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Counterfeiters Exploit Obsolescence

About 20 years ago, state-of-the-art microprocessors were the main target of both theft and counterfeiting efforts. Now, more than half of counterfeit-part reports involve obsolete parts — those that have outlived their usefulness, at least as far as suppliers are concerned.

A total of 57 percent of counterfeit-part reports from 2001 through 2012 have involved obsolete or end-of-life (EOL) components, according to IHS. Another 37 percent were active — or still in production — devices.

There are a number of reasons end-of-life (EOL) parts are popular with counterfeiters. As military and aerospace companies have moved toward using commercial off-the-shelf (COTS) devices, the lifecycle of these products have fallen out of sync with the end product. Military and aerospace equipment is designed for the long haul — 30 or more years of useful life — while components reinvent themselves on an almost annual basis. Rather than losing their value, obsolete/EOL parts for military/aerospace applications are more in-demand the moment they are discontinued. Desperate buyers are willing to pay top dollar for these parts if they haven't planned for EOL.

IHS outlines in a press release some of the other reasons EOL has accelerated in recent years. Rory King, director of supply chain product marketing at IHS, said:

    Changes in the supply base — like the enactment of a regulation such as the European Restriction of Hazardous Substances Directive (RoHS) — can result in diminishing manufacturing sources and material shortages (DMSMS). When RoHS came into force in 2006, 20 percent of all components were discontinued above and beyond what buyers were expecting. Another 20 percent of components were unexpectedly discontinued in 2007. Manufacturers attributed these events specifically to the shift to lead-free components. If a product is 20 or more years old, you simply can’t avoid obsolete parts, which are prime breeding ground for counterfeits.

    Even new systems can be subject to the obsolete-part problem. In one dramatic example, more than 70 percent of the components used in a surface ship sonar system were obsolete — even before the first system was installed.

IHS reiterates the necessity of obsolescence planning, but acknowledges the challenges as well. EOL planning is only part of the solution. King added:

    To explicitly address counterfeit parts head-on, organizations must understand which counterfeit parts are actually in circulation and being reported, regardless of whether they are obsolete or active. Furthermore, constant vigilance in supply planning for parts is necessary to stay ahead of component price and supply chain health issues and to ensure continuity of supply from safer, approved and trustworthy part sources.

7 comments on “Counterfeiters Exploit Obsolescence

  1. prabhakar_deosthali
    June 14, 2012

    It is a universal truth that the government projects are completed in such a slow pace that for a design on drawing board to convert itself into a working product takes ages. No doubt by the time the product is put to use , many of its components have already passed their prime in the commercial market and are about to vanish from the supply chain. The EOL panning itself takes few more years and by then the components become obsolete. This is especially true when the technological innovation is happening so rapidly that some consumer products are becoming obsolete in just a couple of years.

    This situation has come to advantage for the counterfeiters who make substandard duplicate and sell at premium prices and the needy buyers are left with no choice.

     

    For such organizations as military or space where the products are expected to last for decades , the spares inventory for the whole life of the product needs to be created right upfront so as to ensure genuine parts.

     

     

  2. Barbara Jorgensen
    June 15, 2012

    Building to-be-discontinued inventory upfront is frowned upon in the financial community, though. It's really a no-win situation for manufacturers–they are hit if they build those parts in advance and create customer-related problems when they don't.

  3. KPorter
    June 21, 2012

    @prabhakar:

    Building spare inventory up front is more complicated than it sounds. 

    • First you have to have all the funding available, which can be hard in both defense and commercial environments — defense because you can't always predict the funding cycles.  Commercial because you don't always have the capital to lay down 15 years of projected parts use.
    • Second, you have to actually predict the amount of stock you're going to need.  You can project that you plan to need it for 15 years, but what happens if you need it for 30 (and now it's REALLY obsolete).. or you only need it for 10, and now you have all of this overstock you need to figure out what to do with.
    • Then, you have to actually manage all this inventory, with the space costs associated, and the proper care necessary (ovens for preventing moisture from damaging the components, properly stored components to prevent electrostatic discharge, paying people to manage all this stock.. etc..), Otherwise you could have invested serious money, have authentic parts, and still not have something that works 10 years down the line.

    As technology gets more complicated, you also see things like disruptive technology creating huge swaths of obsolescence, right in the middle of a project (like the current shift towards solid state, or tablets instead of desktops or laptops)… not to mention, as Barbara pointed out, legislative changes like RoHs created international obsolescence issues, left and right.. and were unexpected for many people.

     

  4. KPorter
    June 21, 2012

    @Barbara- You're absolutely right, that building in to-be-discontinued inventory is a fast way to upset customers.  It is a real challenge when it comes to things like LTB (Last-Time-Buy notices) or EOL notices, and can seriously impact a company's brand and customer loyalty. 

    On top of the fact that not everyone has the resources to manage overstock, for long-lasting applications…

    My experience working with obsolesence/legacy management for embedded boards has been a bridging point with application OEMs, and their customers.  By the time an designer designs in a board, the components are in various stages of their own lifecycle.  At that point the OEM has to face what it will mean if the board goes EOL.. and how they're going to manage that with their customers.

    Adding in, on top of that, the counterfeit issue? Right now the defense industry is the loudest voice in the counterfeit subject.. but what about a hospital who can't afford to just buy a new MRI machine? They also don't have the enginnering staff to repair a board that's gone EOL, much less validate every single component.. and as someone who needed an MRI myself in recent history.. what would happen if one of those components was counterfeit and so the board was giving inaccurate results?

    Obsolesene really makes ripples across the supply chain, and impacts everyone. However, it's not going to go away.

    Kaye

    (If you're interested I wrote a post about it back in April, here)

  5. Barbara Jorgensen
    June 22, 2012

    @KPorter: Thanks for the detail on the costs associated with EOL/LTB. In addition to having capital to invest in an LTB, the buyer assumes the risk that someone may not need these things down the line. As for manufacturing based on existing designs, die and masks: if you already have a semiconductor fab (which are a dime a dozen, right?) it's do-able–if you don't need to re-engineer the product at all. The more I read about the processes of after-market manufacturing, the more expensive it seems. The level of resources needed is considerable.

  6. KPorter
    June 22, 2012

    @Barbara – “As for manufacturing based on existing designs, die and masks: if you already have a semiconductor fab (which are a dime a dozen, right?) it's do-able–if you don't need to re-engineer the product at all.”

    Well, unfortunately it isn't that simple. If it were, there wouldn't be whole conferences and groups specifically focused on mitigating obsolescence and supporting legacy technology*.. and we wouldn't have this 57% statistic around counterfeiting related to obsolescence.

    Let's look at the evolution of technology alone.  In the 1960s, you had computers with relatively simple (compared to today) parts, that took up whole rooms. In fact, until the digitization of checks in the past 3-4 years, many banks would still buy up any old money and check sorting machine (working or not). They'd salvage parts and re-build machines just to keep things going.

    Hopefully, they also have an engineering team who understands how to keep all that technology going, and the ins and outs of the various pieces…

    Now, lets go back to that fab. The machines making all the parts evolve too.  The manufacturer needs to stay competitive right? So they're setting up their equipment for each product line, to crank out hundreds of thousands of parts each day. Technology evolves (Moore's Law), and their production needs to evolve to keep up. Otherwise they're no longer competitive in their own market.

    For them to keep running off (maybe) 50 parts a year, for a handful of banks still using DEC computers, isn't realistic. You'd need to stop and change-up the production line, for 50 parts, or keep the old machines maintained and “active.”.. to manufacture 50 parts per year .

    This doesn't even count in things like RoHs (the most commonly used example, and one you reference). Part of the reason it was such a HUGE deal around creating obsolescence is the fact that when you change the materials, you change the functionality of the part. Maybe it can't take as high a load. Maybe it's now more susceptible to heat or conducts differently.

    You don't really have the same tolerances and that impacts the components. Even though in theory you should be able to just swap in and go… the actual structure of the part has changed and some of the “features” that just seemed to be part of the chip, actually turn out to be specific properties of the metals and elements you can't use any more.

    …so then you design in new components….. and have to re-certify the entire system before you can prove that it's safe and reliable to use (based on whatever industry requirements and standards).

    Unfortunately, yes… this can be really expensive, time consuming, and complicated. But if you look at it like quality supply chain management: doing supply chain management right can a complicated subject even for active equipment that still has built-in support.  With legacy equipment, you're working with an entire supply chain and the engineering requirements for products from manufacturers that many not even exist any more. That's why it can be expensive, and why people come to companies like GDCA.

     

    * For full disclosure, I work with GDCA, and we specialize in supporting legacy technology 🙂

  7. Barbara Jorgensen
    June 22, 2012

    Hi Kaye: I might have sounded a little too glib about the fab and engineering expenses associated with obsolete products. Although fabs are shuttered during every downturn, they are still a huge investment for, as you say, limited production runs. One of the issues I remember from researching this is the two ways you can approach manufacturing an obsolete semiconductor: re-create it exactly or duplicate its form, fit and function. (Somewhere in the recesses of my computer, I have the correct terms for that.) Both ways, I believe, require some kind of engineering because of the points you bring up: equipment has changed, materials have changed, processes have changed, regulations have changed. It isn't easy at all, and I apologize if I implied it was. The companies that are dedicated to obsolescence management are some of the highest quality companies and individuals I know, and, to the credit of all, have helped people like me understand the value and challenges of the market.

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