This past April, at the annual Electronic Resellers Association International (ERAI) Executive Conference in Las Vegas, Phil Zulueta, chairman of the G-19 Counterfeit Electronic Parts Committee, addressed a crowd of hundreds of independent distributors of electronic components and asked the question: "Who has not had any issues with counterfeit parts?" Crickets. Not one single hand went up.
There is no denying that counterfeits have plagued the electronic manufacturing industry for many years. Much of the world's electronic waste (old TVs, PCs, etc.) are shipped to developing nations, and to China, for disposal. Out of this careless disposal of e-waste have grown elaborate counterfeiting operations where old microchips are salvaged off of circuit boards (oftentimes by children, who are exposed to the hazardous materials contained within), and then old part numbers are sanded off, the components are re-marked with fresh logos and numbers, and their leads are cleaned up to be passed off as new and authentic parts to recirculate back into the marketplace.
These parts are being misrepresented and present huge liability issues. There have been recent incidents where these types of counterfeit components have even gotten into US defense systems and medical equipment. The threat is real: Not only are great financial losses to be had, but, more importantly, human lives are at stake here.
Oftentimes, the industry has placed the blame for this problem on the independent distribution market, but the fact of the matter is that all independent distributors are not created equal. There are plenty of reputable independents out there that should not be dumped into the same category as the "bad guys" who knowingly sell counterfeit parts and/or simply lack the capabilities or desire to practice due diligence in procuring components.
Judging by the attendance at the ERAI conference, where the focus was "Counterfeit Electronic Parts: Avoidance, Detection, Mitigation, and Disposition," many in the industry are, in fact, very concerned with the problem and are educating themselves to battle it head-on. Unfortunately, many large OEM and EMS companies have not gotten the memo.
Earlier this year, I was at the NASBC (National Association of Small Business Contractors) conference in Orlando, Fla., and a contracting officer from Lockheed Martin Corp. literally returned my business card after my introduction, saying, "Sorry, we're not allowed to work with you. Some bad hardware got into one of our systems, and now we don't work with any independents."
I've attended countless conferences and have met hundreds of people, and have never had somebody shut me down like that before, let alone the largest prime contractor to the US Government at a conference that was geared towards small diverse businesses gaining traction in the government contracting field. That was when I realized this is a serious problem.
As an industry veteran and the founder and CEO of SolTec Electronics, an Independent distributor that has heavily invested in equipment and personnel to properly detect and avoid counterfeit components, and whose business model is based on serving our customers over-the-top well, there is nothing that gets my blood boiling more than hearing these words from a new prospect: "Sorry. We're no longer allowed to buy anywhere except from authorized distribution."
Of course, I immediately rebut with our certifications and counterfeit detection capabilities, which are normally music to a prospect's ears, but many buyers are stuck behind the red tape of large corporations, and their hands are tied. Knowing the industry the way I do and how absurd it sounds to ban all independents, my immediate response is to ask them: "Well, then where do you get parts that are end-of-life or on extremely long lead-times?" The reply: "We don't." In other words, they stand to lose millions of dollars in potential revenue because they cannot get the parts they need to take the product through production and then into the market. Ouch!
Nobody wins in this scenario -- except chip manufacturers, which are calling for the boycott of independents in a thinly veiled effort to protect their own profits. If the chipmakers worked together with independents, resolution to the counterfeit epidemic could be achieved more quickly, but they are notoriously uncooperative and would rather see independents fail, forcing chip buyers to only purchase brand new materials from the factory and not legitimate OEM excess and overstock. At the end of the day, it's just bad for our economy, in general.
In the next installment in this series on the issue of counterfeits, I will address why it is difficult to cut off independent distributors from the supply chain and why efforts to reduce their involvement will ultimately fail.