Obsolescence Insurance, a New High-Margin Business for EMS Companies
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Authorized distributors have had more than a year now to come to terms with the SAE Aerospace 6496 standard for dealing with fraudulent and counterfeit electronic components, and there appears to be growing acceptance and support for the standard, at least among U.S. companies.
“Pretty much all the major North American authorized distributors have signed up,” says Diganta Das, a University of Maryland research scientist and SAE committee member who specializes in counterfeit electronics detection. He notes, however, that interest in the standard to date has come almost entirely from U.S. military and defense contractors. “Outside the U.S. there hasn’t been much international interest,” he says.
The AS6496 standard was adopted in August 2014 by SAE International, the world's largest automotive and aerospace standards setting body. It calls for authorized distributors to develop counterfeit mitigation policies, plans for controlling counterfeit parts and processes for providing manufacturer’s warranty support to customers, as well as disclosing any instances when they may be quoting non-authorized parts.
AS6496 also suggests detailed best practices for:
- Purchasing
- Traceability, record retention and retrievability
- Returns and control of suspect and confirmed counterfeit parts
- Scrap control of suspect and counterfeit parts
- Inventory control
Closing holes
Das believes the industry’s voluntary compliance with has helped to close several holes in its collective defense against counterfeit chips. Authorized distributors are less likely than independent distributors to encounter counterfeit parts, since they buy products directly from the original manufacturers. But when they have had problems, he says, “usually it’s had to do with returns and re-stocking.”As a result, the sub-committee that drafted AS6496 included detailed directions for inspecting all parts returned by customers to verify they actually came from the distributor taking them back. The standard also required that verified parts be kept separate from potentially counterfeit parts, which cannot be re-stocked or returned to the supply chain. Confirmed counterfeit or fraudulent parts must be quarantined and either destroyed, turned over to authorities for investigation or returned to the manufacturer whose part was counterfeited.
Multiple standards
Kevin Sink, vice president of total quality for Fort Worth, Tex.-based TTI Inc., who co-chaired the AS6496 sub-committee believes the new standard is making it harder for counterfeiters to get their wares into the legitimate supply chain. “It’s helping,” he says, “but I think it’s more than just 6496.” He also gives credit to the SAE’s recently drafted AS6081 standard for independent distributors and to its original AS5553 anti-counterfeit standard for military and aerospace contractors.
His company already had strong anti-counterfeit processes in place, Sink says. But the new guidelines prompted TTI to step up employee training. “What 6496 has added for us is more focus on training everyone about counterfeits,” he says. “I really want my guys in RMA (return merchandise authorization) to know what to look for.”
Currently, there is no independent third-party organization to certify authorized distributors’ compliance with the AS6496 standard. But Robin Gray, chief operating officer and general counsel for the Electronic Components Industry Association (ECIA), who also co-chaired the AS6496 sub-committee, says his organization isn’t pushing for that kind of audit or accreditation. “Many distributors have incorporated anti-counterfeiting detection, avoidance and mitigation standards into their quality manuals,” he says. “And as some distributors say, we really don’t need another audit if we already have it in our quality manuals.”
Authorized ambitions
A somewhat surprising result of the new standards, Gray adds, is independent distributors’ growing interest in becoming authorized distributors. “We’ve seen a large movement by independents trying to become authorized distributors,” he says. Gray says he receives at least one application a week from independent distributors interested in joining ECIA. But thus far, very few have met the criteria for joining ECIA, which represents only authorized distributors
TTI’s Sink attributes the phenomenon to government and defense buyers’ efforts to reduce their counterfeit risks by purchasing fewer parts from non-authorized distribution channels. “It’s a hard time to be an independent distributor, because the customer base is requiring that more of the product come through the authorized channel,” he says.
Sink believes that the industry’s recent anti-counterfeit efforts are beginning to chase many of the smaller, “mom and pop” counterfeiters out of the business. University of Maryland researcher Das agrees, noting that “we do not see many of those stupid counterfeit parts with the wrong logo anymore. Counterfeiters know they’ll be caught.”
Unfortunately, however, the industry appears to be having a much harder time dealing with the latest generation of advanced “clone” counterfeit chips. Tom Sharpe, vice president of Sandy Hook, Conn.-based independent distributor SMT Corp., contends that today’s anti-counterfeiting strategies aren’t likely to be very effective against these clones.
“The future of counterfeit detection does not lie in published standards,” he says. “It lies in closely held new technologies of detection,” such as Battelle’s Barricade system, which is not yet commercially available.
Das still has high hopes for yet another SAE anti-counterfeit testing standard, AS 6171, that’s currently being drafted. But even he admits, “I fully acknowledge that you will never plug every hole, it will not happen ... It is always going to be cat and mouse.”
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