You've Found Counterfeit Parts in Your Order. Now What? Part 1

Despite extensive vetting of suppliers by manufacturers and the best efforts of both certified independents and franchised distributors, the reality is that counterfeit parts can and do make their way into the electronic component supply chain and, ultimately, into products.

Yes, franchised distributors have this issue, too, due to cross-contamination, dabbling in the open market, and returns. So, as we work to achieve a 100 percent counterfeit-free supply chain, there’s another issue: what to do when counterfeit parts get through.

Opinions differ, and many times, the recipient of the counterfeit parts simply doesn’t know what to do. A 2008 article in Manufacturing and Technology News reported on a “comprehensive government-mandated survey of most of the companies involved in the avionics electronics supply chain, [conducted by] the Commerce Department's Bureau of Industry and Security.”

Among key points in the article:

Most companies and military organizations don't know what to do when they find counterfeit electronics. Only 19 percent of original component manufacturers notified federal authorities when they found counterfeit items; 70 percent trace the part through their supply chain. Among distributors, only 11 percent notified federal authorities; 61 percent pull back inventory; and 52 percent notify industry associations. Among assemblers, only 8 percent notify federal authorities; 8 percent notify industry associations; 8 percent said "no steps are taken"; and another 8 percent said they "wait for additional complaints."
When asked who in the federal government they contact when they find counterfeits, 56 percent of original component manufacturers, 65 percent of distributors, and 75 percent of board assemblers said they "do not know what authorities to contact."

A March 2010 article in SMT Magazine references a report issued by the Office of Technology Evaluation (OTE) that summarizes the state of US counterfeit electronics concerns. Among the findings:

• There is a lack of dialogue between all organizations in the U.S. supply chain.
• Most organizations do not know who to contact in the U.S. Government regarding counterfeit parts.

A Senate committee investigation discovered counterfeit electronic parts from China in the Department of Defense's supply chain, according to a May 2012 report: "The year-long investigation launched by Sen. Carl Levin, D-Mich., the committee’s chairman, and Ranking Member Sen. John McCain, R-Ariz., found a total number of suspect counterfeit parts involved in those 1,800 cases exceeding 1 million parts."

While government regulation and reporting is part of the solution, it seems to me that we need other ways to resolve the issue as well.

So, what do you do when you get a counterfeit part?

From what I’ve observed, the industry is moving toward confiscation of the parts. The argument here is that confiscated parts can’t make their way back into the supply chain. True enough, but what if this is a one-time incident with a trusted supplier? How does that supplier recoup its loss? And what happens the next time you need genuine components for which that supplier has been your source? Will it even sell to you?

Another approach is to send parts back, which means that the supplier doesn’t lose both inventory and payment. But this means those counterfeit parts have the potential to be returned to the supply chain and to make their way into some other supplier’s inventory. That’s not a satisfactory outcome, either.

In Part 2 of this article, we'll look at some specific standards in place to thwart counterfeiting.