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.