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.
It sad that just about every issue of EBN has a counterfeiting article. A key statement in your article is, component manufacturers are now out sourcing their production operations overseas. Overseas copies the components, maybe in the same factory that manufacturing the orginal component? The USA is losing control of manufactured components, not to be forgotten are the overseas contract manufacturers. No control over there purchasing.
The reason writers on EBN continue to focus on the subject of counterfeiting is because it remains a problem for everyone. As you rightly noted, companies are transferring some procurement functions to third-parties and as a result the integrity of the process can be more easily compromised.
At the same time, though, it's important to note that an overwhelming majority of the companies in the electronics supply chain operate legitimate businesses and are vigilant in checking for counterfeits because they know that even a single fake part can mess up their reputation.
Rightly said Bolaji. This issue is becoming so hot that everybody has to seriously think about possible precautions, solutions , legal provisions and those kind of things till this issue comes under a controllable level.
IN the fast pace of electronic technology, many a components are becoming obsolete even before the designers have finished their designs and put the products onto assembly.
The purchase departments have to then struggle to get those EOL parts to meet the production demands. The counterfeiters are taking advantage of this situation.
Here , I see the regulations in Auto industry where the Auto manufacturer is legally bound to guarantee the supply of spares at least for 7 years after a model goes out of production.
Can similar regulations be enforced on the component manufacturers ?
A good sign but this will not surely be easy for sure. I feel if you are to do it then a big investment too will be needed. Honestly I feel that this cannot be eliminated 100%. I feel its better to try and minimize the risks as much as possible. Lets say settle for something like 85% to 90%.
As mentioned within the article, counterfeiting is very difficult to eliminate in full as counterfeiters seem to continually adapt new methods of imitating originals. We must try to reduce the entry of, and effects from, counterfeit parts through increased diligence and active control measures. As an industry we need to collaborate and work together to create a safer supply chain because since counterfeit parts often have inferior specifications and quality, they may represent a hazard if incorporated into critical systems.
"As an industry we need to collaborate and work together to create a safer supply chain"
That is not new to the manufacturing industry or the suppy chain operators. But what has prevent such collaboration to become effective so far? And why do you think people are ready today for such collaboration?
Counterfeiting is still a serious issue that is far to be resolved and it will still be the subject of many debates and concerns. In each of the blog post we learn some valuable lessons. Also as they say "repetition is the mother of learning".
"As an industry we need to collaborate and work together to create a safer supply chain because since counterfeit parts often have inferior specifications and quality, they may represent a hazard if incorporated into critical systems."
@Beverley: I think the important thing to do away with counterfeiters is to have a centralized information system where everyone in the industry can report information about counterfeiters in order to get the message across to all other companies. The other companies can beware of the particular counterfeiting company and prevent dealing with them.
I think there's a positive side to counterfeiting as well. In many cases, the counterfeiting company may end up producing a product of the same quality at a cheaper price. This is something that the original company may have been struggling to do.
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.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
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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