Design Con 2015
This dialogue occurred on Thursday, August 15, at 2:00 p.m. EDT.

Counterfeit components are a growing problem in the supply chain, but there are things that you can do to make sure you aren't a victim. We've invited Anne Ting, executive vice president of marketing, and Steve Martin, executive vice president of sales from Components Direct to field your questions. Join us at 2:00 p.m. ET (11:00 a.m. PT) on Thursday, August 15th.
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@Douglas-Not at all surprising.Too much costs tacked on in the name of regulations today.

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Have a great day all, thanks for the discussion.

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And, it's a bit early, but have a great weekend!

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Thanks everyone

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Thank you everyone.
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@Hailey - it would be my pleasure! We think this topic is highly important and look forward to discussing more

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OK everyone... Thank you so much for coming! and a special thank you to Steve for sitting in the hot seat.  Stay tuned and we'll be chatting again soon!

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@Steve I hope so! I know the numbers industry wide are against us at the moment, but if each of us individually takes responsibility to do our best we can and will turn the tide. Like CompomentSense said, reponsibility is key.

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@component Sense..definitely. Steve, maybe you'd like to come again? We didn't even get into reproting coutnerfit parts or very deeply inot obsolete or EOL as prime targets. we have plenty of ground left  I think!

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@Ryan. It was a no-brainer as the FPGA's are usually at the heart of a very expensive design. When I asked how much it would cost for a hundred part screen, the numbers did not scale down anywhere close to proportional. I checked out White Horse and he does anexcellent job, but the parts come from Asia only.

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@ComponentSense - we look forward to it!!

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Indeed, it's been an informative and fun discussion.

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hopefully we all work together to remedy this situation or curb it so its on the decrease instead of the increase

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We should do this again.
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We are hitting the top of the hour...so I have to (reluctantly) start drawing us to a close. Any final thoughts or hopes for the future?

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@Douglas - it all depends on who you ultimately bought from. If $89 was from a good reliable source you did good. We don't charge for testing. It is my responsibility to make sure our parts are good.
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and that's a huge difference...

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@Steve That is one of the biggest problems with it. If we are required to test, we have to be able to charge for it. Otherwise we simply can't do the DoD contracts.

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Hi Douglas. So glad you could stop by!

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ultimately liability for counterfeit components is more spread throughout the supply chain

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@Doug Thanks for that one! I didn't have a good example off the top of my head with numbers to back it up!

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some argue that the regulation has gone too far and that a more balanced approach is needed - but contractors cannot pass the costs for this increased enforcement to the DoD

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@Hailey Right now from what I've read and am hearing from my friends and collegues across the industry it is still too vague to really say for sure. However, as the language become more clear we'll all have to adjust, hopefully with as little cost impact as possible.

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Just a final thought. I ordered Xilinx Spartan FPGAs from a non-franchised distributor. The parts cost about $55.00/ each. The anti-counterfeiting verification for 10 parts was $1200.00. I went elsewhere. I payed $89.00 for the parts.

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it is getting rolled out right now - but essentially the government has passed legislation that sanctions suppliers and contractors to allow counterfeits to enter the military supply chain

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@RyanL, i'm with you!

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One more question, we've been talking about the SIA, and various regulations and laws in this area. Let's cover one more:  How does the National Defense Authorization Act (NDAA) require the industry, and specifically contractors, to address the counterfeit problem?

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@Hailey As a hopeful realist we could definitely do better!

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@Hailey, it used to be just doing simple acitone tests

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I know, if we could get the bad guys working for us we could go far! guess it's not lucrative enough. I keep thinking though that there's some fiscal m odel that could work. I mean, if we weren't spending so much ttrying to stop teh bad guys, maybe we could pay people more. (Fair warning: i tend toward idealism)

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We rarely see any suspect stock these days. We handle thousands of lines of stock each week with no issues because we know where it has come from. in rare instances we come across something suspicious and usually know very quickly and relatively cheaply that parts are suspect. There after it can cost up to $2000 to be sure that the parts are dodgy. If they fail the IDEA standard practices there is no point in taking it further, reject the parts and save the cost of the higher level testing.
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@Steve Indeed, much more sophisticated.

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@Hailey - companies are adopting more stringent regulations , building awareness through customer education, recogizing the importance of industray standard organizations like ECIA,

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@Steve, what would that look like? the more sophisticated methods?

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@Hailey I can't see a problem with anything from 10%-30% of the part cost, for the peace of mind that it provides. Though I do have customers who pinch every penny and may not go for even that. Generally though, I think it would be a greater pro than con.

 

It is unfortunate these brilliant minds don't use their powers for good instead of evil.

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it used to be blacktopping, empty shells, pulls, reverse engineering but now it is much more sophisticated

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@Steve, we are getting close to an hour, but lcan you give us some real world examples that should be followed? Name some innovative methods companies are using as they institute anti-counterfeit policies.

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@RyanL, that seems to be true in every "dark" area, from IT security to component fraud. These guys adopt the emerging technology adn get better at what they do faster than most organizations can keep up.

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@Ryan-couldnt agree more.I have seen this very same issue in Software as well today.

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@RyanL, what level of premium do you think they could readily swallow?

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@component-Its so much easier to cut the salaries of Overpaid Govt Employees today.Unfortunately no Government will win elections this way.Can they?

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@Hailey Unfortunately, and the worst part is that as counterfeiters become better at their "jobs" it becomes harder and requires more testing to be sure.

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@RyanL, that's a big nut... i guess it's not suprising that they resist.

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@ComponentSense Most definitely. You can't always have your cake and eat it too.

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@Hailey I think it has a lot to do with not understanding the risks, and that when you're already competing with cheaper overseas options they just want to keep things as cheap as possible.

 

As for the premiums they can double or triple the cost of a component depending on the level of testing.

 

@Steve That is one of the questions I ask all the time. At what point will regulation necessitate even a complete redesign just so that newer active parts can be used.

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with cost pressures people are usually unwilling to pay any additional fees

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@ryanL - I was chatting one of the biggest European Military manufacturers, Procurement Director a few weeks ago and he told me the pressure to cut costs on components of all sorts is greater than ever. In my own life I have found cutting cost often leaves you with egg on your face. Why risk lives in this way. Perhaps Governments need to do their bit too and accept the price of admission.
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@Hailey-Great question! I was wondering this very same issue just now! How much will customers readily pay for Testing?

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@RyanL - as regulations become more stringent with more onerous repercusions do u not think that people will be less willing to take the risk?

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@RyanL, what sort of premium would that usuallly be to add teh testing and do it the "right" way?

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@componentsense - agree with your point that when it comes to counterfeiting the terminology should be changed

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@George I agree completely. Our current policy is to use only Authorized Franchised Distribution. If a part is not available we will give the customer the option of a secondary manufacturer of the EOL part or the gray market, then we further break it down by offering testing. The dollar seems to rule the day, and usually customers choose gray market solutions without testing.

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@tech4people - no, absolutely not - u need to make sure ur warehousing is fully up to speed with continuous improvement. Authorized distributors will also have internal quality by the manufacturer

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@Steve - In most articles "Gray Market" usually refers to anyone that is not franchised. The true definition of the counterfeiters should be Black Market as their work is illegal and fraudulant.
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@RyanL, is that because they don't understand how big the risk is? Or they figure it will cost less in teh long run? It would seem to me that there a lot of cost to reputation and customer relationships that would be hard to measure.

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@Steve-Do u feel just having ISO certification is enough to say something is genuine or not?

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@StevenNason That is one of our problems as well. When we are asked about testing we can certainly offer it, however when customers see the cost they (in my experience so far) always decide to take the risk.

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@ryanL, I think this whole issue has just been brought to the top. It's all about $$ in the end.However, we all seem to understand the severity of the problem when counterfeit and sub-standard devices enter products in the field. We as an industry, must all agree that this is not a way we will make money.

 

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@Hailey - it has to be handled at source as my earlier point. All the quality brokers have very strict processes and procedures these days and it is working. Buyers don't penny pinch and use your head. If the price seems to good to be true it probably is, walk away. Also if something cannot be found by your trusted broker accept it and find another solution.
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when we say gray market we are talking about broker channels with no proper warehousing, iso certs etc

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@Ryan-Problem with Bringing in Regulators is this-Too much paper-work is not good for the Growth of any industry-Just look at the mess that Obamacare has caused in Healthcare today.

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@George Sometimes those manufactuerers price us out of being competitive though.

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@ Steve Im curious what is going to be the acceptable cost to make sure the parts are non-counterfeit. For us in the aerospace and military contracts the government is demanding 100% check on deliverables. But being a part of the G-19 if all the tests are run to assure 100% that the parts are not counterfeit your looking at hundreds of dollars maybe thousands in screening cost. How far is the industry willing to support the expense of screening?

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@Hailey - very open ended question! But my magic wand would hope to curtail and have stingent regulations for all regions, have transparency across the supply chain for both mfg and buyers

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@ compsense... There was a survey by the OCM's stating that 57 % of counterfeits came from brokers and 21% from Authorized distributors, so authorized does not always mean secure.

 

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@RyanL, there are multiple continuing semiconductor manufacturers who can emulate or replicate EOL and obsolete devices to avoid catastrophies in the field caused by sub-standard parts. Gray market doesn't have to be a source for this type of solution.

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@ComponentSense I work with a number of brokers and non-franchised distributers who have (to my knowledge) never supplied an counterfeit part. However with more oversight, is that history reliable moving forward? I'm not sure one way or the other.

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Thanks Hailey. Good to be here.

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@Lev, SIA are forming an anti-counterfeit commitee with the aim to educate and provide guidance to MFG on brand theft

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Hi Ryan, glad to have you with us.

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@Steve - I find it irritating that Franchise in general wants to blame the problem on the "gray market". There are many levels of Non franchised Distributors that get lumped in together many of which are highly reputable and are working harder than anyone to beat the counterfeit problem. We will always be a necessity as franchise cannot support all parts all of the time. Many brokers these days predominantly buy from franchise because they can get stock in the most stable market we have seen in decades. That will not always be the case. Be prepared, work together and we can make our world a safer place whatever the supply and demand situation.
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@Steve, if you could wave a magic wand and make three changes and have everyone fall into line in order to end counterfeiting, what would be on your list? (And anyone else? What would you do if you ruled the world?)

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Hello all, Ryan from Accu-sembly, a contract manufacturing company, here. Having just caught up on what's going on, I'd be interested in regulatory solutions for the gray market problem. Obviously if a part is obsolete and franchised channels no longer have it, and manufacturers no longer make it, but it's a legacy item for gov/military/aerospace etc. you have to source it from somewhere.

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@Steve: I see!

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Thanks, Hailey.

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@Hospice - its not a solution, it is a result

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Dear Steve,

What is your answer about expected SIA Standard?
Lev Shapiro 

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@odyseey, even though distribution works on the fifo system, there are checks and balances in place to ensure that they are issuing an RMA for their product

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@Steve: Is counterfeiting the solution to "no supply with high demand"?

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Definitely, Susan, and going strong! Good to have you with us.

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@Component Sense-Not really surprising.In fact its good behavior in a way.

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@ComponentSense...and that makes it even more complicated. You are getting into huge cultural differences.

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Still here?

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What happens when a Franchise Distributor issues an RMA to a large OEM/CM who has purchased parts from a Independent Distributor who has sourced from the open market. Now in fact the Franchise Distributor may have parts in their stock that could be "Suspect Counterfeit". The way I see it,..no one in the supply chain is safe. Your comments ?

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@Hailey - I agree. Recycling is where the whole thing began. Different cultures have very different views on counterfeit. I have spoken with some distributors that think there is nothing wrong with re-marked product as long as it works, Crazy, I know!
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simple economics also contributes to counterfeit products - no supply with high demand

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@Steve, and what keeps the gray market alive? Is it mainly people looking for the cheapest solution?

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"Next both the USA and Europe need to handle their own waste properly instead of sending it to China, India, Nigeria etc"

Not always a bad business for the receiving countries

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@Hailey - counterfeit is a biproduct of the gray market which is where many counterfeit parts creep into the supply chain

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@Hailey-Can you imagine what can happen if these companies give us such highly modular products which they can then take back(and strip for all the valuable Heavy metals in them) and re-use again and again?

It would just be super-awesome for the Environment!!!

Problem is getting this reverse Supply-Chain working effectively to prevent all that stuff entering a Landfull today.

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@Tech4People, that's a critical piece of hte puzzle...and as you know, we talk a lot about that at EBN.

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@tech4people - yes but there is still transparency within a global organization, paper trail and internal communication - even though there is regions within one organization

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If the answer is to get to the root of the problem, it would be interesting to understand why and how all this starts. What factors lead to counterfeit development in a country?

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@Hailey-I am also very interesting in the recycling aspect of the Electronics Supply Chain.Not enough is being done(IMHO).

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@Hailay: THanks!

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@george - yes authorized distirbution, direct lineage to the mfg

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@Steve-But what are you going to do when you realize the entire Supply Chain is dispersed all over the place?ITs not like eveyrthing is in one country/Region today is it?

And especially when you outsource?

This is not giving us easy answers is it?

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@Hospice_Houngbo, welcome. Glad to have you with us. Please chime in whenever you want.

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@steve, you mentioned the importance of more transparency and work in collaboration with their distributors, oems and ems partners - did you mean Authorized Distributors? And to the whole group, what does authorized mean to you in terms of eliminating the counterfeit problem?

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Hello, everyone!

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@Hailey - perhaps due to revenue recognition, once parts are sold they may not want to bring them back in

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@Hailey - yes you are right, regulations are not global

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@ComponentSense, getting to the very root of the problem seems reasonable. Why do you think semi manufacturers don't do this? IT seems like a simple thing.

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also having a clear plan for how to deal with their excess and EOL parts is essential

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Next both the USA and Europe need to handle their own waste properly instead of sending it to China, India, Nigeria etc.
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@Tech4ppl - tightening their supply chain, ensuring no gaps, more transparency and work in collaboration with their distributors, oems and ems partners

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I have seen IC manufacturers disposing of silicone that is substandard in a careless manner that feeds the counterfeiter the raw materials to make product that is hard to trace. Surely crushing on site is the only safe way to dispose of silicone die. The wider industry needs to work together to win this fight. This should be the starting point.
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Ongoing test and procedures within the organization is imperative - partnering up with key 3rd party test houses, understanding what to look for (blacktopping, remarketing, dimensional tests etc)

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@Steve, that's another side of having a global supply chain--the regulations and monitoring do differ dramatically from place to place.

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@Steve-Sure you have hit the Nail on the head with the Number of counterfeit components but you also can't disagree that simply embedding RFID chips/Tokens isnt gonna solve the issue.

I can get in and get out of any Database I want today and modify the Data according to my needs.WHat can Manufacturers do then?

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Are most of the fake components coming from China, at this point?  (This seems to be true in every other market...) We hear so much about government reforms, but probably shouldn't expect much change...has the Chinese govt made any public statements about attempting to stop this?

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It sounds like this group wants the nitty gritting of catching counterfeiters... to their points: What are the best tools and methods for spotting coutnerfeit parts?

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@Hailey - The Asia region appears to be due to lack of consistent regulations on this issue, as well as offshoring

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Great.  Thanks!

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Here's a link to the ERAI site steve mentioned: http://www.erai.com/information_sharing_high_risk_parts

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@MTS2013 - it is being rolled out to certain  mfg but not across the board i believe 

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Great.  Thanks.  Are there any rules of thumb for recognizing counterfeit components?  The bad actors are getting so slick and "good" at making things seem real.  

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@Steve, what industries/countries are most invovled or affected by counterfeit parts?

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ERAI also provides an online forum on its website via which ppl can report

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@mts2013, i know this isn't what you were asking about but the International Electrotechnical Commission Quality commissoin has launched a program. We wrote about it yesterday:

IECQ Launches Anticounterfeit Certification Program

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there is no industry standard for the mfg but there are organizations like GIDEP and ERAI and IDEA

 

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@veera - i think it is across the board

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@mts2013, you can go to www.Authorizeddirectory.com to post your latest counterfeit case. And you can also identify all of the authorized distributors for most semiconductor manufacturers worldwide.

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Thanks, so glad to be here! Was wondering too whether RFID or tagging was being used on the more expensive components. 

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Welcome, MTS2013. glad to have you with us.

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and please feel free, all of you, to chime in with your personal experience with counterfeit components. We'd love to hear what you've encountered.

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Hi everyone, I was wondering if electronics manufacturers had a centralized website/database where they reported on the latest counterfeiting cases, so that industry folks could check brand name, serial numbers, etc?)  It's hard to set this up, I know.  But drug industry has set up something like this called Rx360....industry professionals volunteer their time to help run it! 

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Which technologies are very useful to find counterfeit components?

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Glad to have you with John, and welcome.

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John McKay form America II Electronics

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The fact that many of these parts are discontinued and harder to find the counterfeiter are trying to take advantage of the situation with little to no regulations in regions like Asia

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Glad to have you with us, Mark!

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The issue is becoming more highlighted - in a recent report by another publication, 87% of the respondents agreed that the danger of counterfeit components extended beyong military and aerospace markets 

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Mark Pfutzenreuter from Odyssey Electronics, Inc is online.  We are an Idependent Distributor sourcing on the open market. 

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How is the components being obsolete contribute to the counterfeit problem?

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57% of these components are obsolete or EOL

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the problem is continuing to increase. According to the 2012 IHS report over 12 million counterfeit components were in the supply chain   

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Since there are so many people already here, i thought i'd get us started just a minute early. Just to give us a good starting point @Steve, how would characterize the current counterfeit components landscape? How big ist he problem? What types of parts are most likely involved?

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This topic is so hot people can't help talking about it!

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We'll be starting in earnest in a few minutes at the top of the hour.

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wow! we started early here?

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Great to have you with us, Steve. The questions are already flowing! From @Leve Shapiro:

As for my knowledge, in the past SIA (Semiconductor Industrial Association) has been planning to issue their Standard with special requirements to manufacturers of components for counterfeit prevention. What is the situation now?

 

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@ Hailey,

Good Morning....Steve from Components Direct is online

 

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This will be a fun, fast, and friendly conversation, so please do not hold back with your comments or questions.  There are no dumb questions and we value everyone's point of view.

 

And always, please announce your arrival so we can give you a warm EBN welcome and offer you some guacamole. :)

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We will be starting at 11 a.m. PST/2p.m. EST sharp. First, though, there are two housekeeping notes:

First, please make a copy of your post before hitting the "post" button – just in case.  If the system "eats" one of your carefully crafted thoughts, please hit "Ctrl-Z" to recover it.

Second, if you have problems posting, we suggest trying a different browser.  IE9 is a popular choice, but sometimes find Firefox, Chrome, or Safari work better.

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Have to implement safeguards to ensure counterfeits cannot be introduced into design and manufacturing processes.

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As for my knowledge, in the past SIA (Semiconductor Industrial Association) has been planning to issue their Standard with special requirements to manufacturers of components for counterfeit prevention. What is the situation now?

Lev Shapiro
Component Master Ltd.

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Hello everybody

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Customers can select which ever they want, original or counterfeit.

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I think couterfeits will be there always and only thing is customers has to be vigilant about it.

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Greetings!  Great topic. It's such a huge problem for so many industries today! look forward to the discussion

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Hi everybody, looking forward to an interesting discussion.

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Hi everybody

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Hope to attend

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