Counterfeits in the supply chain is a universal problem, but it is particularly acute in the electronics industry. Counterfeit electronics cost manufacturers an estimated $250 billion each year, and that doesn’t include the cost of faulty consumer electronics or catastrophes such as fires and failed equipment due to phony electronic components. Counterfeit computer chips alone cost U.S. companies $7.5 billion annually and 11,000 jobs.
The stakes are high when it comes to counterfeit electronics and identifying counterfeit goods that enter the supply chain can be difficult, if not impossible. The only way to beat the counterfeiters is to apply a foolproof means of authenticating components and providing the means to securely tracks them from their point of origin to final delivery. More vendors are turning to cloud-based security technology that can create unique, foolproof digital identifiers that can be verified at any point in the supply chain.
Why it is so hard to spot counterfeit parts
Even though manufacturers, distributors, law enforcement and government agencies work together to deal with the counterfeiting problem, it falls to vendors to secure shipments of goods and components. There is no centralized system or organization equipped to deal with counterfeit products and government agencies and law enforcement aren’t up to the task.
For example, China is one of the world’s largest manufacturers as well as the world’s largest source of counterfeit goods. Crackdowns by government authorities have had little impact on the number of counterfeits coming from China. It’s up to each country to do the best it can to eliminate the import and export of counterfeit goods.
Another challenge is the high quality of exported counterfeit goods. For example, factory seconds are often passed off as premium products. In the Chinese wholesale market, for example, Grade A goods are produced by factories licensed to make branded products. At the same time, lesser grade goods may be diverted as factory seconds and are even manufactured in the same factories using lower grade materials. Since they are manufactured by the same factories, low-grade units can be passed off as premium products and even those managing the supply chain won’t know that the goods are counterfeit.
Since there is no way to identify the counterfeiters, the best solution is to closely track manufactured goods from the factory. Creating a cloud-based, open ecosystem for goods identification and authentication would make it easy to validate goods at any point in the supply chain. The technology is available, it’s just a matter of getting manufacturers to start using it.
Eliminating counterfeits with foolproof IDs
Distributed ledger technology is a secure authentication approach that has proven itself for multiple applications, including tracking goods. A cloud-based distributed ledger system shares data across multiple points across the internet. For authentication or secure transactions, every data source in the ledger has to agree. Where a conventional database system uses a central data repository, distributed ledger doesn’t have a single data source, which is what makes it inherently secure.
Distributed ledger is ideal for authenticating parts and products because it is so secure. The data is encrypted and to access the data, authenticated users must be verified by each data node. Without consensus, there is no proof of veracity. Using a distributed ledger system to authenticate components in the supply chain enables end-to-end validation so goods can be verified at any point.
To eliminate counterfeit goods from the supply chain you need to start with a digital identity ecosystem based on distributed ledger. Individual manufacturers can easily create their own secure digital ecosystem, allowing partners to log in and verify shipments. A trade association or manufacturer’s group also could create an open, shared digital ecosystem where members can collaborate to track goods in transit. With a distributed ledger system in place, any product can be given a unique identifier that can only be verified by the system. It’s easy for anyone in the supply chain to authenticate shipments using a QR code scanner such as a smartphone.
To secure components and finished goods, encrypted credentials are issued for each unit and a QR code is generated that accompanies that unit through the supply chain. You don’t even need to know the contents of a package or shipment to secure it, which makes it easy to protect the identity of high-value parts. By using distributed ledger to create the codes they can’t be spoofed or counterfeited.
The digital ecosystem can generate as many tracking codes as you need, so you can even label individual components. This makes it ideal for inventory management as well as eliminating counterfeits. For example, using unique QR codes allows you to associate specifications and details about the product. The same identifiers can even be useful in the event of a recall.
The best way to defeat electronics counterfeiters is to push them out of the supply chain. If counterfeiting is profitable then phony components and products will continue to make their way into the channel. If you can make it simple and cost-effective to identify counterfeits, taking tighter control of goods in transit, then you can eliminate those profits. Harnessing cloud-based distributed ledger technology for parts tracking is a cost-effective and foolproof way to authenticate goods so fewer counterfeits make their way into the supply chain.