There are a number of problems associated with counterfeit components in the electronics supply chain, chief of which is the lack of agreement on a single standard for counterfeit prevention. However, the SAE, a global association of engineers and technical experts in the aerospace, automotive and commercial-vehicle industries, recently published an international standard that focuses on the role of authorized distribution in anti-counterfeiting. Because of the way electronics components are bought and sold in the global supply chain, distributors are significant players in such efforts.
Most of the attention around anti-counterfeiting has centered on U.S. government procurement policies and the U.S. Department of Defense (DoD). The DoD has established a set of practices, the National Defense Authorization Act; and the Defense Logistics Agency (DLA) is using a DNA-based counterfeit-flagging technology provided by Applied DNA Sciences. Both solutions have come under fire from the commercial electronics supply chain which provides a significant amount of product to the DoD and other parts of the U.S. government.
The benefits of the SAE standard – AS6496 (Fraudulent/Counterfeit Electronic Parts: Avoidance, Detection, Mitigation and Disposition – Authorized/Franchised Distribution) -- are several fold, explains TTI Inc.’s Vice President, Total Quality, Kevin Sink, who served on the standard’s development committee. First, it provides a model that authorized distributors can use to establish to their suppliers and customers they are applying robust anti-counterfeiting methods worldwide. Similar to ISO standards, qualification to AS6496 denotes strict anti-counterfeiting measures are in place. Secondly, customers of authorized distribution know exactly what measures are being taken to prevent counterfeits from entering the supply chain and can point to those measures if necessary. For aerospace companies, which supply the defense market as well as the commercial market, this has become a critical issue as U.S. government procurement policies have become more restrictive.
In contrast to the NDAA, which allows for component purchases from “trusted sources” as well as authorized distributors, the SAE standard strictly defines authorized distribution as “transactions conducted by a manufacturer-authorized distributor distributing product within the terms of a distribution agreement.” If sales are done without a distribution agreement in place, the distributor is not performing authorized distribution and a different SAE standard applies, AS6081, which applies to independent distributors/brokers.
Why it matters
This distinction is critical because of the way components are bought and sold in the electronics supply chain. Product returns play a significant role in counterfeiting. Component suppliers only take back a portion of the products they sell under certain circumstances. Both authorized distributors and customers are subject to return policies. Oftentimes OEMs that purchase more inventory than they need resell the components into the open market. Distributors that buy and sell in this market, referred to as independent or unauthorized distributors, may or may not have stringent quality control processes that root out counterfeits. Counterfeit components are often mixed with authentic parts in the open market to make them harder to spot. This risk of procuring a counterfeit part in the open market is considered to be higher than in authorized channels.
AS6496 addresses the elements of a returns policy, return verification, disposition of suspect and confirmed counterfeit parts, and re-stocking. According to the trade association ECIA, the standard requires the distributor to issue a Returned Materials Authorization (RMA) if it elects to accept a return. The RMA must require that the parts returned by the customer were the same parts sold to the customer. If the distributor agrees to accept parts that it did not sell, then those parts must not be co-mingled in inventory nor sold to anyone else as authorized product. In addition, parts returned by independent distributors/brokers must be treated as suspect counterfeit parts.
That standard also addresses what should be done with those parts. According to the ECIA, suspect, fraudulent or counterfeit parts shall be quarantined pending proper disposition. The parts may be returned to the manufacturer for analysis and disposition. Confirmed counterfeit parts should not be returned to the customer and should be held in quarantine for five years or longer if required by law.
The re-stocking provisions reiterate that suspect, fraudulent and counterfeit parts must not be reintroduced into the supply chain, restocked or returned to the manufacturer in a stock rotation. In addition, returned parts shall not be restocked into authorized inventory if purchased from non-authorized sources.
Logically, simply buying through authorized distribution should eliminate counterfeits altogether. Franchise agreements between suppliers and distributors are designed to protect brand owners and are structured to mitigate counterfeit risk. But the reality of the market is different, TTI’s Sink says. Authorized distributors need to continue to set themselves apart from unauthorized channels.
The SAE standard was developed with input from the U.S. government and the defense department, said Sink. However, the government standards apply only in the U.S. and contain several provisions that concern the electronics industry. The Federal Acquisition Regulation and the Defense Federal Acquisition Regulation (FAR and DFAR) issue the final rules pertaining to government purchases. The ECIA has outlined aspects of the FAR proposal that may negatively affect the electronics supply chain. (See: Counterfeit vs. ‘Nonconforming’ Parts Rule Stirs Industry Concern.)
What it includes
AS6496 is divided into six major sections addressing:
- Customer-related processes
- Traceability, Record Retention and Retrievability
- Returns – Control of Suspect, Fraudulent and Confirmed Counterfeit Parts
- Scrap Control of Suspect, Fraudulent and Confirmed Counterfeit Parts
- Inventory Control Plan
It also outlines two required processes related to customers:
- Disclosure in writing at the time of quotation if the distributor is not authorized for the item(s) being quoted.
- Providing the full manufacturer’s warranty support to the customer in accordance with the manufacturer’s warranty terms.
The document is available for purchase through the SAE.