Whenever someone in authority—such as the government, law enforcement or research firms — can’t answer a seemingly straightforward question, they often lapse into “it is being investigated;” “it is a moving target;” or my personal favorite: “it is still very fluid.” Of course individuals and organizations want data, statistics and facts from their authorities, but sometimes achieving this goal is simply impossible.
The actual level of counterfeiting in the electronics industry is one of those elusive targets. The supply chain accepts that counterfeiting is a problem. But is it worse now than it ever was? Is it better? There is no simple answer to that question.
As organizations have tried to enact electronics anti-counterfeiting practices, the industry has found that there is no single definition for “counterfeit.” In electronics parlance, “counterfeit” can mean an outright fake part; but it can also apply to a part that does not perform as expected (also referred to as a “non-compliant part.”) This, in turn, makes it nearly impossible to assess how extensive the counterfeiting problem really is.
The dichotomy occurs most frequently in highly regulated industries such as aerospace and defense. For example, the U.S. Department of Defense has moved away from procuring military-specification (mil-spec) parts that are built exclusively for defense applications to commercial devices with the same form, fit and function as mil-spec parts. Sometimes a defense contractor will spec in a commercial part that fails in tests or in the field. It usually turns out that the commercial part can’t consistently perform within the maximum range of tolerances required for military use. But that doesn’t make the part counterfeit.
What does make a part counterfeit is the intentional misrepresentation of the device. Counterfeiters may remark or relabel devices – either on the part itself or on its packaging – to pass them off as something else. This is not unique to highly-regulated markets: a recent case of alleged counterfeiting involves commercial parts from chip maker Xilinx being sold by EMS provider Flextronics. But government procurement practices are subject to a specific set of rules that include the reporting of suspected as well as actual counterfeits.
Like the definition of counterfeit, reporting practices vary. In fact, reporting is largely voluntary. The recommended procedure for military and defense contractors is to report suspicious devices to the Government Industry Data Exchange Program which tracks such incidents and disseminates data. GIDEP reports require the disclosure of the manufacturer, distributor and buyer of the parts. Let’s say OEM X buys a part from Distributor Y that was built by Supplier Z. The part fails in an application and the incident is reported to GIDEP. It’s possible that X chose a commercial part that didn’t perform in a military application, but X, Y and Z are now in a database intended to flag counterfeits. The part, however, was authentic.
There are forums in which companies can anonymously report problems and organizations that will test parts and report on their authenticity. Some, such as ERAI Inc., also collect data. ERAI is a global information services organization that monitors, investigates, and reports issues affecting the global electronics supply chain. ERAI provides services and information that enable its members to perform industry-specific risk mitigation on suspect counterfeit, high-risk, and non-conforming parts and identify problematic suppliers and customers. But there are limits to what such organizations can and cannot do, such as take action against suspected counterfeiters. Therefore, experts in anti-counterfeiting, both government and private, admit that the incidents of actual reporting are unlikely to represent exactly how widespread the problem actually is. ERAI’s executive conference this year is entitled Supply Chain Security: A Moving Target.
ERAI’s data shows the number of parts reported to be counterfeit is on the upswing:
However, ERAI’s Vice President and Co-Founder Kristal Snider, a counterfeit identification and avoidance expert, is candid about the data. “I personally believe the data ERAI captures is only a small percentage of the number of non-conforming and suspect counterfeit incidents that actually occur,” she said. “Anyone can report a company or non-conforming part to ERAI. Despite the fact our door is open to everyone and it’s free to report, most of the incidents are, in fact, reported by ERAI members. Only a small percentage of ERAI members actually share information.” Most of the incidents reported originate from suppliers in the U.S., she said. Global suppliers are another matter.
“The data ERAI collects and shares include both non-conforming and suspect counterfeit parts,” Snider added. “While some of the nonconforming incidents are likely suspect counterfeit, some of the suspect counterfeit incidents may be false positives. The bottom line: the process of collecting and reporting this type of data is not perfect. There is and will continue to be a margin of error.”
This is one of the issues ERAI will cover at its conference April 22-23.