The counterfeit electronic component issue is serious. Most don't want to admit it, but the facts have been accumulating for years. In 2011, there were nearly 1,400 reported instances of counterfeit parts. This does not include unreported cases.
The issue can't be "swept under the rug" anymore. Finally, enforcement agencies are getting tough: There have recently been seizures by the US Customs Patrol and several arrests and convictions stemming from counterfeit activity.
Back in 2005, when Rochester Electronics was planning its first-ever anti-counterfeiting symposium, there was little attention given to the seriousness of the problem. Slowly, the industry became aware that lives are at risk and that national security is being threatened. As a result, identifying and combatting the problem became a priority.
But nobody is entirely immune. In 2009, a Department of Commerce study found that counterfeits can be found anywhere in the channel, EBN contributor Tam Harbert writes. (See: Distributors & the Mystery of Counterfeit Parts.)
It probably surprises no one that 50 percent of the OCMs that have gotten a counterfeit part reported getting one from a broker, and that 45 percent reported getting one from an independent distributor. But the chart also shows that 21 percent of OCMs reported a counterfeit incident involving an authorized distributor. That has raised many an eyebrow.
Counterfeiting activity represents upward of $300 billion in revenue worldwide. Because of this, it's not going away any time soon. How can the electronics industry tackle its share of such a massive problem?
Anti-counterfeiting measures rely on all parts of the supply chain pulling together. Buyers can't take shortcuts and make excuses. Suppliers can't ignore the problem. And OEMs have to be aware that faulty parts can and will be built into their systems. A little effort by all members of the supply chain can ensure that even hard-to-find items are authentic.
Join us September 12 at 2:00 p.m. EST as we host this interactive Webinar, The Holistic Approach to Anti-Counterfeiting, with EBN and we'll tell you more about some compelling research related to counterfeit components in the supply chain.
When we talk about counterfeits in brokers... are they buying those parts at very discounted prices? The buyer must know that there's something weird going on when a part costs 50% less than the original.
It does seem silly when put that way. Not having to track stuff seems to be the better option. But I don't think OEMs, EMS companies are anyone, for that matter, won't mix products. Moto tried that when it founds its chips were being sold in the gray market for 2x their price: it declared anyone selling to the gray market will be 'cut off.' It never happened. So, given the reality of the market, what are the options? I know some of that will be covered tomorrow on the Webinar.
I agree. I can't think of anyone in this industry whose entire passion is tracking counterfeits and making money from doing this. Tracking fake parts cannot be a part of a company's business at least not until this problem because so gargantuan someone sees an opportunity to make money from it.
Dan: I think we may be beating a dead horse here, however, with regard to the esteemed Dr. Das of CALCE, as I've pointed out before, he has in the past supported marking of parts and material at its manufacturing point as a means of authentication. No doubt the Doctor has said many things which can't be ignored. For me, I'm a firm supporter of DNA verification, I believe it is a disruptive technology that will have a profound impact, not only in electronics, but throughout the counterfeit world we live in. In the meantime, I look forward to your Webinar. Best of luck.
If an authorized source doesn't go out and mix customer excess purchased product with original product, authorized sources will have original and authorized product ONLY. When you buy from these types of authorized sources, you never get counterfeit.....no DNA marking necessary. The value of the component matters when the 1% market (DLA and DoD) tries to increase the price to the other 99% market.
Dr. Das at CALCE has brought up the fact that original product has a built-in signature just by how it has been constructed. Each and every single part has a unique signature consisting of die attach material, package material, die size, die material, etc.... This is but one example where industry could be involved to come up with a solution instead of a mandate. There are other ways too.
You bring up an interesting point about tracking and it relates to my logistics argument. Who is really doing the tracking here? What I see is somebody selling DNA and nobody tracking. Applied DNA is selling to anyone, not just authorized sources (SMT for example). ANYONE can put DNA on a product and Applied DNA gets to decide who that is. DNA marking says nothing about product authenticity or long-term reliability (handling), just who marked the product.
Dan: I think that is the same argument that applies to RFID tags. It is one thing to put tags on a lot or a pallet; quite another to ID each and every component. Yet, if you can't track each component, how can you prove it is authentic, particularly if lots are broken up or kitted? In terms of the value of the component, a failure in a .05-cent part or a $100 part is still a failure, especially if the failure is in the end-product.
The primary issues with DNA authentication are logistics and financial issues, but there are many more. The SIA has thoroughly documented all concerns directly back to DLA.
From a financial perspective, any cost added must be justified and fully understood. To date, the financial costs are neither justified nor fully understood. Adding $.01 to a part that costs less than $.05 or less makes no financial sense....so now what do you do? Exceptions for low-cost parts? Who makes this call? From a market perspective, long-term system markets contribute less than 1% of the total semiconductor revenue in the world. Long-term markets (DLA purchased parts and all of DoD) do not significantly influence the semiconductor OCM's. There's no way 1% of the market should be increasing the price for the other 99% of the market - it just makes no financial sense.
From a logistics perspective, this is where it gets really interesting. The 1% market is relegated to buy almost exclusively through distribution channels and not on a direct basis. Their revenue is simply not high enough to warrant direct sales most of the time. This means that the DLA mandate is mostly a logistics burden place on distribution and not the semiconductor OCM's. To add to the logistics issue, take into account most of the components that DLA will buy for the next 10 years have already been manufactured and are sitting in authorized (or non-authorized) storage. We have over 5 billion finished devices from over 50 different manufacturers.....the source for many DLA purchases......sitting at Rochester Electronics. Which DNA marker is used? Should the parts go through testing again once they are handled for marking? What does that DNA marker really do to combat counterfeit when we already know the parts at Rochester are FULLY AUTHORIZED to begin with?
In essence, the DLA mandate turns into a penalty (both financially and logistically) for a fully authorized source like Rochester Electronics. We know our inventory is fully authorized and direct from the manufacturer. We go to great lengths to ensure this and it is fundamental to our business model. The SIA and Rochester Electronics remain committed to anti-counterfeit, but this mandate is not the way to go.
Bolaji, The cost of DNA Authentication, from what I have gathered from Douglas Alexander in his June EBN article titled: "Calm Down, Counterfeiters can be stopped", appears to me to make financial sense, here's an excerpt:
"My next question concerned the cost of applying the marker to the materials and the cost of authentication. The cost for applying the DNA impregnated ink, adhesive, or spray is less than a penny per application. A hand-held scanner can quickly detect the presence of the DNA, but if an OEM wishes to authenticate the sequence, the part has to go back to Applied DNA Sciences' Labs for a full lab workup. "Aha," I said. Here is where things get costly.
In my own research, I discovered the cost for sequencing to be about $1,000. However, because Applied DNA has its own labs and labor force and are interested in high volume deployment, they are able to control costs to make it very affordable".
My guess is the DLA has done their own cost/benefit analysis but unfortunately I haven't been able to get info from them. Given the mandate is scheduled to be effective by September 30, 2012, I'm sure more details will be available soon.
Owen, I'd like to add to your message by asking if anyone has done any studies on the financial case for DNA authentication. This industry is happy to consider anything that would further its cause as long as it makes financial sense. Is the case strong enough financially for DNA authentification and if it is not, what would make it more compelling?
Dan, Exhaustive testing by LMI, Idaho National Labs, the Department of Defense, Altera, SMT, Micron, Raytheon and a host of other world class players support the Defense Logistic Agency recent mandate to use DNA Authentication solutions for counterfeit protection. I do not understand your objection, as expressed in another recent blog, to this technology and would appreciate further explaination. Thank you
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.
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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