The Internet of Things (IoT) news is all around us and ties directly to very promising forecasts of industry-wide growth from devices to components. However, counterfeiters look to times of change as an opportunity to introduce fraudulent parts into supply chains because change also brings companies into unchartered waters. For those who are not aligned with market experts to guide them and provide quality-assurance services, the risks are real.
IoT's dynamic growth phase opens
The reasons for widespread growth outlooks are similar to the early PC market boom. IoT and the mobile economy are, as GSMA notes (p.16), "device agnostic." Device choice in the midst of rapid market growth is the core of healthy supply chain competition. With smart device choices open, OEMs and ODMs can create market opportunities and differentiators through their supply chains to give consumers new mobile choices based on price, feature, architecture, and functional requirements. This new competition should translate into new devices built from component modules strategically sourced and integrated to meet new commercial use-case and pricing demands. What we see is a positive supply chain domino effect driving new growth through new opportunities across the board. All of this means new relationships are needed.
This coming surge is promising but it comes with real challenges and warnings. Procurement departments are seeing new market opportunities to source at more aggressive prices. These opportunities bring with them the question of maintaining industry certified quality standards while also ensuring that quality standards not only protect the industry but also reinforce innovation supported by free market growth. Sourcing from unchartered waters opens risks that must be mitigated – generally best handled by experienced partners who hold and surpass industry recognized quality certifications.
Dynamic growth and quality standards – a critical balance
Currently, IoT's engineering, software, communication and related functional standards are being sorted through consortia for device interoperability. Similarly, over the past few years there has been an ongoing discussion and work put into the US Department of Defense's latest pronouncement (5/6/2014) on the Defense Federal Acquisition Regulation Supplement: Detection and Avoidance of Counterfeit Electronic Parts (DFARS Case 2012-D055) traceability and disclosure requirements.
Our supply chain industry standards necessarily have focused on the issue of upholding quality: quality of business operations (ISO 9001, etc.), of equipment and laboratories (ISO 17025), and so forth. Together, we have worked diligently to properly identify and remove substandard, fraudulent and illegal parts from the global supply chain. Industry standards guide businesses and influence their operations in a manner that promotes the quality expected and demanded throughout the supply chain, from design to manufacturing to end-market delivery.
One problem that is posed by the latest DFARS ruling is the requirement that unique operational solutions, a company's procedural intellectual property (IP) is risked being laid bare to competitors and thereby made available to be replicated, particularly in critical differentiating aspects (e.g., pricing, relationship, quantity deals, etc.) notably for the commercial markets. The requirement of traceability in the latest DFARS ruling is in line with the types of quality metrics that have been part and parcel of the quality standards in place across industries. One critical difference in the DFARS ruling and existing industry standards for commercial products is the requirement of full disclosure of traceability (lineage) of components – a known problem – which runs contrary to free market competition, innovation and healthy differentiation for the commercial product marketplace.
Traceability is only as strong as the trust placed in those providing it. Documentation rarely exists and seldom is given past one or two transfers of product. Some vendors, especially those with large amounts of excess, cannot or will not provide traceability due to upstream agreements. The point comes down to a critical element of disclosing the full flow down for an electronic part not deemed suspect, fraudulent, or counterfeit. The problem is not simply in the maintenance of full traceability (when available), but rather in the impingement or inhibiting element of disclosing competitive intelligence pertaining to supply chain connections and contracts that are IP and are the crux of market differentiation in terms of pricing, contractual relationships, intelligence and opportunities; all of which are compromised if made available for replication by others in the global supply chain. Open traceability viewed in that light depends on absolute trust placed in those receiving it.
Traceability alone is not sufficient
Traceability is a positive and real quality standard, but not as a standalone and not as a substitute for the total measure of quality components which include inspection and testing. ISO 17025 exists to support quality testing operations for sophisticated laboratories in which real tests of a component's authenticity, specs, functionality and quality are determined. Traceability in and of itself is not a guarantee of quality because parts can be faulty or unauthorized or kept improperly from the point of manufacture on, hence the implementation of quality testing regardless of origin. The requirement of sophisticated and multifaceted testing provides the best means to identify and remove substandard and fraudulent parts from the global supply chain while ensuring quality at sourcing points. Counterfeit parts are best held in check when rigorous sourcing is followed by testing performed in sophisticated and industry accredited laboratories under the supervision of certified quality engineers.
Coupling the long-standing, industry protocols of testing while holding traceability by distributors available in the event of a nonconformance combines the best of both standards requirements, especially for commercial products. This approach preserves the important competitive element of forming unique and irreplicable supply chains that benefit consumers and commercial product innovation. Zero-tolerance of counterfeit or substandard parts is necessary for the health and growth of the entire global semiconductor and electronics supply chain, regardless of industry sector. It is possible to extend and reinforce quality standards without inhibiting competitive, free market innovation and growth.
Matt Hartzell is the chief operating officer at Smith & Associates where he oversees the global distributor’s operations and quality assurance program. Matt also represents Smith at the SAE Aerospace G19 Counterfeit Electronic Components Committee. Previously Matt practiced law both as Smith’s General Counsel and in private practice and has significant experience with federal and state regulatory frameworks and government contracts.