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.
Ashish, You need to have more faith in mankind; :) Yes, China is host to counterfeiters but don't blame these folks alone. How about the end receivers? The example you gave is a good one. Indian officials can get the Chinese government to close down some fake product manufacturers but these will only be reopened elsewhere. The best way to fight this is to kill demand for the fake products and combat it also at the consumers.
You know very well this has happened in the "Drug War" the U.S. has been waging for decades. Drug traffickers and producers just move from one company to another.
@Ashish, yes, it is scary. Unfortunately, even legit medicines sometimes bring on unforeseen side effects, as well. But we do hope that such risks are minimized by rigorous research.
Just like You I feel Human Life is very valuable and Companies(& countries since its a State-wide Problem in China) should not play Games(like these cases) when Lives are at stake.
People take medicines in the Hope/confidence that it will make them better.Then we hear of incidents like this...
@Ashish you always make your point with great flair! You're right about countrfeit drugs; I've heard of deaths resulting from inadequate substitutes. As for counterfeit foods, it depends on how they are presented and what's in them.
Nobody would be happier than me if this happens(Counterfeit companies in china are shut down);but Information that I am getting on the Ground tells me a completely Different story.
For Demonstration sake,I would like to share with you the cases of Dabur(One of India's largest Manufacturer of FMCG Products-just like P&G or Unilever).
Dabur exports a lot to Africa and the Middle East where there is a Big market for their products.
For the last Three Years they are having to spend more and more on Policing and Seizing of Fakes (especially in West Africa) than on Marketing their Products there!!!
I have friends inside the Company and they tell me that Top-Level Senior Execs(alongwith Indian Govt Officials) have gone so many Times to China and specifically Shown the Govt which factories are making the fakes.
Still No Action!!!
Another case is that of India's Generic Drug Companies which Sell very cheap drugs in Africa;even here So many Consignments of Fake Drugs coming out of China(all stamped with a (Made in India Label);that it boggles the mind and ths scale of most of these cases are clearly beyond the resources of most African Countries enforcement Divisions.
The Indian Companies complain back to the Indian Govt which takes it up with the Chinese Govt.But again,No Action.
Why is that?
The Major Reason is because Most of the Counterfeit companies are owned explicitly by the Communist Party Officials ;who not just want to make Money but also have a Social Responsibility(to provide Jobs) to their constituents.
I personally feel Counterfeit Drugs and Food products are more dangerous to Human Society than Fake Software.
I think it is a positive sign that companies are disclosing the fact that they found counterfeits in their supply chain. This shows that they are taking responsibility and willing to work with others to try to reduce and ultimately stop counterfeits.
Ashish, You juxtaposed the size of China's legal economy and the counterfeit segment and you seem to find them of equal size, hence the statement "any move to curb their employment will not be happening anytime soon." I don't agree. The Chinese government cannot thumb its nose at the rest of the world. When fake parts compromise aviation and military systems, it becomes a collective concern and you can bet the largest military system in the world won't accept the status quo.
China is already taken steps to curb incidents of counterfeiting of Windows operating systems and other software products. It has to otherwise it will be shut out of global markets.
Nemos, In the commercial space, contracts are enforced somewhat differently. It is assumed that a supplier should take all necessary steps to ensure fake parts do not enter a customer's supply chain. Failure to ensure this results in a loss of the business.
As for the US government, the dynamics are quite different. First, the military market is huge. The US government spends hundreds of billions on military procurement each year and even a tiny amount of this can be a boon to a supplier. Second, only the US government can come up with this kind of mandate that forces suppliers to certify their supplies are not fake. The government is also able to specify the penalties for failure to do this. No other commercial customer has the clout and the enforcement powers to implement such policies.
@Hospice_Houngbo, you're absolutely correct. The battle against counterfeiters is not over yet. However, as you mentioned, efforts thus far is indeed promising and worthy of praise.
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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