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The Anti-Counterfeit Movement: Is It Really a Movement Yet?

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.”

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16 comments on “The Anti-Counterfeit Movement: Is It Really a Movement Yet?

  1. Ariella
    May 13, 2013

    @Jennifer you end with the quote that ends, “These aren't the kinds of people you can hire from Monster.com.”  In general, Monster.com is more favored for for generalist. Tech specialists are often hired through more specialized boards like Dice. But I'm wondering if the risiing prominence of LinkedIn makes it useful for this kind of hiring, as well. 

  2. Eldredge
    May 13, 2013

    It will be interesting to observe how companies will leverage capital investment and technology to help with the counterfeit component problem.

  3. ITempire
    May 13, 2013

    In reality, there are many manufacturers who are aware that the products they make do include some of the counterfeit parts. It is irrelevant whether they themselves initiated to buy a counterfeit or the distributor supplied a counterfeit and they did not argue because it was must cheaper. Surely NDAA will bring those manufacturers in the compliance umbrella thereby increasing quality of end-product.

  4. ITempire
    May 13, 2013

    Eldredge, this NDAA will only increase the cost of production to the manufacturer and may ultimately lower their already low profit margins. However, having said that, it is definitely a move towards purifying the economy from illegal channels. Surely the counterfeit manufacturers do no good to the economy as they are not even the tax payers.

  5. Eldredge
    May 14, 2013

    @WaqasAltaf – Quite right…but I suspect the cost will be passed on to consumer, since all manufacturers have to comply with the NDAA.

  6. ITempire
    May 14, 2013

    In cases where there is room for price increase due to less fierce competition, the manufacturer might be able to get away with the burden and transfer it to the customers but in cases of competitive markets, its profit margins are likely to reduce.

  7. FLYINGSCOT
    May 15, 2013

    I am not sure how broadly this will be accepted unless the system is policed feverishly and severe punitive measures are put in place.  It is a tricky problem but one that really needs addressed however.   

  8. Daniel
    May 16, 2013

    “In reality, there are many manufacturers who are aware that the products they make do include some of the counterfeit parts. It is irrelevant whether they themselves initiated to buy a counterfeit or the distributor supplied a counterfeit and they did not argue because it was must cheaper.”

    Waqas, I think only small and medium scale industries will entertain such things. Most of the products from such industries are of medium quality and hence adding counterfeit components won't matter much. But for high quality products, it can degrade the performance at various scenarios.

  9. Mr. Roques
    May 16, 2013

    Can we prevent the crime before even knowing how they are going to do it? Law enforcement will always be one step behind… Sadly.

  10. SP
    May 16, 2013

    When something goes global its diffcult to control when and where things go wrong. Every country has different laws when it comes to counterfeiting. Some advanced countries take it seriously but in many countries its not even considered crime and the law fights can go for years. That is the whole reason why nothing concrete can be done.

  11. Daniel
    May 20, 2013

    “Can we prevent the crime before even knowing how they are going to do it? Law enforcement will always be one step behind… Sadly.”

    Roques, prevention is possible, but things are happened because of negligence and irresponsibility from the screening department. If needed, they can easily filter out counterfeit components at initial stage itself.

  12. Jennifer Baljko
    May 24, 2013

    Eldredge,WaqasAltaf – I agree. I think costs will come down to the consumer, but like you said, I hope this does also compel a closer look at part and device quality, which at the end of the line, means the consumer also gets a better product.

  13. Jennifer Baljko
    May 24, 2013

    FlyingScott – That is always one of the key questions with these kinds of legislation. One is “how much will this be enforced?”, and another is “how much can I get away with before I'm caught?”

  14. Jennifer Baljko
    May 24, 2013

    I'm with @SP “Every country has different laws when it comes to counterfeiting.”

    This is a major stumbling block. The electronics industry  play in global, hyper-interconnected economy, but yet is subject to hundreds of different provincial laws. Perhaps, though, with US backing this, other governments will require similar checks. But it will be a slow process to get uniformity around this worldwide.

  15. Eldredge
    May 24, 2013

    Hopefully it will benefit the customer in terms of quality of their goods by at least legitimately eliminating the counterfeit devices.

  16. itguyphil
    May 24, 2013

    We're at a wishing well. We also know that just because the US suggests something to the world, it doesn't necessarily mean they'l oblige or follow.

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