viable. Maybe there will end up being a central crushing/disposal facility, but this would, once again, be determined by the ROI of such a facility, and the landfill problem would still exist.
@Bolaji You hit on another key question for many proposals to address problems. Who is to foot the bill? People are often quick to respond "the government," as if it is an entity with unlimited resources when, in reality, the government really means you and me and all the other millions of tax of payers.
Another interesting aspect is that more often than not, these counterfeiteer are non-technical people. And technical / intellectual people help them commit this crime, knowingly or unknowingly.
The problem businesses and society at large must contend with as counterfeiting proliferates is that deadly danger might have already been done before the culprit is apprehended. We've chatted here about how to detect counterfeits and what kind of punishment to levy on those involved. There's a third layer and that centers on actually catching counterfeiters before their deadly goods are injected into the supply chain. Currently, this is not a part of the battle against counterfeiting. The actual process of producing counterfeits has to be disrupted but that will require pouring investments into locating plants where the counterfeiters operate. Who will finance this? The government, business?
@Bolaji, Happily, I am not in that situation. The key thing is really to prevent counterfeiting through whatever means may work -- short of shooting suspects on the spot and asking questions later, of course. However, in situations in which the counterfeit part is not merely a matter of fraud but a cause to bodily harm, those who legislate the laws may have to take the question of justice into consideratio, as well. Certainly, in American trials, the cost to victims in terms of suffering and loss is used to direct the jury's sympathy to them and away from the one accused.
Ariella, I want to toss the question you asked back at you. What would you look for in this situation: justice or deterrence? If you are at the head of a government body charged with resolving this, what would you do? Would you hammer down on the businesses more or would you focus more on the counterfeiters?
@Bolaji It is a problematic situation. I would imagine that even the stiff penalties can be circumvented by closing the business down, claiming that everything was sold off with nothing remaining, and then opening up under a new identity.
BTW today's news included a warning about counterfeit Adderall, which the FDA says, "should be considered as unsafe, ineffective and potentially harmful."
Ashish, Sorry, I won't let you off that easy. You may be right that there are no easy answers but if you were appointed a Czar by the US government or industry to find a solution to this problem what would you do? You've identified the challenges but what are the solutions?
Ariella, I am for deterrence but of course this comes when justice is seen to be done. The implications of counterfeiting entering the electronic supply chain or other segments of the economy can be devastating to businesses and lives. The US government is trying to assure safety of the military supply chain by prescribing stiff penalties for counterfeiting.
As Ashish mentioned in a separate comment you still have to catch the counterfeiters. Justice is the effective, efficient and judicious execution of laws and regulations and it may deter potential offenders from walking down that road. It shouldn't be seen, however, as vengeance, which in my opinion can lead our society down a morally suspect line.
This is an international problem, and international bodies with drastic international laws will be needed to significantly dent the counterfeiting ring.
It is a deep rooted problem.
for counterfeiting Drugs and other things critical to life, the penalty has to be harsh, and the system in place to limit counterfeiting has to be strong.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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