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Caveat emptor . Let the buyer beware. That's the theme of EBN's upcoming chat with distributor Components Direct. We'll be discussing the growing problem of counterfeit components and how to spot them.
Counterfeit electronic components are appearing with increasing frequency, according to IHS. Based on a conservative estimate, a total of 1,336 verified counterfeit-part incidents have been reported for transactions involving a minimum of 834,079 purchased parts in 2012, the market research firm says.
Over time, these figures translate to a substantial risk to the electronics supply chain and the critical industries associated with it. A 2012 study by IHS found that more than 12 million counterfeit electronics and semiconductor components have entered the distribution chain since 2007, with 57 percent of all counterfeit parts obsolete or end-of-life components.
“Counterfeit parts represent a serious and growing risk to the electronics supply chain in general and to the aerospace and defense industry in particular,” said Rory King, director of supply chain product marketing at IHS, in a written statement. “Each month that passes, more than a hundred counterfeit incidents comprised of thousands of suspect parts are reported.”
As counterfeiters get more sophisticated, no one is immune to the problem. Components Direct, which supplies both analog and digital devices, found more than 124 million units of its product floating in the gray market across 6,500-plus part numbers and a variety of date codes.
However, the supply chain is not without recourse. The first step is to understand the problem and its complexity. On Thursday, August 15, we'll be talking about the most common methods of creating fake parts, and how to identify those bogus parts.
We'll also be taking about how to avoid imitation parts — primarily by partnering with and buying from authorized, manufacturer-direct suppliers. According to a May 2012 report by the Senate Armed Services Committee, titled “Inquiry Into Counterfeit Electronic Parts in the Department of Defense Supply Chain,” an “overwhelmingly majority” of the more than 1 million counterfeit parts identified in an investigation of the DoD's supply chain were sourced from a party other than the original manufacturer or its authorized distributor.
We'll also look at best-practices for purchasing and learn how organizations can set procurement policies to safeguard themselves against counterfeit parts. For example, when evaluating an authorized supplier, a buyer should look for attributes such as traceability, control of records, and inventory documentation, Components Direct told EBN. Limited reporting, minimal record-keeping, and a lack of information-sharing compound the counterfeit issue, a 2010 report from the US Department of Commerce noted.
We've invited Anne Ting, executive vice president of marketing, and Steve Martin, executive vice president of sales, from Components Direct, to field your questions and help generate conversation around this important topic. We'll be gathering in the EBN chat area at 2:00 p.m. EDT (11:00 a.m. PDT) on Thursday, August 15. Hope to see you there! In the meantime, feel free to post comments, thoughts, and questions below.
I believe counterfeiting can be solved only if all the companies along the supply chain maintains the rigor. Looking forward for interesting session.
@elctrnx: Yes but it wont be an easy process since it has not yet being started properly yet. So to start everything fresh is needed if so.
Is it the case that most counterfeit component are obsolete or EOL in nature? If so I was wondering if this makes them more difficult to identify?
This conversation is invaluable… and let's keep it going. Also, weigh in (and comment) on our most recent poll on Anti-Counterfitting. So far authenticity testing is far away the favored response. It will be interesting to see how that evolves.
GF is a great example of semiconductor manufacturing coming back to US. Also, Being independent of Wall Street influence…it is bound to do well in serving the fabless semiconductor eco-system in US. It is indeed a great news that Apple has decided to get wafers from GF. It is a ray of hope in this bleak economy to backshoring of hi-tech manufacturing to US for advanced transistor technologies.
@apek: I agree that this step will ensure that semiconductor manufacturing comes back to the US or at least begins to do so. If this initiative is successful then we might see other foundries take similar initiatives. I think this is a good step for the industry and the US economy overall.
If I were the Apple boss I would make sure that I always had second source capabilities so it would make sense to do this if they are going to move anyway to pure play foundries.
Hmmmm – I wonder who has been serving as a second source for Apple so far? Anyone?
I believe TSMC is also manufacturing the Apple components but I'm not really sure if this is directly from apple or samsung. But Global Foundaries have definitely come a long way from the time it is founded in 2009 and their strong cash deposits will surely help to be a supplier for Apple.
This can be a good news, if it helps Apple reduce price for its product and make it more affordable to common person. Will Apple invest money in this organization for more control and reliable supply?
@_hm, Apple has a long history of never reducing prices–No sales, no price erosion (or very little) over time. I doubt that the end consumer will benefit from this, execpt in so much as the company might invest more in innovation and more cool ideas.
But I don't think Apple wants their products in everyone's hands. It's considered a premium brand.
I have recently observed both new and old Apple products on sale and that is 10% to 15%. Also prices for Apple are reducing with more attractive to customer. I may opt for few Apple products.
@pocharie, i don't think of Apple as a premium brand, but rather as an identity brand. Ealry in teh compnay's history it hired “technology evangelists” and peopel were talking about apple people and PC people. And that's even true today. People who are creative, quirky, ahead of the curve… that is how Apple people think of themselves.
_hm, where did you see thiss? I have to admit i haven't been shopping for Apple lately so i might have missed it. Was it in an APple store or a phone store?
I know Verizon and AT&T have been dropping the prices on iphones lately. Also best buy has dropped the prices on iphones. As far as actual sales, I have only noticed sales at stores like best buy. I haven't seen a price drop at any of the apple stores. They only time I notice a drop in price at an apple store is when a new product is released and they drop the price of the previous model.
I think Apple has double personality nowadays. With it's Mac lineup, it is normally at a premium level price but with the iPhone (due mostly to subsidies) it markets itself as THE phone for everyone. They started strong but Android quickly catched up and now surpassed them.
They may not be as premium now. But when you think of the mobile device standard, who's first? Usually Apple.
And why are Apple devices the most highly stolen in the world, because everyone wants one. Because it feels good to “fit in” & be in the Apple crowd.
There's not that many other tech brands that can claim that. Which is why I call them a premium brand.
Android caught up because of simplicity, alternatives, & price, not necessarily because it was “better” than Apple's line. Most people like having the option to choose between phones. With Apple you get the old one or the new one, no other choice.
Tam,
It seems like it would be a good move for Apple to partner with GF to provide addtiional source of supply.
@pocharie it's also why its the only model of phone that AT&T wont' sell insurance for…they get stolen too often.
I think Apple has double personality nowadays. With it's Mac lineup, it is normally at a premium level price but with the iPhone (due mostly to subsidies) it markets itself as THE phone for everyone. They started strong but Android quickly catched up and now surpassed them.
Another reason for a higher andriod market share is the number of smartphone companies offering it and at various price ranges. Apple has always put their product in premium category so not everyone can afford them. While andriod has rightly captured people's imaginations and taken a much larger pie in the smartphone section…not to mention that Google has a good name amid general public and companies.
I think the good thing about GF is that it has fabs in three parts of the world to cater the needs and averse the natural disaster risks. If GF can keep Apple happy then it will be a good steady cash flow and it will draw other customers too. For Apple, they will keep on pushing for better prices and margins.
Yes maam. That in itself opened up a world of opportunity for other service providers and entrepreneurs. So some good has come out of it.
I agree with the “split personality” part you mentioned. That's part of the diversion that seems to have taken place now that Jobs isn't at the helm. It seems to me that this wouldn't be a conversation point if he was still around.
I mean yes and no. Market share can be a misleading statistic. If I sold a phone that 'works' for $20 and 10M people buy it, that doesn't necessarily mean my phone is better than a $200 phone with 10K customers.
Android skewed the mobile landscape because it was free, cheap, & easy to hack compared to everything else that was around at the time.
@Pocharie, and of course profit margin is incredibly important… i can sell something at any price and if the margin is too thin (or nonexistent) then it's worse than not selling it at all.
Absolutely. Leads to wasted resources which will eventually put you out of business if it continues too long.
Access to multiple locations may be a significant factor ofr interest in GF – good point.
Using a trusted supplier is a critical part of counterfeit avoidance. You should first go to the original manufacturer or their authorized distributors. If the part is not available from either of those sources then you should work with a qualified independent distributor or broker.
It is imperative that you qualify your independent distributors and brokers. Ask to see their quality certifications. Can they prove that they are AS9120 certified? Are they AS6081 certified? QTSL approved? Are they involved in industry efforts to mitigate the effects of counterfeits?
If you had a life-threatening health condition you would not simply rely on the first doctor you come across after doing a Google search. You would do your due diligience and research potential health care providers. You'd see where they trained/went to school, you'd see if they were a leader in their particular field of expertise, you'd consider whether they published and were thought of as an expert.
The same analysis should be used when considering what supplier you may use. In many instances electronic components are being used in life-critical applications (medical, military, etc.). In short, you must remain vigilant.
@Jesse, thanks for weighing in. You make some very important points. There's a huge dose of you get what you pay for and caveat emptor. The certification piece is really critical. Do you find that most independants have this sort of seal of approval or is it pretty rare?
@Hailey
There are a handful of independents who are spending the time and resources necessary to earn the certifications I discussed. My feeling is that the increased awareness and heightened quality requirements will have the effect of weeding out independent suppliers who are not committed to quality.
The amount of time, energy and dollars necessary to pursue these counterfeit avoidance certifications will likely remove the fly-by-night operations who set up shop in their basement or their garage with little to no regard for quality. I encourage your readers to visit the Defense Logistic Agency's QTSL list for a list of distributors who have been audited and approved by the DLA to sell them microcircuits from sources other than the OCM or franchise. The list can be found at http://www.landandmaritime.dla.mil/offices/sourcing_and_qualification/QTSL.aspx
Again, I cannot stress enough that quality managers and procurement directors need to be vigilant in vetting suppliers and maintaining their approved vendor lists.
Thanks for these resources, Jesse. This type of list is incredibly helpful. Next week, we'll be having a chat about strategic sourcing and how to make it smoother and more accurate. I hope you will join us. Stay tuned for more details.