In spite of the electronics industry’s ongoing efforts, there may be no “best way” to fight counterfeit components. One of the hurdles in this effort is the issue of anonymity as it pertains to reporting the inadvertent acquisition a counterfeit. There mere admission that a counterfeit got through a company’s firewall casts doubt on that company’s supply chain. When it comes to the Government-Industry Data Exchange Program (GIDEP), the problem is even worse: companies fear incurring liability if any part of their process fails.
This makes RECOM’s recent announcement worthy of discussion. RECOM recently issued a public warning that counterfeit RxxPxx series converters had appeared on the market. RECOM was alerted to this by a customer, according to a release:
While the customer’s prototypes were tested with original modules (which helped the final product obtain ATEX certification because of the excellent insulation of the converters), for serial production, a cheaper source for the converter was used. When series production began, the customer quickly saw that the DC / DC converters systematically failed.
On closer examination of the failed converters in the RECOM central laboratory, the true value of the cheap purchase was revealed. Instead of high-quality transformers with well-insulated primary and secondary winding, in the copy, only a standard transformer with completely inadequate insulation was installed. Unfortunately, this is not a stand-alone case since similar examples of copies of RV / R, REC6 / R, etc. were also found.
Warning customers of counterfeits isn’t a new tactic and other suppliers and organizations such as the Underwriter’s Laboratory have used public announcements as a tool. There’s a significant difference, though, between a supplier announcing it has been wronged and a customer reporting a counterfeit. Customers, understandably, are loath to publicly share their findings.
This remains a big problem in anti-counterfeiting efforts. Sources familiar with the issue say that GIDEP’s requirement of total transparency – all companies in a purchasing transaction must be identified – discourages companies from reporting. In fact, since the National Defense Authorization Act shifted anti-counterfeiting responsibility on to contractors and subcontractors – with the threat of incurring costs -- the number of counterfeits reported to GIDEP has dropped dramatically. This could signal success of the anti-counterfeiting effort, although sources say it is more likely counterfeits simply weren’t reported.
Anonymity – or lack thereof – is only part of the problem. Nobody really knows what to do when counterfeits are discovered. In RECOM’s case, the supplier was alerted and parts were tested and a warning was issued. In other cases, second-party test houses identify the counterfeit. Sometimes an OEM or EMS will spot the fake. Customs or Homeland Security seize components at ports or boarders. Some companies that sell components – most often, distributors – will take non-conforming products back. Other times, the OEM, EMS or test house is stuck with them. The parts represent evidence if legal remedies are sought; otherwise, they represent money lost by any company involved in the transaction.
Additionally, original component manufacturers such as RECOM won’t warrantee counterfeit components. Buyers that supposedly bought parts on good faith that turned out to be sub-par don’t have any recourse unless a distributor will replace or refund the cost of the defective part.
Most policies and practices in the supply chain are geared toward counterfeit awareness and creating a safer supply chain. Although any company or organization can take legal action in a counterfeit case it rarely happens. EMS Flextronics is currently being sued by supplier Xilinx over alleged counterfeiting but this is the exception rather than the rule. GIDEP publishes a list of known incidents of counterfeiting on its website (registration and membership required.) Being on the GIDEP list is anathema to companies; opponents of the practice argue the list punishes the customer (a buyer of counterfeits) as well as the seller.
Other organizations such as the ERAI and the Independent Distributors of Electronics Association (IDEA) allow anonymous reporting of counterfeits. The intent of these organizations is to raise awareness, alert the supply chain of suspicious parts and enable testing of devices. Both organizations have significant databases of suspicious and confirmed counterfeits.
And so it goes. On one hand, the government has successfully prosecuted sellers of counterfeits (see: Anatomy of a Counterfeit Operation). On the other hand, non-government organizations such as ERAI and IDEA collect data and warn buyers of suspect parts. Companies have resources to check to see if a part is suspect. Is that awareness enough? It may stop a sale, but doesn’t solve the problem.
One of the tenets of the new DFARS rule and the NDAA is establishing the traceability of all components sourced for defense operations. Both acts stop short of the next logical step, which is some form of prosecution. Companies that have passed counterfeits through the supply chain may be banned from bidding on government contracts, or contractors that have bought a counterfeit may incur the costs of replacement or redesign of equipment if necessary (See: DFARS Rule Hits Scofflaws in the Pocketbook and What the Latest DFARS Rule Means for Buyers.) Hitting companies in the pocketbook is usually a deterrent, but in the electronics supply chain the culprit (a small operator that imports or remarks defective or obsolete parts) is far removed by the final transaction. Legal action is time-consuming and costly. So the industry is left with the dilemma – is warning enough? I’d like to hear your thoughts on the matter.
Editor's note: Shortly after this was posted, the ECIA announced a new anti-counterfeiting standard, AS6496, is in the balloting process. Details of the standard can be found here.