Sometimes it's easy to forget just how simple it is to set up a business that can traffic in counterfeit components. An article in a Boston-area newspaper provides a great lesson in how a small operation has the potential to do big damage.
Yesterday, in Methuen, Mass., local and federal agents raided a private residence and carried out boxes of material to a police van, according to the Eagle-Tribune. The residence was also the headquarters of Epic International Electronics Inc., an independent distributor of electronics components. According the the Eagle-Tribune, the principals of Epic are Peter Picone, who serves as president and director; and Lisa Picone, who serves as treasurer and secretary. There is no mention of any charges or arrests that have been made in conjunction with the search. Officials said the raid was part of an ongoing investigation.
It's significant to note that both the US Department of Defense Criminal Investigative Service (DCIS) and the Naval Criminal Investigative Service (NCIS) took part in the raid. The sale of counterfeit components to the US military has received a lot of attention lately and has spurred a recent mandate called Combating Military Counterfeits Act of 2011.
The fact that the US government is so involved in the effort indicates the magnitude of the problem. Yet, component suppliers, authorized distributors, and even buyers point out that many of the firms that traffic in suspect components are small operations that spring up and disappear within days. According to the Eagle-Tribune, the Picones formed Epic International Electronics in August 2009 and previously had served as directors of a company called Tytronix Inc., which was founded in 2005.
US distributors that are doing business in Asia say that small trading companies are among the most populous form of resellers in the region. The main difference between the trader model and authorized distribution is the issue of franchises, which authorize distributors to represent component brands. Most component makers will not guarantee the performance or authenticity of their products unless they are sold by an authorized distributor.
But the fact is, it takes very little capital to set up a distribution operation. For example, catalogue orders are frequently so small that purchases can be made by credit card. In such a case, the fraudulent buyer orders and receives components; swaps bad parts (either counterfeits or devices pulled from scrapped circuit boards) out for good; and sends the bogus parts back to the distributor as a return. By the time the distributor inspects the returned order for authenticity, the buyer could be gone. That buyer, in turn, can resell the good parts at a huge profit.
Traders aren't a problem that's unique to Asia. The Epic situation is a very real reminder that counterfeiters can literally exist right in our own backyard.
We have worked with Epic on 7 different orders since 2010, and we have never experienced any issues with the parts. All parts have always gone through rigorous visual and physical inspections per IDEA-STD-1010-B guidelines to verify product conformity to manufacturers' specifications. - HybridElectronics.com
Hello Everyone.... This is Peter Picone from Epic International Electronics. I usually don't respond to forums but this one is one of the more respected ones. I just want to clarify something's on who I am and what my Companies were.
First, I have not owned a bunch of Companies. I had/have ownership in only 2 Companies. Tytronix and Epic. A little history, (I will try to be brief and short) Tytronix was around for 4 years. In the last year or so we ran into severe financial issues. We had a bunch of our normally good customers on NET 30 accounts, falling way behind or closing. We were not that big of a Company to overcome something like that. Combine that with we had a bunch of our suppliers that were normally trustworthy and shipped great product, started selling us a lot of bad parts. Unfortunately we were not equipped to overcome that. We spent our money paying for testing costs of these bad parts, shipping and refunds.
So, after Tytronix closed I vowed to come back but with a lot of changes. Epic started in 2009 and we basically cut 90% of the suppliers I had used at Tytronix. I only used 2-3 trusted ones over the 10-12 we used at Tytronix. Again, though smaller, things were going great again. We had also bought some test equipment in late 2010 or early 2011. In late 2011 we started getting more requests for returns again. It turned out at the time, I thought my supplier was getting desperate and selling bad parts. I cut them off. Epic was hurting. Come to find out on a few orders, even though we were testing them (Function and Acetone) parts were again coming back as possible refurbs/counterfeit.
Seems I was not aware until too late that these crooks had found a way around Acetone testing. I truly believe my good supplier was taken in this as well. So, here we go again. Now, I have made drastic changes here to match what a lot of other suppliers are doing as well. We will only ship parts that are either factory sealed with complete trace or if it is outside the US border, whether it is Europe or Asia, NOTHING ships in to us without a complete de-cap and x-ray test report. This will slow down shipping and increase costs but it is a small price to pay to absolutely ensure no bad parts get through us.
I do blame myself of course for not being as up to date on a lot of the changing aspects of our business as far as parts go. I have seemed to be behind the 8-ball and that is my fault. That will never happen again. Thank you all and sorry for the long post.
Douglas: What's a little gray amongst colleagues? I first was introduced to the independent distributor model about 20 years ago and it has been a rollercoaster ever since. One of the things that always used to come up when I was talking to an independent was "let me talk to a customer." That still hasn't happened. OEMs deal with brokers all the time but don't want to admit it. Until everybody--suppliers, OEMs, distributors, brokers--come out from behind the curtian, there will be problems.
I agree with you on that, I am still of the opinion that that is little the government can do about even though that effort might go a long way but the best solution is to order from a reputable manufacturers that are traceable and can be held responsible in the case of malfunction.
It is shocking how easy it is to set up these bogus operations. More needs to be done by the OEMs by offering a validation service when only accredited distis are allowed to sell their products. The consumer of the products also has a responsibility to validate their supply chain.
"But the fact is, it takes very little capital to set up a distribution operation."
I think ecommerce is greatly helping the counterfeiters setup their distribution operations. With the help of an online website and electronic payment system, counterfeiters can set up their online stores and publish catalogs. They can book order for fake products, get them manufactured and supplied to the customers. They don't even need a physical office for all this.
Douglas - Yes I totally agree that the indirect cost of counterfeit part causing board failure, malfunction, cost of additional inspection and testing is much more that the actual component cost.
So in my opinion, we should hold the supplier responsible for all those damages and such act of supplying counterfeit parts should be treated as criminal offence by the law. Then only there will be some check on these counterfeiters.
The traceability of each component used in a product is very much essential to have a some control on counterfeiting.
The best way to solve this issue could be to order components through authorised distributor only. But many a times people in urgent actually try to get these components from small n not much known distributors where the actual counterfeit starts.
Cameron,
America II is a great company. I hope they never get caught in the counterfeit crossfire. I did get some Xilinx serial PROMs from them where half of them were non functional, but they did not hesitate to give a full refund as soon as I sent the parts back to them. In general, the more ubiquitous the packaging, like an 8-SOIC, the more likely it is to slip anti-counterfeit detection. When their packaged 3000 to a reel, the first and last 100 may be the genuine parts, but the inner 2800 parts could be blacktopped or even reused originals. Nasty stuff for sure.
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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.
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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.
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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