Apple, Qualcomm Deal Leaves Open Questions
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No matter what the supply chain has done to thwart counterfeit components, bogus parts continue to creep into the channel. The latest effort to stop counterfeiting – by marking components with a unique identifier made out of plant DNA – is not being embraced by all members of the supply chain, including some of its biggest players.
Ed Smith, president of the Electronics Marketing Americas division of global distributor Avnet Inc., recently tackled the topic at the industry’s annual ECIA executive conference. A number of other key players in the industry also question the practice albeit less publicly.
Proponents of the tagging -- including the U.S. government’s Defense Logistics Agency (DLA) – have advocated a unique taggant process developed by Applied DNA Sciences called SigNature DNA. Ideally, the taggant is applied to components at the original component manufacturer (OCM) factory and enables the supply chain to track components throughout their lifecycle. If components are tested and lack DNA, they are deemed suspect.
There are a number of problems with this process from the supply chain perspective. A component marked at the OCM site may be repackaged somewhere down the line. In the eyes of some standards organizations, repackaging is considered tampering and may render the component “counterfeit.”
Moreover, as Smith points out in an interview, the practice does not limit the sale of DNA taggant technology to authorized distribution channels. Organizations such as the ECIA advocate buying components only through authorized channels because these distributors buy directly from the OCM factory and carry the OCM’s warrantees. Some OCMs will not support a component unless customers can prove the part came from an authorized distributor. Anti-counterfeiting proponents within authorized channels have always maintained solutions that require an investment in technology and/or equipment should be limited to authorized partners. This is the only way to guarantee components aren’t counterfeit, they argue.
Ed Smith, President, Avnet Electronics Marketing Americas
“At Avnet, we believe DNA is not a solution for counterfeiting,” Smith said. “It incurs an additional cost [for suppliers and distributors] to make customers feel like they are being protected.”
Applied DNA Sciences currently has a lock on the DNA taggant market because its systems and processes are proprietary. Therefore, supply chain partners are required to purchase the technology and testing systems only from Applied DNA.
The technology does have a lot of support, and Applied DNA Sciences recently highlighted three success stories on its site:
In the first of the three incidents, the suspect counterfeit parts fell afoul of one of the checkpoints required by the program. The SigNature DNA Provenance mark may only be applied to a part by a supplier after industry-standard inspection and tests (AS6081) are performed or OCM trace documentation is in hand. In this case, the part failed a required visual inspection, and was deemed counterfeit. The SigNature DNA Provenance mark was not used, and the company involved has verbally affirmed that the parts have been quarantined.
In the second incident, parts were marked with SigNature DNA by a distributor. After an on-site audit by Applied DNA Sciences confirmed that the distributor had neither trace documentation nor test data, SigNature DNA marking rights were suspended and all SigNature DNA ink was ordered returned. The company involved has verbally affirmed that the parts have been quarantined.
In a third incident, parts were SigNature DNA marked by a different distributor. But the parts failed testing and an audit by Applied DNA Sciences showed that no trace documentation or test results existed prior to the application of the SigNature DNA. SigNature DNA marking rights were suspended here too, and the company has verbally affirmed that the parts are quarantined pending further investigation.
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Owen, That is a good point, and I’ll amend the article. It is true that the most active proponents of limiting the sale and licensing of these technologies to authorized partners are within the authorized channel. Thanks for the comment and the additional information.
Owen – DLA could be buying 90% of their FSC 5962 purchases through authorized channels. This is what they were doing prior to the mandate 1 year ago. Today, they are purchasing more than 90% of their FSC 5962 product through brokers. Of course SIA members think this is a problem and not the right thing to do. Of course this is the riskiest purchasing path you can take when you have a choice to buy authorized to avoid counterfeit. DNA marking has succeeded in putting DLA one more step removed from the manufacturer in the supply chain. They were already purchasing from authorized distribution and not directly from OCM’s. Authenticity does not equal Reliability. Traceability does not equal Reliability. The mandate decision was made without any of their supply chain involvement, including their largest supplier. How does that ever make sense? These are things this mandate and those who made it did not take into account. Proactive decisions indeed…..
Hi Dan,
As always, thanks for commenting. I am confused as to the role DLA plays in this debate. It seems to me they are the customer, and as such, asked for suppliers to use the DNA technology. OK so far. But how has the use of DNA affected the DLA’s procurement practices? If they were buying from authorized channels before DNA (assuming there were no/few counterfeits via authorized); then why the push for DNA? And why the migration away from authorized? I’ll admit I’m confused — I’d expect the exact opposite from the DLA.
Dan, I knew I could count on you for a thorough explanation of the problem. From several presentations and conversations I’ve had recently, it seems that the problem is not so much the DNA but the implementation of the solution. It surprises me that OCMs are not required to mark parts, although I recognize many of the parts the DLA needs may already be in the channel. I can also see why any buyer (in this case DLA) would want to hedge their bets on where they can source products (I’m not saying it’s right, only that I can understand.) But they had that flexibility even BEFORE the DNA requirement, right? So the program was put in place at the behest of DLA; presumably has required an investment by the supply chain; and yet hasn’t solved the problem (although there have been cases where suspect parts have been flagged.) I’m not sure whether DLA should be credited with at least TRYING to solve the problem; or be treated as yet another government initiative that is well-intentioned but completely misses the mark.
Barbara,
The first problem is a purchasing problem they had and have. They claim they cannot prefer Authorized sources over any other source. Once that could get addressed by prioritizing Authorized product, implementation of a solution would be the next step. OCM’s don’t sell directly to DLA and didn’t before the mandate. DLA already purchased through distribution and not direct to OCM’s. OCM’s don’t use ink for a majority of their products (Analog Devices uses no ink – all laser). The mandate was for ink and the mandate was ultimately on the supply chain and not the OCM’s. DLA reimburses brokers for any charges by Applied DNA. The brokers simply go buy traceable product NCNR from Authorized if they can get it and mark the parts with DNA to sell to DLA. One of the end results is a higher price paid by DLA and a more robust broker channel funded by our government. Another result is that DLA is taking on more risk than they were a year ago. DLA will claim they are mitigating that risk with other procurement strategies, but those could be done buying Authorized product too. I would call this another unfortunate instance of a government initiative well-intentioned but completely missing the mark.
Yet another wrinkle in this already-complex story. Dan, I’m so glad you are reading us and engaging with commentary. We learn something new every day and that keeps EPS motivated. Buyers — government or not — deal with rules and restrictions every day that in this case don’t make sense. Or, they made sense when they were enacted but not so much any more. It makes me wonder what the supply chain could do with fewer guidelines? Innovate, perhaps?