US legislation has compelled a stepped-up interest in preventing counterfeit electronic parts from slipping into the supply chain. It has also raised more questions than it has answered. For many dealing with the enormous task of tracking, reporting, and resolving issues associated with potential counterfeit parts, there is a collective hope that 2013 will bring clearer guidance on what needs to be done by whom and when.
(This story was originally published as part of EDN's Top 25 Global Electronics Component Distributors special report.)
Conversations today are already moving away from “What does the National Defense Authorization Act (NDAA) mean?” to “How is my company going to be impacted, and what am I doing about it?” This mental shift brings with it another set of challenges requiring increased collaboration, communication, trust, and thought leadership throughout the electronics industry, several industry watchers noted. A tall order, some acknowledged, because of the deep-rooted stigma and heightened concern about potential liability related to discovering counterfeits anywhere in a part’s chain of custody.
Even so, if consensus is true, then the electronic industry’s current dialogue on this topic is a good start, but still largely perfunctory. Companies most affected by both the law and customers’ updated risk-management requirements are doing what they can to be legally compliant, but an ongoing weak economic climate and a lack of specific governmental direction raise legitimate questions about whether the cost of an anti-counterfeiting program justifies the business case.
Cost considerations aside, progress depends on how willing industry, government, and academia are to work together to create cost-effective, long-term anti-counterfeiting solutions that outsmart the bad guys, reduce risks, and make the supply chain more secure.
“We have come a long way since these issues first surfaced,” said Kristal Snider, vice president at ERAI in Naples, Fla. “But the supply chain cannot mature, improve, and keep up with this issue and develop effective solutions if it’s not something everyone agrees on, at least to some extent.”
“Everyone in the supply chain knows about NDAA,” she added, noting the lag time between when the law was signed, when details about how different elements of the law will actually come together, and what the industry can do in the meantime. “But everyone is waiting for clearer instruction about what comes next. We’re waiting for more information to flow down to the industry.”
Until that happens, the industry’s not standing still. Here’s a snapshot of what’s happening today and what else needs to be done to keep the anti-counterfeit movement moving ahead.
NDAA’s impact today
By now, any company touching the US defense and aerospace industry knows about the NDAA and its notorious Section 818. The law, brought into force in 2012 and updated this year, holds defense contractors accountable for detecting suspect or counterfeit electronic parts and paying for remediation and rework if suspect or counterfeit parts show up in their products. NDAA is the government’s way of addressing the harm being done by worldwide counterfeiting and piracy, the magnitude of which — when calculated broadly and beyond electronics — is estimated to be “well over” $600 billion, according to the International Chamber of Commerce.
With the law in place, most companies in this supply-chain segment are likely already having deeper talks about risk mitigation, warranty contracts, and test and inspection processes ensuring part quality and authenticity. Since some OEM somewhere is going to be accountable to the Department of Defense, it’s only a matter of time before they work through their approved supplier lists and call up with questions about how parts are sourced, where they were procured, how long they have been in inventory, and how trustworthy is that source of supply.
The lead-up to the legislation’s approval and the year since have also ushered in a new wave of industry conferences, training programs, working committees, and standards. Initially, these aimed to create awareness, but now the focus scopes more toward due diligence.
That push is keeping Carlo S. Abesamis, quality engineer for the Procurement Quality Assurance group at NASA’s Jet Propulsion Laboratory (JPL), busy. Abesamis, whose main responsibility is to audit the organization’s electronics suppliers, also manages JPL’s Counterfeit Awareness Training program, which started in 2008 before the mainstream was thinking about this and provides instruction to other NASA groups and external organizations such as the US Department of Justice and Customs and Border Protection.
“Shortly after I was hired, one of the tasks I was asked to work on was counterfeit parts training. Even back then, we have always had support from top management at headquarters to do this kind of outreach and awareness building,” Abesamis said. “When we first started these programs, it was about creating awareness. Today people know about the problem, and now they want more indepth information about it.”
JPL uses a modular training approach, walking people through the basics and then going into topics such as risk-mitigation evaluations and establishing supplier requirements for obsolete parts. Another module being developed will focus on part inspection, from visual component inspection up to running parts through state-of-the-art test and X-ray equipment, he said.
Other companies — namely, independent distributors that have taken the most heat so far because of their open-market procurement strategies and the perceived associated risk of bringing suspect parts to the supply chain — are also proactively trying to nip counterfeit issues in the bud, despite the high cost of doing so. The top-tier independent distributors, for instance, are investing in new test and X-ray machines, hiring and training more inspectors, undergoing rigorous standards-adoption measures, and doing all they can to prove due diligence, said Debra Eggeman, executive director of the Independent Distributors of Electronics Association in Buena Park, Calif.
According to Eggeman, “Many of our members have been flushing out their risk-mitigation strategies and are in the process of adopting new standards,” such as IDEAQMS- 9090 and SAE’s AS5553 and AS6081, which address part quality and counterfeit-detection processes.
“They are also constantly being challenged to upgrade equipment, and many independent distributors are making significant capital equipment investments. Some are installing their first X-ray machines; others are looking to buy new equipment with more sophisticated software algorithms that can better detect inconsistencies or process more parts. As they become more educated about this, they also recognize that they need more people to work on this. These aren’t the kinds of people you can hire from Monster.com.”