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Steps to Creating a Counterfeit-Free Supply Chain

The problem of counterfeit components has been recognized within the electronics industry for many years, and has always been of utmost concern. A recent customer survey by Cyclops Electronics revealed that the possibility of counterfeits entering the supply chain remains a major cause for concern in manufacturing.

This is a completely justifiable fear, since the number of reported incidents involving counterfeit electronics has increased dramatically. According to the ERAI, the number of reported incidents involving counterfeits has increased by over 40 percent during the last three years.

There are further concerns that these figures do not truly reflect the scale of the problem, due to the fact that many incidents of counterfeiting go unreported. Buyers worried about their reputation may not report incidents, opting instead to send the parts back to the supplier for a full refund. This is counterproductive to the industry as a whole, as those fake parts will probably end up being sold again to someone else. According to the ERAI, counterfeiting is estimated to cost the semi-conductor industry around $7.5 billion in revenue each year.

What are the root causes of counterfeiting, and why has it become such a widespread problem over the past few years? Quite simply, it's profitable. If a demand can be identified, and the counterfeiters have the ability to meet it with lookalikes — sometimes the same part with lower specifications, a previous revision, or even just the same shape — and if they can get it into the supply chain, then there is a chance that someone will take the stock off their hands.

Rory King, Director of global product marketing at IHS Inc. stated in the document identified above:

    The recent turmoil in the economy has resulted in a highly constrained, high-anxiety supply chain. Worse, the economic situation overshadowed material shortages imposed by regulations such as the EU RoHS and REACH that caused both consumers and makers of components containing hazardous substances like lead or DEHP to redesign these out of their product portfolios. The net effect of this is a self-manifesting downward slide in manufacturing sources for restricted substances, triggering facility closures, discontinued products or design changes to components using these materials.

    Many OEMs are sitting there with entire bills of material with literally thousands of parts which they had no idea were subject to unforeseen EOL or other supply chain disruptions.

This problem is caused by the increase in demand for obsolete parts, and is made worse by the fact that an increasing number of electronic component manufacturers are now outsourcing their production operations overseas. This means that modern manufacturing equipment, processes, and skills are more readily available to the counterfeiters, allowing them to route into the supply chain. The counterfeiters seem to learn at an incredible rate, so anyone with static counterfeit policies might find that it's just a matter of time.

With the intention of allaying many of the fears that our customers have expressed to us, Cyclops Electronics set about creating a useful guide that buyers of components can refer to in order to help avoid counterfeits. It's also helpful in identifying fakes if customers ever receive them. The guide is entitled, “8 Step Guide To Buying Electronic Components With Confidence and Avoiding Counterfeits.”

We will cover these steps in detail in a forthcoming blog.

13 comments on “Steps to Creating a Counterfeit-Free Supply Chain

  1. garyk
    September 27, 2012

    It sad that just about every issue of EBN has a counterfeiting article. A key statement in your article is, component manufacturers are now out sourcing their production operations overseas. Overseas copies the components, maybe in the same factory that manufacturing the orginal component? The USA is losing control of manufactured components, not to be forgotten are the overseas contract manufacturers. No control over there purchasing.

  2. bolaji ojo
    September 27, 2012

    The reason writers on EBN continue to focus on the subject of counterfeiting is because it remains a problem for everyone. As you rightly noted, companies are transferring some procurement functions to third-parties and as a result the integrity of the process can be more easily compromised.

    At the same time, though, it's important to note that an overwhelming majority of the companies in the electronics supply chain operate legitimate businesses and are vigilant in checking for counterfeits because they know that even a single fake part can mess up their reputation.

  3. prabhakar_deosthali
    September 28, 2012

    Rightly said Bolaji. This issue is becoming so hot that everybody has to seriously think about possible precautions, solutions , legal provisions and those kind of things till this issue comes under a controllable level.

    IN the fast pace of electronic technology, many a components are becoming obsolete even before the designers have finished their designs and put the products onto assembly.

    The purchase departments have to then struggle to get those EOL parts to meet the production demands. The counterfeiters are taking advantage of this situation.

     

    Here , I see the regulations in Auto industry where the Auto manufacturer is legally bound  to guarantee the supply of spares at least for 7 years after a model goes out of production.

    Can similar regulations be enforced on the component manufacturers ?

     

  4. ahdand
    September 28, 2012

    A good sign but this will not surely be easy for sure. I feel if you are to do it then a big investment too will be needed. Honestly I feel that this cannot be eliminated 100%. I feel its better to try and minimize the risks as much as possible. Lets say settle for something like 85% to 90%.

  5. Beverley Scott
    September 28, 2012

    As mentioned within the article, counterfeiting is very difficult to eliminate in full as counterfeiters seem to continually adapt new methods of imitating originals. We must try to reduce the entry of, and effects from, counterfeit parts through increased diligence and active control measures. As an industry we need to collaborate and work together to create a safer supply chain because since counterfeit parts often have inferior specifications and quality, they may represent a hazard if incorporated into critical systems.

     

  6. Houngbo_Hospice
    September 28, 2012

    @Beverley,

    “As an industry we need to collaborate and work together to create a safer supply chain”

    That is not new to the manufacturing industry or the suppy chain operators. But what has prevent such collaboration to become effective so far? And why do you think people are ready today for such collaboration?

  7. Houngbo_Hospice
    September 28, 2012

    @garyk,

    Counterfeiting is still a serious issue that is far to be resolved and it will still be the subject of many debates and concerns. In each of the blog post we learn some valuable lessons. Also as they say “repetition is the mother of learning”.

  8. Taimoor Zubar
    September 29, 2012

    “As an industry we need to collaborate and work together to create a safer supply chain because since counterfeit parts often have inferior specifications and quality, they may represent a hazard if incorporated into critical systems.”

    @Beverley: I think the important thing to do away with counterfeiters is to have a centralized information system where everyone in the industry can report information about counterfeiters in order to get the message across to all other companies. The other companies can beware of the particular counterfeiting company and prevent dealing with them.

  9. Taimoor Zubar
    September 29, 2012

    I think there's a positive side to counterfeiting as well. In many cases, the counterfeiting company may end up producing a product of the same quality at a cheaper price. This is something that the original company may have been struggling to do.

  10. hash.era
    September 29, 2012

    Well I dont see it as a positive sign. Cheaper things are full of bugs basically and quality will be low as well.

  11. Taimoor Zubar
    September 30, 2012

    “Well I dont see it as a positive sign. Cheaper things are full of bugs basically and quality will be low as well”.

    @hash.era: A counterfeit product has to replicate the quality of the original product in many ways just so that the consumers will be fooled into considering it as the original product. The quality may be inferior than the original but not that bad.

  12. garyk
    October 1, 2012

    TaimoorZ

    Are you waiting for people to die from counterfeit parts? If the company could make the units cheaper and better quality they get qualified, then they wouldn't be counterfeit. These counterfeit part are not purses, shoes or golf clubs. They could be the electronics in the plane your going fly across country in or in that SONY TV you thought you bought! Or that toy you bought, that was painted with lead in the paint and you kid chewed the paint off. Or how about these cheap vitamins you brought that are made with baking soda. Do get the picture!!!

  13. hash.era
    January 30, 2013

    Taimoor: Still those cheaper ones will not have a lifetime of what you expect from an original. In the end if you calculate the cost you might have ended up paying more than for an original.

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