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Don’t Blame Independent Distributors Alone for Fake Parts, Part 2

I suspect that the knee-jerk reaction by some of the heavy hitters in the electronics manufacturing and aerospace sectors to completely cut-off independent distributors from their supply chains will not last. The potential for vast revenues to be lost due to production halts and unsatisfied customers whose contracts are not able to be fulfilled will not allow this mentality to be sustained for long. (See: Don’t Blame Independent Distributors Alone for Fake Parts, Part 1.)

Independent distributors offer a lot of value to the industry, and our services are widely needed. This simplistic reaction of just cutting off all the independents is what we call the “pendulum shift.” When something is way out of whack, we tend to over-correct for it. Think of a pendulum swinging greatly from one side to the other. After a little while, the dust will finally settle and a happy medium will be achieved. So, what is this happy medium?

Before we get into the solution, we need to analyze the problem a little more closely. Instead of making the entire community of independent distributors a scapegoat for a global epidemic, let's get to the heart of the problem.

Many readers may be familiar with a couple of the “bad guy” distributors out there that have recently been raided by federal agents and prosecuted for knowingly selling counterfeit components to the US Government. Specifically, MVP Micro and Visiontech are companies whose seedy business practices have recently been exposed and widely publicized.

Being a veteran of the industry, I am familiar with MVP Micro and Visiontech and know enough not to buy parts from them under any circumstances. So, the question is, with all due respect: What the heck are {complink 11108|BAE Systems plc}, {complink 4587|Raytheon Co.}, and branches of the US Military doing procuring parts from these companies in the first place?

The answer is: They did not know any better. Buyers at these organizations have been charged with procuring components, and the policies and procedures at their companies or government agencies were not robust enough to differentiate a good distributor from its evil counterpart.

Education is key to countering counterfeiting. Everyone involved in the procurement of electronic components, including EMS companies, OEMs, the US Government, and independent distributors alike, need to come up with a game plan for properly evaluating potential vendors, inspecting and testing components to ensure their authenticity.

In my previous post I noted the fact that many quality independent distributors of electronic components are being lumped into one category: Bad. And many companies, including the largest defense contractors in the US, are coming up with stringent policies that forbid the purchasing of components from any independent distributor. Yet, independents provide valuable services by sourcing old and obsolete components, those with exorbitant lead-times, and other hard-to-find materials.

Without these services, manufacturers are threatened with having their entire production lines go down and being unable to get product to the market. So, obviously, a ban on independents is not a good solution. However, it is all that some companies have, at the moment, as they are grasping at straws and trying to get a hold on the fact that their supply lines have been infiltrated by sub-par materials.

Instead of manufacturers going to such an extreme measure to combat counterfeits and thus hurting their own bottom lines, there are much better solutions. In a future post, we'll suggest best-practices and some excellent resources out there for avoiding counterfeits.

15 comments on “Don’t Blame Independent Distributors Alone for Fake Parts, Part 2

  1. Dawn Gluskin
    July 12, 2011

    A new article released today entitled “DHS Policy Opens Floodgates for Counterfeit Microchips to Enter US” goes along very well with the subject matter of this blog:

    “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.”

    Very interesting. This further supports the argument that the finger cannot be pointed at the independent market alone.  Our own government has admitted to relaxing it's policies and purchasing counterfeit parts directly from China.

    Read full article here: http://www.thecypresstimes.com/article/News/National_News/DHS_POLICY_OPENS_FLOODGATES_FOR_COUNTERFEIT_MICROCHIPS_TO_ENTER_US/47667

    Obviously, there is a lot of work to be done in the electronics industry.  Please stay tuned for part 3 in this blog series which will discuss strategies on avoiding counterfeits, including vendor certifications and testing capabilities.

  2. Barbara Jorgensen
    July 12, 2011

    Dawn–thanks for your thoughtful commentary on this difficult subject. I've been covering the industry for 20 years and this has been a hot button issue the entire time. I agree that many independents have made the utmost effort to prevent counterfeits from entering the supply chain and they are truly committed to serving their customers. The quality improvements have been outstanding in the independent channel. Unfortunately, there will always be a few companies that tarnish the reputation for all. (This is true of any and every industry–News of the World isn't helping journalism any). Thanks for keeping the dialog going.

  3. Dawn Gluskin
    July 12, 2011

    Hello Barbara.  Thank you for recognizing that the independent market has made great strides in counterfiet prevention over the years.  It's definitely a hot topic and it's great to see some excellent dialog coming from it.  While there are certainly some “bad apples” out there, there are also many reputable vendors who practice due dilligence and I hope to represent their side of the story.  Thanks so much for your feedback!

    Dawn Gluskin
    SolTec Electronics

  4. Daniel
    July 13, 2011

    You are right. Independent distributors are offering lots of value added services to the industry. They are the right peoples, which we can relay at any time for any cause. Their dedications are more than the direct company peoples. The only thing is we have to be very careful, while screening the components, otherwise there are chances for fake components.

  5. Dawn Gluskin
    July 13, 2011

    Absolutely, Jacob!  Thank you for pointing out the great value that independents offer the industry.  Not all are created equal and that is the intent of my article – to counteract some of the recent negative press that tries to lump all companies into one category.  Many independents are hard-working individuals with families that care about the industry & capabilities in testing have come a long way.  I echo your sentiments on being careful and screening components.  Thank you for the feedback!

    -Dawn Gluskin
    SolTec Electronics

  6. tinye420
    July 13, 2011

    I would have to agree that not all idependents are to blame. There are just some greedy people in the world and some of them happen to work for independent distributors. Rather than taking a solid deal at a solid margin from a solid, trustworthy supplier they are more inclined to take a higher margin deal from a less reputable supplier because it means more money in their pocket. But this is true in any industry. The almighty dollar is very alluring. There is never going to be a way to 100% stop counterfeit parts from entering the market. Lets face it, there have been counterfeiters in the world for thousands of years. Counterfeit money, counterfeit art, counterfeit antiques, you name it. If there is money to be made off the counterfeiting of a product then the market for those counterfeits will always be there. Again, the almighty dollar (or yen) is very alluring, not just to the person selling the counterfeits but to the person making them as well. 

    So this problem is always going to exist in the independent distributor market unless steps are taken by the independent company owner to stop them. Unfortunately there are only two ways that I see to stop it. One option would be standard commission pay for orders regardless of the profit. If the salesman isnt going to make more money purchasing the parts at a cheaper price from a less than reputable supplier then they would be more likely to purchase them from a trustworthy supplier with the proper tracability or paperwork on the parts. The second and probably more realistic solution would have to be making the financial burden for purchasing counterfeit parts a little more harsh on the salesman. Maybe something like not only losing the commission that you would have made off the order but also an additional amount of commission loss. I know that both of these solutions put strain on the salesman but unfortunately that is where the problem really starts. Again, its all about money.

    There is still going to be a need for testing parts, tracing parts, etc. But there would be less of a need for that if all companies were purchasing parts from reputable suppliers not generally known for selling counterfeit parts. But thats just my opinion.      

  7. Taimoor Zubar
    July 13, 2011

    I think when it comes to procurement within the government and especially related to military, there has to be strict quality checking once the parts are received. No matter how reliable the distributor is, there can be no guarantee of the quality of the parts. I think the the departments within the government are also partially responsible in this case for not having effective quality control measures in place. I don't consider the entire blame on the distributors to be justified.

  8. elctrnx_lyf
    July 13, 2011

    Without distributors, it is vey tough may be almost impossible for the OEM companies to keep their supply chain simple and to deliver the products. You can not blame the independent distributors but at the same time you can not belive that eveything coming to you is a right component. How to make sure that all is right is definitely is huge task for the OEM's. I think the right way will be to work with well known distributors in the industry till there is some effective tool to detect the counterfeiting is invented.

  9. mfbertozzi
    July 13, 2011

    While final part of editorial is gone, I was wondering how to explain shortly main reasons for substain indipendents could guarantee right quality. Basically, I came back through my professional life: I've experienced indipendents have to work hard because they haven't any “logo” from major OEMs which can promote theirself. Then, the only way of achieving success and good reputation, is to put “excellence” in any internal operational process and good caring of customers during post sales support.

  10. eemom
    July 14, 2011

    As I stated in my post to Part 1, I think the key factor to moving forward is education.  Independent distributors need to find a way to gather and educate the industry on how to battle Counterfeit parts.  It is easier to ban all Independents but in the US, we call that throwing away the sink with the dirty water.  If more education is provided on who and/or what to avoid, together with the necessity of Independent Distributors, maybe we'll find a more reasonable solution to this prevalent problem.

  11. Dawn Gluskin
    July 19, 2011

    Thanks again for all the feedback.  We are blown away by the responses we have been getting online & via messages.  It's definitely a topic that many are passionate about.

    tinye420  – Yes, there is definitely some amount of “one bad apple” going on here & yes, greed of a small group of people is ultimately hurting a larger group. 

    TaimoorZ  – Absolutely.  It's all about setting up the right processes & procedures which include vendor selection and component inspectiong to take steps to mitigate risks.

    elctrnx_lyf – Thank you for recognizing the value added by independents.  And, yes, strategic partnerships with reputable vendors would contribute to greatly reducing the occurence of counterfeits.

    mfbertozzi – Yes, reputation is everything!  If OEMs/CM/Government agencies align with reputable vendors only, than we wouldn't be hearing about all these issues!!!

    eemom – Education is key, correct!  Hopefully, this recent blog series has had some impact on educating.

    Thanks again for all the feedback!

    Best Regards,

    Dawn Gluskin

    SolTec Electronics

     


  12. Kunmi
    July 19, 2011

    You are right. Education is very important. There must be a system in place to identify, report and follow up with the bad apples. All the independent distributors have to know what they have to look for and how they can avoid the bad ones. It is a collective effort not just throwing the stone on the sectional part of the supply chain.

  13. JERRY CHAN
    July 21, 2011

    Semiconductors chip you can find everywhere in China nowadays from micro controller, OTP, EER, & so on. including memory card like USB flash drive, SD, & others cards as counterfeits too (example 8GB card printed on card and when you plug in will show 8GB too but right after when you media, you will never see it again).

    So do Cable & Wires as well (USB, HDMI, Ethernet RJ45, & so on). Most of the Purchasing people will never find out they are getting real/ counterfeits cables. Meaning printing our UL numbers on their   none UL cable to resell to some customers that looking for lower cost due to higher cost on commodity like Gold, Copper, PVC, & so on….

    Another word, seen like you are getting LV, Gucci, at bargain price but you are getting FAKE item made of cheap material….Good luck to everyone not getting counterfeits item from oversea suppliers that you don’t know….

  14. JERRY CHAN
    July 21, 2011

    Counterfeits Parts to & revered engineering Semiconductors chip you can find everywhere in China nowadays from micro controller, OTP, EER, & so on. including memory card like USB flash drive, SD, & others cards as counterfeits too (example 8GB card printed on card and when you plug in will show 8GB too but right after when you media, you will never see it again).

    So do Cable & Wires as well (USB, HDMI, Ethernet RJ45, & so on). Most of the Purchasing people will never find out they are getting real/ counterfeits cables. Meaning printing our UL numbers on their   none UL cable to resell to some customers that looking for lower cost due to higher cost on commodity like Gold, Copper, PVC, & so on….

    Another word, seen like you are getting LV, Gucci, at bargain price but you are getting FAKE item made of cheap material….Good luck to everyone not getting counterfeits item from oversea suppliers that you don’t know….

  15. Dawn Gluskin
    July 26, 2011

    Thanks to all for their contribution to the recent discussions on avoiding coutnerfeit components.  We apprecaite all the feedback! 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.

     

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