Incidents of counterfeit components in the electronics supply chain are maintaining a record pace so far this year, according to IHS. Year-to-date, 2012 has the potential to surpass 2011:
Counterfeit incident reports from the beginning of the year through the end of August averaged 107.3 per month, up slightly from 107.1 in 2011… on a sequential 12-month basis, a total of 1,336 separate verified counterfeit-part incidents have been made for transactions involving a minimum of 834,079 purchased parts. These figures are considered conservative because purchased parts reflect only a subset of all reported incidents.
IHS also notes the data coincides with an important milestone in anti-counterfeiting efforts in the US:
These new counterfeit report figures arrive at a time when the U.S. Department of Defense (DoD) is scheduled to update the Defense Federal Acquisition Regulation (DFAR) Supplement to the Federal Acquisition Regulation (FAR) on October 3, 2012. These updates are part of measures intended to regulate the detection and avoidance of counterfeit electronic parts as part of the National Defense Authorization Act (NDAA) of 2012.
I don’t think anyone in the industry needs additional verification that this is a problem. In fact, I did a casual search of the term “counterfeiting” on EBN’s home page, and the first mention was a mere four days after EBN re-launched as an online publication in October 2010. During this two-year span, we have published statistics, best-practices, blogs, news reports, court documents, and hosted what I’d conservatively call a “spirited debate” on the causes of counterfeits.
We’ve recently co-sponsored a Webinar on approaches to anti-counterfeiting and have done in-depth reporting on recent efforts by the US government to thwart counterfeits in the DoD supply chain.
Granted, it’s a fairly new effort, but I have to admit I’m concerned that one of the centerpieces of the NDAA is agreement on the definition of “counterfeit.” This is from IHS:
To help combat the counterfeit problem, President Obama in December 2011, signed the fiscal year 2012 U.S. National Defense Authorization Act (NDAA), which added regulations for counterfeit part detection and avoidance. The pending October 3, 2012 updates to the DFAR supplement will implement portions of section 818 of NDAA that must add definitions specific to counterfeit parts, define contractors' responsibilities, and clarify the government's role.
One of the key points IHS makes in its latest release has to do with the reporting of counterfeits, which is why I think next year’s data will be even worse than 2012's. The IHS data includes numbers from the ERAI trade association and GIDEP, the Government-Industry Data Exchange Program.
In August, EBN contributing editor Tam Harbert reported that the Defense Logistics Agency (DLA), which accounts for the bulk of the government’s procurement of electronics parts, hasn’t kept up with its GIDEP reports. According to Harbert, a government committee that recently researched the problem of counterfeiting in the defense supply chain cited cases identified by the DLA in 2009 and 2010:
According to the committee, of the 202 cases, only 15 were reported to GIDEP. And only four of those reports were filed by the DLA; the rest came from "private companies or another DoD element." DLA has since changed its practices and says that it is now filing such reports.
So let’s assume the NDAA accomplishes part of its goal, which is to standardize the definition of counterfeits and improve reporting methods. IHS admits its 2012 data is conservative, because it only includes “reported” incidents. A year from now, I’d expect the number of reported incidents to skyrocket, with very little data to measure the effectiveness of the NDAA. But let’s say the NDAA does have an impact. Is it likely private industry will adopt similar practices?
I’d like to hear what you think. My guess is “no,” for reasons I’ll examine in upcoming posts.
Dan: Interesting. That could mean there were no counterfeits; or that there weren't any reports (to date). Maybe they just wait until the end of the year to tally them up?
My only problem is that if DLA says they are reporting into GIDEP, where are they? It might be worth a follow-up to whoever said they are reporting into GIDEP because it isn't there. GIDEP reporting amounted to 3 suspect counterfeits reported for all of September. Somebody is making GIDEP out to be more than it is. While the IHS number doesn't come with any backup data that allows investigation, I would think the GIDEP number should be bigger.
The IHS and/or ERAI numbers are being thrown around a lot. It makes for exciting press. Exactly how are those numbers derived? Has anyone really investigated the source of that data? Its' really easy to throw around the numbers, but who is looking at the data?
Good points Dan. I'll admit that trying to backtrack through the numbers got confusing (so it must be a nightmare for real statisiticians.) First, I checked to see where IHS got the numbers. Here's what it says:
Among all reporting entities in IHS figures, sources include the Government-Industry Data Exchange Program (GIDEP) and ERAI. Consistent with 2011, ERAI represents the significant majority of reports made - 88 percent of year-to-date 2012 totals.
So then I looked back on Tam Harbet's GIDEP story and found that most GIDEP reports came from "industry" not from the DLA. (At least not in 2009 and 2010). Here's what Tam reported (in addition to the 202 incidents from DLA.)
(Contractors weren't very good at reporting either -- of the 1,800 cases of suspected counterfeits identified during the Senate investigation only 271 GIDEP reports were filed.)
So most of the data comes from ERAI. I'm not certain how ERAI tabulates its data. But let's add the DLA's 202 incidents with the other 271. That's 473 incidents out of the 1,800 or so reported. I'm not sure what to make of that, but it seems pretty low for a problem that requires an Act to address its shortcomings.
I think its beneficial for the whole industry if the counterfeiting cases get reported well and get addressed well. Reaching the closure is equally important. We all have agreed that counterfeing happens and its a problem. Its something like piracy problem, its there many people make their living out of it but then it has to stop. I guess if all the consumers make a single voice against counterfeiting, do not accept the counterfeited product/components because as long as there is demand and people are buying, this business will continue.
One of the factors that encourages the growth of counterfeited products is ignorant of most consumers, some don,t even know how to identify the original product.
Moreover, counterfeits also come very cheap when compared to the original.
These two factors may not allow for consumers to have one voice.
In some cases and places, the so called " counterfeits" tends to be available more than the original products and sometime seems to solve some immediate problem
In looking at just 2012 GIDEP data (where the totals should be more), there are no GIDEP entries for DLA and less than 100 suspect counterfeit reports TOTAL for non-passive semiconductors this year. When it gets reported that counterfeit is growing and the gut feel is that the numbers are getting larger, is everything based on ERAI data? That means we have reported growth in counterfeit with no specific and actionable data to back it up. We have what amounts to emails, feelings, and he-said-she-said data.
When DLA reports that they are making GIDEP entries and yet there are none for 2012, I view this as a problem.
The ERAI data needs to be more detailed and actionable in my opinion. Stating growing numbers reported in anonymity does nothing for the end customers.
This discussion involved a summary reported in an IHS news release. The purpose of such news releases is to briefly highlight key market trends. These trends are drawn from very comprehensive commercial databases and tools. For instance, IHS and ERAI have partnered on an offering which provides granular details about each counterfeit investigation, complaints made against a part, part numbers and descriptions, photos and documents of non-conformance, inventory information such as date code/lot code, and other detailed part property information. In addition to the comprehensive data itself, both IHS and ERAI have integrated tools to help companies analyze, manage, and act upon part and supplier risk within critical business processes. Together, these play a vital role in the counterfeit detection and avoidance procedures implemented by many organizations serious about counterfeit risk mitigation.
This news release highlighted the trend of an ongoing threat from counterfeits based on incidents reported in the marketplace. While the majority of incidents summarized by IHS were attributed to ERAI, the figures included other entities in addition to ERAI. As indicated in the news release, IHS combines data from several sources into a single repository in order to facilitate research, report industry insight, and provide analytical tools to be used for counterfeit detection and avoidance.
At ERAI, each counterfeit incident reported involves thorough investigation which consists of reviewing purchase orders, invoices, test reports, email communications, and other verifiable documentation. A report has never been generated based on "feelings", "assumptions", or "he-said-she-said". No single incident is considered confirmed (nor supplied to IHS) that does not undergo this rigorous ERAI due diligence and validation. Specifically, this eliminates subjectivity and erroneous claims. These objective and stringent procedures are among the reasons why ERAI is widely-supported within industry as the news release conveyed statistically.
I am happy to take anyone seeking a better understanding of the comprehensiveness and objectivity of ERAI's data, processes, and procedures on a virtual walkthrough of our capabilities.
Hi Kristal: Thanks so much for the breakdown. I think the industry appreciates how difficult it is to cull through word of mouth and get to reliable and meaningful data. (I don't envy any organization the task.) From my POV, I find it worrisome that we read--for whatever reason--about the dangers of counterfeits in mil/aerospace equipment and then see so little data from DLA and/or GIDEP. I'm sure there are a lot of reasons for that, including some of the ones we have noted, such as definitions and other unclear guidelines. That's certainly out of the control of ERAI or any organization (outside of the government, I mean). I hope, and other contributors have noted, that the new procurement guidelines should help.
Do you think the data will change if the new guidelines are followed?
Should the Government create certificates, based on audits and other systems? This would benefit firms that are very organized and can prove their products are not counterfeited.
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.
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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.
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.
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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