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Don’t Blame Independent Distributors Alone for Fake Parts, Part 1

This past April, at the annual Electronic Resellers Association International (ERAI) Executive Conference in Las Vegas, Phil Zulueta, chairman of the G-19 Counterfeit Electronic Parts Committee, addressed a crowd of hundreds of independent distributors of electronic components and asked the question: “Who has not had any issues with counterfeit parts?” Crickets. Not one single hand went up.

There is no denying that counterfeits have plagued the electronic manufacturing industry for many years. Much of the world's electronic waste (old TVs, PCs, etc.) are shipped to developing nations, and to China, for disposal. Out of this careless disposal of e-waste have grown elaborate counterfeiting operations where old microchips are salvaged off of circuit boards (oftentimes by children, who are exposed to the hazardous materials contained within), and then old part numbers are sanded off, the components are re-marked with fresh logos and numbers, and their leads are cleaned up to be passed off as new and authentic parts to recirculate back into the marketplace.

These parts are being misrepresented and present huge liability issues. There have been recent incidents where these types of counterfeit components have even gotten into US defense systems and medical equipment. The threat is real: Not only are great financial losses to be had, but, more importantly, human lives are at stake here.

Oftentimes, the industry has placed the blame for this problem on the independent distribution market, but the fact of the matter is that all independent distributors are not created equal. There are plenty of reputable independents out there that should not be dumped into the same category as the “bad guys” who knowingly sell counterfeit parts and/or simply lack the capabilities or desire to practice due diligence in procuring components.

Judging by the attendance at the ERAI conference, where the focus was “Counterfeit Electronic Parts: Avoidance, Detection, Mitigation, and Disposition,” many in the industry are, in fact, very concerned with the problem and are educating themselves to battle it head-on. Unfortunately, many large OEM and EMS companies have not gotten the memo.

Earlier this year, I was at the NASBC (National Association of Small Business Contractors) conference in Orlando, Fla., and a contracting officer from {complink 3153|Lockheed Martin Corp.} literally returned my business card after my introduction, saying, “Sorry, we're not allowed to work with you. Some bad hardware got into one of our systems, and now we don't work with any independents.”

I've attended countless conferences and have met hundreds of people, and have never had somebody shut me down like that before, let alone the largest prime contractor to the US Government at a conference that was geared towards small diverse businesses gaining traction in the government contracting field. That was when I realized this is a serious problem.

As an industry veteran and the founder and CEO of SolTec Electronics, an Independent distributor that has heavily invested in equipment and personnel to properly detect and avoid counterfeit components, and whose business model is based on serving our customers over-the-top well, there is nothing that gets my blood boiling more than hearing these words from a new prospect: “Sorry. We're no longer allowed to buy anywhere except from authorized distribution.”

Of course, I immediately rebut with our certifications and counterfeit detection capabilities, which are normally music to a prospect's ears, but many buyers are stuck behind the red tape of large corporations, and their hands are tied. Knowing the industry the way I do and how absurd it sounds to ban all independents, my immediate response is to ask them: “Well, then where do you get parts that are end-of-life or on extremely long lead-times?” The reply: “We don't.” In other words, they stand to lose millions of dollars in potential revenue because they cannot get the parts they need to take the product through production and then into the market. Ouch!

Nobody wins in this scenario — except chip manufacturers, which are calling for the boycott of independents in a thinly veiled effort to protect their own profits. If the chipmakers worked together with independents, resolution to the counterfeit epidemic could be achieved more quickly, but they are notoriously uncooperative and would rather see independents fail, forcing chip buyers to only purchase brand new materials from the factory and not legitimate OEM excess and overstock. At the end of the day, it's just bad for our economy, in general.

In the next installment in this series on the issue of counterfeits, I will address why it is difficult to cut off independent distributors from the supply chain and why efforts to reduce their involvement will ultimately fail.

19 comments on “Don’t Blame Independent Distributors Alone for Fake Parts, Part 1

  1. mfbertozzi
    July 8, 2011

    Great post Dawn; at first, let me start in giving my best wishes for the company (and business) you have founded. Going through the editorial, I was wondering if approach you have felt, could be a matter of “culture”. Are we sure people have really caught value added your are bringing with your activities or lack of culture could make them still prevented? I know you are very active in twitter-blog. Basically, it could be a possible tool for outlining and broacasting real value you provided, in a sort of educational / promotional path. Maybe you won't meet against people telling you ” sorry, we are not in business with indipendents “.

  2. eemom
    July 9, 2011

    This is a very unfortunate outcome of the counterfeit products.  Small, independents companies struggle as it is to compete against larger distributors.  There must be a way to control counterfeit products without banning all independent distributors.  This seems to be an extreme measure but perhaps the problem has grown to a level that warrants such action.  Perhaps a number of the independent distributors can put their collective thoughts together to try to come up with alternative solutions to address this growing problem while helping them remain viable.

  3. mfbertozzi
    July 9, 2011

    Here at EBN, we have discussed a few month ago about the adoption of twitter to promote products, services, customer care and create culture; your suggestions, eemom, are very great and interesting. In addition Dawn is active on her twitter/blog. Do you think it could a platform to use by indipendent distributors for putting thoughts on value-added, all together?

  4. eemom
    July 9, 2011

    Well, my first question is how is Twitter working so far?  Have independent distributors seen a rise in communication and general education of what companies need to look out for rather than ostracize all independents?  The goal, I assume, would be to provide information and education as to how to protect against counterfeit products.

  5. Clairvoyant
    July 9, 2011

    Conterfeit products have many negative impacts. It is unfortunate that independent distributors are being affected like this. Is there a higher percentage of counterfeit products now compared to 5 or 10 years ago?

  6. mfbertozzi
    July 9, 2011

    Exactly eemon, the goal fits 100% my opinion.  If you look at

    http://soltecelectronics.com/blog.aspx

    you have an example on how Twitter is working, actually. I assume there are possibilities to improve in education, moving forward on value added that indipendents are bringing in the market. 

  7. sbbn@aol.com
    July 10, 2011

    Northeast Surplus has invented and patented a system to recover parts from circuit boards without damage. Bent leads, some referbishment needed. No cosmetic, static or physical damage, desoldered. Over 300,000 parts removed per week. Send in some boards 10-15 and I will run through my systems and return all for your inspecting and testing. A mother board every 9 seconds.

    Jim Moltion

    Northeast Surplus $ Materials, LLC

    440 shonnards St.

    Syracuse NY 13204

    315-476-4025

  8. kg5q
    July 10, 2011

    It’s even more serious than what you have outlined – the US government purchased counterfeit components which had a “trap door” meaning they could be disabled at the worst possible time for US in an attack by our “partners” in China no doubt.  Fortunately they were discovered – how many have NOT been? How are companies supposed to protect themselves?  How are manufacturers supposed to stand behind products no matter where a customer buys them from?  If any “Fred in the shed” can be a distributor what controls are in place? None?  Have a look at this from Crane NWSS

    http://www.navalengineers.org/SiteCollectionDocuments/2011%20Proceedings%20Documents/CTC/Schipp.pdf

    It could be that some of the “distributors” may purposely be trying to cause harm?  How do you insure that no counterfeit parts get into military – aerospace systems?  Do you want to fly on an airplane which has suspect electronic components on it?  How about bolts and fasteners?  There have been fakes of them as well lots of them.

    Every single problem I have been involved in and have been asked to solve has involved unauthorized distribution channels.  Its like saying that theft is not caused by criminals – well the data and my experience tell a different story.

    I don’t know any other way to limit the variability other than limit who you buy from and they should be authorized distributors.   The reason in my experience that companies get themselves in trouble is they don’t plan well.  I had a company building nuclear subs wait until the last min to buy parts then expedite them because they had a 12 week lead time – they were ready to buy from an unauthorized source and I talked them out of it – they were mad at us because we did not have instant stock on them – how long did you know you were going to be building a big huge nuclear sub?  I bet longer than 12 weeks!?! And now it’s my fault? Really?  They just don’t plan well – that could solve almost everything.  It’s not that manufacturers want more profit – we just can’t afford to support every device that has our log on it regardless if it’s ours or not or regardless of what alley in Hong Kong it came from.  I had a situation where a customer was having problems with our MOSFETS – they went nuts, wanted someone there on the next fight etc.. When they calmed down a bit I had them send parts in – there they were with our logo and all but they were counterfeits – and guess what – they were bought from a non-authorized source that disappeared.   I have never heard of counterfeit parts being sold via the authorized channels – for more on that see the work done by NEDA http://www.nedassoc.org/ 

    The reason we don’t hear more about it is that when a buyer – customer etc get themselves in trouble and waste hundreds of thousands of their companies dollars buying fake stuff and it goes wrong they don’t exactly broadcast it – the problem gets swept under the rug quickly.  The issue is much larger than what you hear it is – and this is just one reason why.

    Rochester electronics is a good source of info as well…. if you want to sell parts to people making disposable electronics where failure is an inconvenience but it’s not going to be mission critical or threaten our safety or national security then fine but… let’s use our heads here!

     

  9. Dawn Gluskin
    July 11, 2011

    Thank you all for the great feedback so far!!  I will try my best to address all questions & comments.

    mfbertozzi – Thank you for noticing our Social Media presence.  Yes, we use multiple platforms (LinkedIn, Twitter, and Facebook) to raise awareness on the subject matter and to keep dialogs going.  In fact, the motivation of this article was to promote awareness and educate other distributors and EMS & OEM companies, alike.  My company, SolTec Electronics, has invested heavily in equipment and personnel to effectively detect and avoid counterfeits as have other companies like mine.  Companies like ours should not be lumped in the same category as other independents that knowingly sell this type of material.  We are like night & day.  I hope anybody that feels strongly about this subject matter or is moved in any way would be so kind as to click on the social media share links at the top of this article so that we can help to spread awareness.

     

    eemom – Yes, while social media has been effective in counter-acting the stigma associated with the industry, there is still much more work to be done.  This is a 3 part article and in the final part (to be posted next Monday), I talk about solutions, trade organizations, and give tips on effectively selecting a reputable distributor.  I hope this article will educate and motivate the reputable distributors to ban together and spread awareness on the subject matter.

    Clairvoyant  – I’ve been in this industry for over a decade and counterfeits have always reared their ugly head.  The difference, it seems, is that in recent years, our military/defense has been hit hard by them as well.   I expect this is as a result of being in times of war, a slow economy, and a desperate need for components.  Therefore, some unfortunate decisions have been made in purchasing these types of electronics.  In the news stories I have read where component distributors have been raided and prosecuted for knowingly selling counterfeits to the military — none of the companies charged were reputable companies at all.  It brings up the question of why mission critical components were being purchased through companies with such bad reputations in the industry.  Again, it goes back to being uniformed, which is why my goal is to educate here.  I talk about some of these issues and go into some solutions in the final pieces of this article, which will be published soon.  I hope you will come back for the final pieces!

    Thanks again for all of the positive feedback and your contribution to conversation.  It’s such an important subject-matter and your opinions are very valuable.

     

    kg5q (aka Respectfully Disagree) – In my opinion, while you give a thoughtful reply, much of it is discredited because you do so with a secret identity. If you truly stand behind the words you say, than why not post your name and organizational affiliation???   I respectfully disagree with your choice to post your reply on this subject anonymously.    You allude to being a component manufacturer in your response.  Component manufacturers could work together with independents to help verify components, but choose to turn a blind eye.  I did take a shot at component manufacturers in my blog because they are notorious for advising “don’t buy from independents.  Buy authorized only. It’s the only solution to avoid counterfeits.”  That statement is no truer than telling somebody if they never leave the house, they won’t ever be hit by a car.  While that statement is mostly true, it is not very practical advice.  There is also the off-chance that a car will come plowing into that house one day … just like there have been instances where franchised distributors and authorized dealers have shipped counterfeits!!  While it is rare, it does happen.  Many authorized dealers will take back parts on an RMA and not properly inspect them.  There have been cases where their customers have switched out original parts for counterfeit parts and they got re-stocked on the authorized dealer’s shelf waiting for their next customer (victim) to purchase them.  While cases like this are rare, it does happen.  So, is the answer to that to stop buying parts and stop building things altogether.  To use a quote from your reply, “let’s use our heads here.”  

    We don’t need to be so extreme in our reactions here.  As mentioned in previous post, independent distribution companies like mine, SolTec Electronics, have invested heavily in counterfeit detection and avoidance capabilities.  We are in the front line protecting our clients.  And, yes, we even sell directly to branches of the U.S. Government.  Aside from procuring from the excess market, we also offer cross-referencng solutions and 3rd party part re-engineering to original spec, die packaging services. Of course, we always practice due diligence and go for full functionality testing when there is not traceability and the components are mission or life critical.  The point of this article is that the requirement to do so should flow down from the OEM or EMS company in the first place and they should have measures in place to assure they are working with a reputable and capable independent distributor.  Such a thing does exist.  We are a viable business model that provides a much needed service to many clients around the world.  It’s time to set the record straight when individuals, such as yourself, make all-encompassing statements that all independents are bad or need to be avoided.   I invite you to read parts 2 & 3 of this blog series which will be published later this week and early next week.  I give practical solutions on how to team with a reputable vendor and safely procure from the independent marketplace.

    Whether sombody agrees or disagrees with the article, I do appreciate all feedback as I feel this is an important subject matter.  Let's keep the dialog going!!!

    Dawn Gluskin

     

    CEO
    SolTec Electronics
    http://www.soltecelectronics.com

     

     

     

     

     

     

  10. Dawn Gluskin
    July 11, 2011

    I also wanted to mention that EBN has posted a poll on this subject “Should independent distibutors be blamed for the presence of counterfeit parts in electronics” & it is nice to see that, so far, the replies are overwhelmingly “no” with 84% of the vote.

    Click here to weigh in on the voting: http://www.ebnonline.com/document.asp?doc_id=231201

     

    -Dawn Gluskin

    SolTec Electronics

    http://www.soltecelectronics.com

     

     

  11. stochastic excursion
    July 11, 2011

    I'm surprised that the military buys any mission critical parts from a foreign country.  Especially China, though our trade relationship has been mutually beneficial, the two states have had difficulty seeing eye-to-eye politically.  If the reports are true of sabotage and hidden adverse features in military electronics parts, I think there's a case to be made for building up fabrication capability within the US.

  12. Nemos
    July 11, 2011

    From what I know, theoretically if you remove a spare part from a pcb and “replanting” to another, there is a dangerous possibility to reduce the end of life of the spare part. However, in practice (although I do not recommend ) if you follow the rework “rules” and take care about the soldering temperatures the spare part will remain workable.

    It is absurd to put it all independent distributors into one bucket. There is independent distributors who do an excellent job why to blame them for   the presence of counterfeit parts in electronics.

  13. Dawn Gluskin
    July 12, 2011

    stochastic excursion – That is a very valid point you make there.  There is definitely some risk in procuring sensitve military components from a foregin nation — even when it is from a franchised or authorized source.  An excellent argument could be made to bring fabrication back to the US for that type of material, as you point out.  Thanks for your feedback as you help support the case that the counterfeit issues in the electronic supply chain are far greater than just the “bad apple” independents out there.   Instead of placing blame, the industry should ban togethter to come up with common solutions.

    Nemos – THANK YOU!!  I could not agree with this statement more!: “ It is absurd to put it all independent distributors into one bucket. There is independent distributors who do an excellent job why to blame them for   the presence of counterfeit parts in electronics.”

  14. Kunmi
    July 12, 2011

    I don't blame the independent distributors alone for fake parts. I think there should be quality assessment for every products and parts received from independent distributors to confirm the durability and quality of their products. Most times, companys also want to cut down on cost of quality control and analysis and they focus more on profit and gain. I think this is the main problem that we have world wide. People's life is not as valuable as compared to productivity and the turn around time that results in more money for both the distributors and the company. The other side of these things is that as long as the distributors and the companys are not directly or negatively affected they really don't care. Everyone have a share of his or her gain in what ever services they render to one another. In the business world they call it “business.”

  15. ddeisz
    July 12, 2011

    Dawn,

    My name is Dan Deisz and I work for Rochester Electronics (not hiding and not anon). While independent distributors like yourself can be good most of the time, all counterfeit parts have come through that broad group and no countefeit parts have come from distributors who only deal with authorized product directly. When theoretically “the same” parts are available from either, an authorized source will guarantee no counterfeit while an independent has to have the infrastructure/experience/knowledge and still hope nothing gets through. I say “hope” because most people know that the component engineering behind counterfeit is getting better over time. There are component substitutions happening where detection through test is getting less viable over time. If I am buying for “mission critical”, I wouldn't buy independent if authorized had the part. It's the difference in detection versus avoidance.

    There's “protecting profit” statement in your article describing the semi OCM's that seems a bit over the top. I wonder how often independents win the deal when the same part is available from authorized sources at a higher price, yet come with counterfeit detection instead of avoidance.

    While I see a place for independents in the supply chain, it's not when there is an authorized source for a part. Detection versus avoidance.

    Dan

  16. Dawn Gluskin
    July 12, 2011

    Hi Dan,

    I respect and appreciate your posting sans anonynimity (unlike the previous OCM).  There is no arguing the logic that if parts are available from an authorized source, mission critical parts should not be procured from the grey market.  I agree. However, we all know that in this market, especially when dealing with older and obsolete parts, authorized sources are typically not available.  Also, I respectfully disagree with your statement, “no countefeit parts have come from distributors who only deal with authorized product directly.”  That is actually not true.  There have been documented cases where franchised/authorized sources have accepted a customer RMA on parts that end up going back on the shelves without being inspected. Therefore, they've ended up with counterfeit parts (switched out for the good ones) on their shelves & they eventually made it to an end-user.  Ironically, franchised/authorized sources are less equipped to properly inspect incoming parts than your high-end and reputable independents are.  It just goes to show that nobody is completely safe in this industry and we all need to be careful and practice due diligence.

    Furthermore, my comment about OCM's “protecting profits” was not in regards to the scenario you described above (authorized source available for mission critical parts).  Moreso, I am referring to OCMs who discredit independents by preaching avoidance at all cost, who refuse to sell to independents, and/or are uncooperative in attempts to verify lot & date codes in efforts to mitigate counterfeit risks.  While Rochester is a reputable vendor and one who I have purchased parts from on many occassions, I realize that you have been instructed by TI (for example) not to sell any of their parts to independents.  How is this helping the market??  I assume the hope is that the end-user will eventually find an authorized source on their own, but what if they don't?  That policy is essentially forcing end-users to buy sub-standard parts out of desperation.  By telling independents “we can't accept your order on this product line” it is essentially coming off as discriminatory and with questionable intent.  I undestand that is not your policy, but you have to enforce it. Perhaps you can explain the logic behind it??

    Lastly, again in regards to your statement on “mission critcial” parts, there was a very interesting & timely article entitled “DHS Policy Opens Floodgates for Counterfeit Microchips to Enter US” released today on the Cypress Times that states:

    “The US Semiconductor Industry testified before Congressman Michael McCaul's Oversight & Investigations Subcommittee hearing that a DHS (Department of Homeland Security) policy established in 2008 has opened the floodgates to counterfeit microchips entering the US market. The US military purchased 59,000 counterfeit microchips from China in 2010. In 2008 DHS changed its policy and stopped sending companies photos with serial numbers and other identifying information which is necessary for a company to determine whether a product is authentic or counterfeit.

    I would have to assume that these sources in China were not “authorized” and our government was procuring parts directly from them.  Again, at least aligning with a reputable independent would have helped to mitigate some of these risks.  It's just not possible to buy direct in all cases.

    Thanks again for the feedback.

    -Dawn

  17. ddeisz
    July 13, 2011

    Dawn,

    I can't speak for TI, but I can certainly speculate. I think you are correct in TI believing that most of the revenue will be from authorized sources when it comes to EOL product. I don't have numbers to back it up, but I would bet that is true. When it comes to active product, it's all about the total revenue from the market. While independents can and do make money, the real revenue drivers for the OCM are always going to be their prime direct customers and biggest authorized sources. Independents are doing a service for the market, but rarely do their volumes and revenues matter in the OCM product lifetime revenue picture. Depending on product mix (lower volume to higher volume), the independent revenue picture to the OCM may not matter at all. For the real and perceived hassles that can come about enabling a small percentage of the independents (the bad apples), it's probably not worth the potential problems and hit to the reputation. If the OCM's name gets bandied about as having been associated with ANY counterfeit product, knee-jerk reactions could result in going to a competitors product to avoid any possible (unlikely) issue. At least I could envision some buyer reacting that way ….

    Even publicity of having been counterfeited is enough to not enable independents. Couple that with the likely case where independents don't drive a majority of the revenue for an OCM and I think you have your answer as to why independents are not always given the warm and fuzzy or enabled by some OCM's. 

    Dan

  18. Dawn Gluskin
    July 26, 2011

    Thank you again to everybody that has participated in the lively discussions of our recent counterfeit component blog series.  Anybody with additional questions, I invite you to please join us this Thursday, July 28th, at 12:00 EST as I do a LIVE CHAT Dialogue with EBN users!  Click the LIVE CHAT link on the front page to add it to your calendars.  I look forward to answering any questions you may have.  Thanks again for all of your feedback!

     
    LIVE CHAT with Dawn Gluskin

    What You Really Need to Know About the Open Market

    “Not all non-franchised distributors are created equal. Many companies that play in the open (non-authorized) distribution market have gone to great lengths to ensure that the components they sell are counterfeit-free. In this Live Chat, Dawn Gluskin, founder and CEO of distributor SolTec Electronics, will talk about what differentiates these companies from unscrupulous open-market brokers.”

    Add this event to your calendar.

     

     

     

  19. kg5q
    August 16, 2011

     

     

    here is a great article that is in EE times make sure and scroll through all the 5-6 pages of info to get the entire thing.  it proves my points. especiall the DATA – not emotion on where the counterfeit parts come from.  The industry is moving towards AS9120A Certification requirements to do business.   I think most buyers cause thier own problems – self inflicted wounds here.  Buy from authorized sources who meet AS9120A certification and you wont have any problems. 

     

    also NEDA has a web search utility to find authorized parts in stock

    http://www.eciaauthorized.com/

     

     

    http://www.eetimes.com/electronics-news/4218759/Ferreting-out-the-fakes-in-the-chip-supply-chain?pageNumber=0

     

    need I say more – this is the DATA! 

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