Counterfeit Parts

(The following is an extract from an article that appeared in the NTS newsletter)

Electronics are an indispensable part of our lives today. Whether you’re flying an airplane or driving a car, talking on your phone or using your computer, a majority of our life is enabled by electronic components. Unfortunately, electronic components in consumer electronics, cars, military and commercial planes are increasingly being counterfeited. Fake components lead to product failures and can even cause personal injury and death.

The Serious Problem With Counterfeit Components

A Senate Armed Services Committee uncovered more than 1 million “bogus parts” in the Pentagon supply chain. The suspected components were found in mission computers for important missiles, military aircrafts and helicopters. The violations were traced to China for more than 70 percent of the occurrences.

However, the problem is not limited to the defense industry. IndustryWeek reported consumer and industrial businesses are losing approximately $250 billion each year because of counterfeit components.

Additionally, counterfeit electronic components have created meaningless danger for military and everyday consumers alike. As a result, even legit electronics manufacturers across a wide range of industries now face high levels of scrutiny and exposure to additional risk and liability.

What Are Counterfeit Electronic Components?

Counterfeit electric components are items manufactured or distributed in violation of trademark laws, intellectual property laws, and international property rights. Origin, performance, or stated characteristics of these components are misrepresented by the manufacturer or the reseller of these parts.

Counterfeiting is lucrative when scrapped electronic components, parts from recycled electronic products, or inexpensive components can be re-labeled and sold as new, higher quality and more expensive versions. Due to this high profitability and low risk of being caught – especially in the developing markets – counterfeiting activity has proliferated in recent years. Additionally, disposal of electronic waste by the western world in poorer countries has made the problem worse.

Origin of Counterfeit Components

Most counterfeit markets are located in the developing countries of Asia. China is the undisputed leader for counterfeiting electronics followed by its neighbors in Taiwan, Philippines, Indonesia, Malaysia, India, Russia, Vietnam and South Korea.

Imposters have gamed the supply chain in multiple different ways, as they find the best parts to counterfeit and introduce back into the electronic parts supply systems. Let’s take a look at the most common channels that produce counterfeit electronic components:

Used consumer electronics products – Technology is rapidly changing every day, and consumers are discarding their electronic devices more frequently than ever. Developed countries that have stringent environmental laws domestically end up shipping used consumer products to Asian countries. Counterfeiters access this large pool of discarded electronic components to rip them apart and re-introduce them back into the supply chain.

Electronic scrap improperly discarded by manufacturers – Manufacturers or middlemen in the supply chain routinely discard products that don’t meet specs or fail inspection tests. Working under cost pressures, these companies don’t make the extra effort required to completely destroy the defective parts. Counterfeiters have established “organized” businesses to get ahold of these components. Stories have also been reported where swindlers have indulged in dumpster-diving at manufacturers’ waste sites.

Inside jobs by dishonest employees – In many instances, employees at a manufacturer or distributor may steal products from their operations and resell them to the market at dirt-cheap rates.

Counterfeiting operators range from mom and pop business owners to organized criminal gangs working in an industrial setting. Electronic components are often sanded to remove original brands. New labels are then re-applied to make them look like genuine parts. In many cases, black paint is applied on top of labeling and re-branding is done – the practice of applying black paint is called blacktopping.

How Manufacturers and Distributors Can Avoid Counterfeit Issues

While there are various channels that produce counterfeit electronic components, there are several preemptive steps that companies can take to reduce the risk of your parts being counterfeited. You can also find ways to prevent the counterfeits from entering your material supply.

If you’re a manufacturer, consider gamma marking or new tagging methods which are hard to copy. If you find counterfeiters selling fake parts with your brand name, work with U.S. Customs to sanction those shipments. Instead of engaging with middle-men who offer lower costs without guarantees to part authenticity, purchase directly from original component manufacturers (OCMs) or authorized distributors.

For mission-critical parts, you should also think twice before outsourcing your manufacturing overseas. Find out if the cost-savings are worth the extra risks. If outsourcing makes sense, create disciplined inspection and testing processes before you ship the product to your customers.

Investing in Reliable Inspection Processes

Since the counterfeiting problem is huge and growing, there are plenty of new and creative ways to combat it. Consider transforming your inspection and testing processes to incorporate the best and the most advanced practices. Investment in strong inspection processes will help you avoid counterfeit parts downstream of your supply chain, and avoid costly recalls or liability costs in the future.

Incoming product inspection is a must to ensure no counterfeits enter your company’s supply chain. Counterfeit electronic components are generally refurbished and re-labeled before being resold as a new product. Various screening methods can help detect marks made from various counterfeiting methods like sanding and re-labeling, blacktopping and more.

Traditional detection and inspection methods include:

  • Visual
  • X-ray inspection
  • Scanning Electron Microscopy (SEM)
  • X-Ray Fluorescence (XRF)

To read more about these traditional methods, and more advanced detection techniques, go to the end of this article and click on the NTS web page link to view the full article.

How to Keep Counterfeit Parts Out of Your Supply Chain

Whether you’re a manufacturer or distributor, make sure you have a system in place to control your product flows. Maintain strong records of physical scrap destruction, overages, surpluses and discarded products. Make sure you have a holistic view of your supply chain environment and attack the problem of counterfeit parts in a systemic way.

The U.S. government and the electronics industry community have taken measures to fight the counterfeiting problem. It’s important to understand these rules and regulations and adopt the best practices shared by these groups. By adopting industry-recognized standards, you can reduce the risk of counterfeits entering your supply chain.

Aerospace Standard AS5553

If you purchase electric parts for integration into aerospace equipment or assemblies, you should implement the AS5553 standard. It was created to tackle the substantial increase of counterfeit electronic components entering the aerospace supply chain posing significant reliability and safety risks. Adopted by NASA and the Department of Defense, this standard outlines processes for supplier management, procurement, component verification, electronics component design, materials management, and strategies on how to respond when nonconforming parts are found.

Aerospace Standard AS6081

AS6081 is specifically intended for distributors to help keep counterfeit electronic components out of the supply chain. This standard was created to provide consistent requirements, practices, and processes to alleviate the risks of purchasing and supplying counterfeit components. The AS6081 standard helps standardize processes related to identifying reliable sources for procuring parts. It also helps analyze and reduce the risk of distributing counterfeit parts. The standard also shows how to report fraudulent or potentially fraudulent parts to other potential users.

To read the entire NTS Newsletter article, go to this web page.