Steps to Creating a Counterfeit-Free Supply Chain

The problem of counterfeit components has been recognized within the electronics industry for many years, and has always been of utmost concern. A recent customer survey by Cyclops Electronics revealed that the possibility of counterfeits entering the supply chain remains a major cause for concern in manufacturing.

This is a completely justifiable fear, since the number of reported incidents involving counterfeit electronics has increased dramatically. According to the ERAI, the number of reported incidents involving counterfeits has increased by over 40 percent during the last three years.

There are further concerns that these figures do not truly reflect the scale of the problem, due to the fact that many incidents of counterfeiting go unreported. Buyers worried about their reputation may not report incidents, opting instead to send the parts back to the supplier for a full refund. This is counterproductive to the industry as a whole, as those fake parts will probably end up being sold again to someone else. According to the ERAI, counterfeiting is estimated to cost the semi-conductor industry around $7.5 billion in revenue each year.

What are the root causes of counterfeiting, and why has it become such a widespread problem over the past few years? Quite simply, it's profitable. If a demand can be identified, and the counterfeiters have the ability to meet it with lookalikes -- sometimes the same part with lower specifications, a previous revision, or even just the same shape -- and if they can get it into the supply chain, then there is a chance that someone will take the stock off their hands.

Rory King, Director of global product marketing at IHS Inc. stated in the document identified above:

The recent turmoil in the economy has resulted in a highly constrained, high-anxiety supply chain. Worse, the economic situation overshadowed material shortages imposed by regulations such as the EU RoHS and REACH that caused both consumers and makers of components containing hazardous substances like lead or DEHP to redesign these out of their product portfolios. The net effect of this is a self-manifesting downward slide in manufacturing sources for restricted substances, triggering facility closures, discontinued products or design changes to components using these materials.

Many OEMs are sitting there with entire bills of material with literally thousands of parts which they had no idea were subject to unforeseen EOL or other supply chain disruptions.

This problem is caused by the increase in demand for obsolete parts, and is made worse by the fact that an increasing number of electronic component manufacturers are now outsourcing their production operations overseas. This means that modern manufacturing equipment, processes, and skills are more readily available to the counterfeiters, allowing them to route into the supply chain. The counterfeiters seem to learn at an incredible rate, so anyone with static counterfeit policies might find that it's just a matter of time.

With the intention of allaying many of the fears that our customers have expressed to us, Cyclops Electronics set about creating a useful guide that buyers of components can refer to in order to help avoid counterfeits. It's also helpful in identifying fakes if customers ever receive them. The guide is entitled, "8 Step Guide To Buying Electronic Components With Confidence and Avoiding Counterfeits."

We will cover these steps in detail in a forthcoming blog.