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Distributors & the Mystery of Counterfeit Parts

The statistic pops up often when the problem of counterfeit electronics is discussed. It's a number from a chart in a 2009 Department of Commerce study on the topic.

The chart breaks down counterfeit incidents reported by original component manufacturers (OCMs) by sales channel. 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.

Percentage of OCMs With Cases of Counterfeit Incidents Sold by Type of Entity

Note: Includes only companies that encountered counterfeits. (Source: US Department of Commerce, Office of Technology Evaluation)

Note: Includes only companies that encountered counterfeits.
(Source: US Department of Commerce, Office of Technology Evaluation)

That 21 percent is a point of contention in the industry. Some believe the statistic is valid. Chrys Shea, founder and owner of the consulting firm Shea Engineering Services, was one of several presenters at a recent conference on counterfeit electronics who showed a slide of that chart and pointed out the figure. “There is a myth that, if you don't want counterfeits, then just stay with an authorized distributor,” he said.

Chip makers and authorized distributors dispute the number, of course.

“When we or our authorized distributors get accused by customers, we investigate,” Andrew Olney, director of reliability and product analysis at {complink 317|Analog Devices Inc.}, said at the conference. “In every case, we're able to prove [the counterfeits] did not come from us.” He was responding to an audience member's claim that he knew of counterfeits that had come from authorized distributors.

Olney also said that sometimes a buyer will purchase the same type of component from multiple sources — authorized and independent — and the parts get mixed together, so it's impossible to tell where they originated.

A source at a defense contractor (who asked not to be identified) told us that the 21 percent number is misleading. “It's the most misused chart out of the whole DOC study,” the source said, because the survey counted the number of incidents, rather than the amount of counterfeits.

In fact, the DOC report says, “A single incident can involve a single counterfeit part or thousands of parts.” Even so, I'm not sure that makes the chart misleading. It takes only one counterfeit part to cause a failure that can bring down a critical system.

Part of the problem may be confusion over what constitutes an authorized distributor. The source at the defense contractor said that all the major distributors have both a franchised business and a business that operates as an independent distributor. The DOC report confirms that: “Many authorized distributors also act as unauthorized distributors to some degree, buying and selling electronic parts outside of their OCM/OEM authorized product lines to meet customer needs.” This purchasing, combined with buying back excess inventory from customers, “has introduced counterfeits into the inventories of authorized distributors.”

So the finger-pointing continues. Some folks, mostly independents, insist that authorized distributors handle a fair share of counterfeits. Others, especially original component manufacturers and their franchisees, deny it and say that independents and brokers are the big problem. The truth? It's probably happening in all channels — probably much more often than we realize. And the numbers in a three-year-old report shouldn't even matter anymore.

What's your take? Are you seeing counterfeits from authorized sources?

7 comments on “Distributors & the Mystery of Counterfeit Parts

  1. obsbuyer
    July 20, 2012

     

    It would be nice to have another survey done today. The industry has become a lot more educated and processes  have been put in place. It was a large and extensive and  costly  study. Many figures people use for estimating counterfeit component incidents &  dollar amounts seem very high or the figures seem distorted combining  electronic components and counterfeit electronics. Before the 2009 study not many processes were in place and many distributors were taking back excess components they had sold to many contract manufactures. Some of those parts I believe got mixed up with parts contract mfg's bought from independents and brokers. The contractors have become very vigil in establishing counterfeit now and Franchised suppliers have put in place inspecting procedures on return material. I also believe that of the 21 % very little came from the what I described. The majority of the problem is buyers who have little experience buying electronics get confused talking to independents s when the independents tell them there authorized to buy from major component mfg's. Anyone with enough buying power can buy direct from manufactures that does not mean they are franchised. I have done a significant amount of training in counterfeit with buyers and was surprised how often this happens. Mostly it's the buyers that get pulled in buying electronics that are more familiar with other commodities and don't understand the electronic market. One way to avoid this is to be sure and OBS part should be bought buy your in house electronic component commodity person and educated the other buyers on franchised electronics.

  2. _hm
    July 20, 2012

    @obsbuyer: Yes, I agree with you. Awareness and responcibility has changed significantly in recent time. Situation must have improved a lot.

     

  3. ddeisz
    July 20, 2012

    It is interesting to hear that any independent distributor would say that authorized channels have their “fair share” of counterfeit. Every single study has shown the vast majority of counterfeit come from independent channels. The recipe for avoidance of counterfeit is not so difficult or mysterious:

    1. Buy Authorized FIRST and only Authorized if available. An Independent should not be used if an Authorized source exists. Doing this alone will eliminate a lot of counterfeit.

    2. Buy Independent when that Independent has shown the investments of people, capital equipment (through and including SEM-level analysis), certification, and will gladly welcome an audit. The less capital equipment investment made by an independent, the higher the odds something bad will get through. Simply outsourcing this work by an Independent means they are driving low cost and not necessarily high quality. Outsourcing this work by an Independent also likely means they don't know what they are buying.

    3. When buying from Independents, insist upon a reasonable sampling of DYNAMIC testing of product and not just IV curves and DC analysis. While visual standards in place are a good thing, they are insufficient to determine true performance when there's no way to know lifetime handling.

  4. bolaji ojo
    July 20, 2012

    There are no permanent solutions to the problem of counterfeiting and while I agree that brokers or independent distributors have been seen as the main contributors to counterfeiting, it's obvious the fingerpointing isn't going to solve the problem. The industry as a whole has to come together to solve the problem. Honest franchise and non-franchise distributors are getting a bad name as a result of the actions of fraudsters.

  5. Mr. Roques
    July 22, 2012

    Do you have a similar graph with the value of those parts, what price % change are we talking about?

  6. Tam Harbert
    July 26, 2012

    I'm not sure if the study examined that aspect. However, at the conference, one presenter said that counterfeiters were making very high margins on their parts, anywhere from 69% to, in some cases, 1,000%.

  7. Mr. Roques
    August 28, 2012

    That's because they have top-down approach to pricing. They know the price point of their product in order to sell it… 30-40% off the original product's price, which is probably expensive. 

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