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In Search of Counterfeiting’s Silver Bullet

“There's no silver bullet for counterfeiting,” says Phil Huff, CEO of Brandwatch Technologies, a provider of brand security and product authentication solutions. The electronics industry knows this all too well.

While leading companies in the industry are enacting their own anti-counterfeiting measures—such as attaching identification numbers or ID tags to track their components and products—the supply chain as a whole relies on the practice of buying and selling directly from suppliers or through authorized distributors to discourage bogus products from entering the channel. There is no industry-wide technology or standard that addresses the needs of all the products and services throughout the electronics supply chain.

The need for a security standard or an automated identification system has been raised from time to time within the electronics supply chain. In addition to the logistics of identifying and tagging the millions of components that pass through the channel every day, the issue of an equipment-based solution poses a problem. If the supply chain adopts an authentication system, there's nothing at this time that prevents unauthorized suppliers or distributors from using that same system. The development and adoption of a proprietary system could be too costly for small and midsize companies in the supply chain.

Organizations such as NASPO – the North American Security Products Organization — are working to develop national and international fraud countermeasures and control standards. NASPO would also certify compliance with those standards in the areas of finance transactions, identity management and material goods.

Brandwatch — which is active in NASPO — uses proprietary technology and best practices to secure its customers' products and supply chain. Brandwatch manufactures microtaggants—invisible particles that have specific properties that are recognized by scanners and machinery used in the field—to identify and authenticate products. The taggants can be embedded into paper, substrates, polymers and inks. Brandwatch's solution focuses on securing supply chains, reducing liability, detecting counterfeits, implementing track and trace, identifying grey market diversion and verifying product recycle chains.

The company’s technology originated in military research.

In addition to the technology, the company recommends a multi-layered approach to anti-counterfeiting. It begins with an assessment of a company's practices; addresses a specific problem identified by the organization; and then incorporates the taggants into the manufacturing process of the product. “In many cases there is an IT aspect as well; there is a lot of information surrounding the identification of products and the tracking of products through the supply chain, so the IT piece compiles and analyzes the data,” says Huff. “This is data is crucial to the final part of the solution, which is assistance in enforcement. We provide the evidence and information to substantiate a claim.”

Huff says Brandwatch customers don't necessarily require their supply chain partners to adopt the technology, but better practices and procedures help in the overall security of the supply chain. “Any organization that provides brand security incorporates a chain of custody (COC) policy that mandates both upstream and downstream views in terms of governance [with the COC policy],” says Huff. “By practicing our recommendations, customers and their partners adhere to this chain of custody. This has a 'viral' effect both upstream and downstream in terms of improving the overall security of the supply chain.”

Huff says the best anti-counterfeiting systems incorporate a defensive mechanism—a proactive approach to security—as well as a tracking and tracing aspect. “Companies will come to us and realize there is a specific problem, and we will address each unique situation. But we also recommend defensive measures in addition to tracking and tracing their products. When companies incorporate a defense, they are no longer the low-hanging fruit. Companies with this strategy as less likely to have their products diverted,” he says.

“The thing we have learned there is no single perfect solution; there is no silver bullet — the companies that are most successful in combating gray market diversion and counterfeiting are those that incorporate a defense mechanism vs. piecemeal approach,” says Huff.

Should the electronics supply chain develop a standard anti-counterfeiting system? If so, should it incorporate hardware as well as best practices?

16 comments on “In Search of Counterfeiting’s Silver Bullet

  1. SP
    November 24, 2010

    Yes, developing standard anti counterfeiting solution would definitely be a good idea. And it would definitely help the business to adopt best practices. Why to invent something thats already invented? Since the electronics supply chain business is huge, its a requirement to be safe and secure. I liked the concept of taggants. But adding hardware, well what exactly would be in the hardware. Because hardware always inclreases the cost and needs high maintenance. But if the security features can increase enormously why not??? Then one has to be aware of the custom issues on airportS since the package whould have additional hardware.

  2. Mydesign
    November 25, 2010

       For last couple of years, the growth of electronic industry is more than the expected level and everybody wants to gain from this growth rate. So the local/ small scale industries are targeting to the most popular brands either by imitating the features or producing gadgets with at par design and styles. Big brands are spending about 25 percentages of their total revenues in market research study and innovations. As a result of this innovation, new gadgets with advance features are released to the public market. But at the same time, local manufactures are also trying to gain from this innovation by releasing more or less same type product, with out much investment in R&D. Even in some times, we also may get confused between the original and duplicate, means some of the duplicate gadgets are far-far better than the original brands.

       So the duplication process may continue, still the innovation for a new product stops. More over it’s not going to be end in a healthy situation also because the other peoples are trying for their own survival. Still now there was NO any proper mechanism to identify the genuinety of the products.  In this scenario we have to think about more innovations in similar field to identify the right product, like copy rights by the publishing house.

  3. Matthew Barazin
    November 25, 2010

    How would a silver bullet affect the market for semiconductors today?

    Good question, let's try to figure this out. So it's to my understanding that we create a dust of fiber that is incorporated into the devices upon production at the fabs. This dust proves the traceability of the product all the way back to the mfr, no matter where the devices end up.

    However even with this new technology not all independent distributors have the capacity to x-ray the devices they buy and sell on an hourly basis and I don't think the CM's or EMS' have the capabilities to do that either (especially many of the smaller to medium sized operations).

    So here's the other scenario the counterfeited product is promised to not pass through on goodwill. We trust the experience that many of our peers hold as insurance against the risk of receiving and then shipping counterfeit product.

    Now please don't get me wrong. One day, some day, everyone will ship counterfeit product at some point in doing business in the semiconductor arena. It's how the electronical component cookie crumbles.The important part is what you do as a member of this community after the fact…

    Did you identify the source to the best of your ability, have you notified the community? Have you apologized to your customer, have you created a recovery plan? What are you doing to help stop and eventually eliminate this problem from our community?

    Stop blaming the bad guys. Without them we couldn't be good guys. Instead let's start focusing on how the good guys can get better. Dust in chips to prove traceability?I have a funny feeling it would not be that difficult to duplicate the dust. And the problem remains…

    I loved the article and look forward to reading more. Commenting more and hearing the communities feedback. 

    Best,

    Your friendly hard to find part finder,

    Matty B.

  4. Hardcore
    November 25, 2010

    An interesting article and again we come full circle on counterfeited parts, the issue is not the manufacturers, or technology needed to identify 'fake' components.

    Plainly and simply it is the distribution network. No amount of 'anti-fake' technology at the manufactures site is going to cure the issue of counterfeiting.

    So you want to 'duplicate' the magic dust?

    Simple, get old 'scrap' ic's from the manufacturer, grind them up and introduce them as a % into the manufacturing of the fake parts.(This is already done with plastics)

    Only by sorting out the distribution channels can the supply chain and working on the price structure of components ,could the industry be 'cleansed' of counterfeit parts.

    But again  this cleansing could only be applied to manufacturers that were willing to take part in the program, there are still a multitude of factories that knowingly buy fake parts then supply them onto the market in finished products.

    Unfortunately the margins that can be made between supplying the 'real thing' and a counterfeit are just too great, personally I believe that until this is sorted out  there is not going to be any 'real' progress.

     

     

  5. Matthew Barazin
    November 25, 2010

    Well said,

    As long as the counterfeit devices exists in the marketplace it is in the best interest of the manufacturers producing genuine product.

    As more and more horror stories appear, especially in the last 3 months. The price of genuine devices is driven up from created demand of the long tail, increasing profits for the manufacturers.

    Precision, Quality, and Deligence are the most important aspects of this industry. Live buy those pillars and the prevalance of counterfeit products can only strenghen your long-term legitimacy.

    Best,

    Matt B.

  6. Parser
    November 28, 2010

    The answer to your question on standard for anti-counterfeiting system is yes. Quality and safety of products depends on quality of components used.

    This problem is generalized by saying, “counterfeit components” and sought solution becomes too general and will not fit all the devices and their cost. The approach to ICs could be different than for example to tantalum capacitors or resistors. Are there any statistics which parts are the most popular in counterfeit underground? 

  7. Barbara Jorgensen
    November 29, 2010

    Great discussion going on! To answer a few questions: the most popular devices for counterfeit are usually the ones that are most expensive and/or at highest demand at a point in time. Semiconductors are the most popular, followed by various passives–I've heard mostly about capacitors over the years.

    One of the ways these devices enter the channel is substandard devices and/or outdated product that are supposed to be destroyed are not; they are diverted, marked as new; and sold. Unless a manufacturer destroys the product itself, there is no guarantee a subcontractor actually does this.

    Another way is the sale of excess inventory. Even though excess is supposed to be authentic product, authentic product is often mixed with counterfeits. Random lot testing may show an entire batch is authentic when it is not. This method is also used for returned products.

    Suppliers and distributors have tried to alleviate this problem by not taking back products that are not in the original packaging. The problem is, this practice is spotty–if a customer is big enough or makes enough noise, exceptions are made.

    As Brandwatch says, the best solution combines technology and practices. Finding that combination in the electronics supply chain continues to be elusive.

     

  8. Backorder
    November 29, 2010

    Trade channels and dealers are a major channel for entry of counterfeit material. Due to various specific needs of the customers(currency/stock/delivery/Low quantity) traders are intorduced into a authorized supply chain. This is where the tracking ends for all practical reasons and beyond this counterfeit forces play their game. Not to mention, these traders benefit heavily.

  9. danmcmillen
    November 29, 2010

    As with many issues affecting life in general I would not lay the problem with counterfeit components on the distribution network.  The key to the problem is that demand/supply do not match each other, and are often at odds with what is required.  The independent Distribution and Broker market is at a minimum a $3 Billion industry, and as high as $15 Billion by some estimates.  These numbers are not minor by any means, and they have consistently grown over the years…why?  Manufacturers and their authorized channel have failed to meet the stringent demand requirements of the OEMs and CMs they serve.  In addition, OEMs and CMs have failed to manage their supply requirements with demands they experience.  All together we end up with shortages and excess scenarios.  What is wrong with a Manufacturer wanting to recoup costs from perfectly good product by selling it?  Nothing at all.  That is like telling someone at Macys, Dillards, and JC Penny they need to destroy all the clothing they do not sell, because doing so leads to counterfeits or it could end up being sold by bad companies such as Marshalls, Ross, or even the Dollar General Store.  What they are actually doing is providing the means to effeciently manage supply imbalances in the industry…and everyone benefits.

    As an Independent Distributor we receive calls to help manage these issues, and explore the world to come up with a solution.  Prior to calling us the OEM or CM contacted their Authorized Distributor network and possibly the manufacturer and did not receive the answer they needed.  To do our job well we need to protect our customer.  To do this, which may be a surprise to many, we source 34% of our product direct from manufacturers, 33% from Authorized Distributors, 30% from a trusted preferred network of 128 independent distributors we have worked with for years and the remaining 3% comes from the Open Market…or Gray Market.  As a company we sit on the board and a member of the IDEA (Independent Distribution Electronics Assoc.), which is an organization that is taking the lead in establishing counterfeit detection policies.  We have spent over a $1 million in X-Ray and Decapsulation equipment with 5 certified quality inspection specialists, and we inspect every part we receive to assure our customers they will not receive counterfeit parts.  We have stopped parts we received direct from the Authorized channel and even a major IC manufacturer, who finally admitted to a policy of remarking aging shelved product after being confronted by our Director of Quality, who speaks at industry events as a expert on counterfeit detection.

    There is an answer…only work with companies who have committed to the IDEA standard, invested in sophisticated inspection equipment and avoid pure Brokers who only have an interest in selling any part they can find in the open market and provide no inspection as to its validity.

    Daniel McMillen, Director of Corporate Development – World Micro, Inc.

  10. mark
    November 29, 2010

    This reminds me of the proverbial supply and demand graph we were taught in college. As long as the demand (I.e., EOL and Obsolete Components) are not designed out or lifecycled managed ( Total Cost of Ownership ) the supply of counterfeit components will proliferate. Hence, the standard advice often given to “use only approved component distributors ”  panacea falls on deaf ears due to it's idealistic naiveness.

    The “Silver Bullet” cliche fits right next to the Zero Risk Holy Grail pursuit off….non-counterfeit components. Eventually, increased fatilities will insue and the reality of this experiment will become all to apparent.

    Mark

  11. itguyphil
    November 29, 2010

    Kind of off-topic but it's interesting that you mention the 'Silver' aspect of the bullet. I was just reading an article today about the demand and value of silver is going throught roof. In reaction to that, there are alot of people that are counterfeiting silver coins, etc. to try and cash in on the hype.

  12. Barbara Jorgensen
    November 29, 2010

    Dan, thanks for your feedback! I would suggest another driver of the supply/demand imbalance is the incentive to buy more than you need. I'm not sure how steep the discounts are for buying 1,000 of something vs. 650, but I would imagine buyers charged with reducing costs have to take that into consideration.

    You are right–this isn't just a distribution problem, it is a supply/demand problem.

     

  13. Barbara Jorgensen
    November 29, 2010

    Hi Pocharle,

    I love off-topic commentaries. I was unaware of the silver issue. Add that to rare earths and tantalums as things to be concerned about…

  14. itguyphil
    November 29, 2010

    Barbara,

    Good to hear!

    What was even more interesting is that they said as the price of silver is increasing, gold is slowly depreciating. I think it's due to the oversaturation of gold-selling/buying schemes out there. I guess people are back to ignoring gold and going for the shiny stuff again.

  15. Hardcore
    November 29, 2010

    Hi dan,

    I don't konw if I would be in 100% agreement  about the distribution network, this is just in:

    http://www.computerworld.com/s/article/9197758/Woman_admits_aiding_firm_in_selling_fake_chips_to_U.S._military

     

    They were supplying to such people as Raytheon and BAE and apparently some other military subcontractors.

    This was going directly into the supply chain of some fairly well known  producers at a high level and then on to the battle field and critical military infrastructure.

    You would think that such military manufacturers would have their supply chain fairly well tied down, but it appears from the article that this is not the case, and with this sort of damage being introduced directly into the military and by a number of different  semiconductor suppliers one begins to wonder exactly what is going on inside some of these so called trusted distributors.

     

  16. Ashu001
    December 3, 2010

    Barbara,

    Answering your question first,”

    Should the electronics supply chain develop a standard anti-counterfeiting system? If so, should it incorporate hardware as well as best practices?”

    Most definitely a Yes.

    We need more hardware encryption to reduce incidence of counterfeiting big-time.

    And most companies are definitely moving there.Just give it another 3-5 years and it will happen for sure.

    Regards

    Ashish.

     

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