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What is the State of the Industry Regarding Counterfeit Electronic Components?

02.20.2014 // Kevin Sink // Industry Conditions

It has been a little over five years since a Newsweek article brought the issue of counterfeit electronics to the attention of a wider audience. Since then, industry organizations mobilized to produce standards and hold symposia to share advancement and best practices and to train supply chain members to avoid high risk suppliers and to detect counterfeit parts. In 2012, the Senate Armed Services Committee released its study of the issue in general and of five case studies in specific. The report weighed heavily in the development of “Section 818”, a section of the 2012 National Defense Authorization Act which codifies requirements and penalties for contractors who deliver an item with any counterfeit component within. Putting the law into action has proven to be an arduous and confusing process and as of today, the Defense Federal Acquisition Regulation Supplement (DFARS) has not been published to put the law into contractual action.

So the industry is left to soldier on without much guidance, but that may not be bad since many experts in the field found the proposed regulations lacking. The industry is not waiting on the government. Having released the first standard for companies to follow for counterfeit mitigation, AS5553, the G-19CI committee is working on a revision. In 2013, SAE released the standard (AS6081) for the highest risk element of the supply chain, the independent distributor. Both the standard for test houses (AS6174) and authorized distribution (AS6496) are progressing rapidly with expected publication this year.

The expansion of efforts beyond electronics is significant. Recently, Aston Martin issued a recall after discovering its Chinese subcontractor used counterfeit plastic in the accelerator pedal arms. To this point, it has puzzled me that the military/aerospace industry has been the overwhelming driver of actions relating to counterfeit mitigation. The roster of participants in standards and symposia has been overwhelmingly mil/aero. However, I was pleased to meet some attendees at an event in December from the oil and gas industry.

I recently studied the requirements of customers for their suppliers related to counterfeit mitigation, finding that 67% of the customers were indeed mil/aero and if you include the contract manufacturers, most of whom had requirements for their military business, the ratio is over 80%. Suppliers use a mix of approaches from surveys to help them qualify low from high risk suppliers to clauses which impose requirements on the suppliers. By far the most common requirement is that suppliers must either not procure parts from independent distributors (brokers) or they must obtain contractor permission and approval if necessary to do so.

http://www.smta.org/smtai/papers/Sink_Kevin_1.pdf

What about the Counterfeiters?

Unfortunately, counterfeiters have evolved too. In the beginning, there were two predominant types of counterfeit parts; those with no “guts” and those reclaimed from “recycled” boards. In the first case, the parts have no element or die within them. As soon as they are installed or tested, it is obvious they do not work, so companies began to do things like x-ray internal circuitry, checking for consistency from part to part.

At the same time, consumers and companies from around the world implemented green strategies. Enterprising recyclers came to offices and factories to pick up used equipment and scrap boards, supposedly to safely recycle them. Many found they made more money when they sorted them by type and sold them by the container load to middle men in Asia. These scrap boards and devices are depopulated by a veritable army of poor people working over open propane flames in their courtyards – cities of a cottage industry developed. Most of these people are not complicit in counterfeiting, they are recycling, and if the parts were always sold as used, it might be more tolerable. Unfortunately, others in the chain, take reclaimed components, re-tin the leads and sell them as new, or sand off the marking, repaint and remark it as a newer device.

This process, called blacktopping, still goes on, but the more advanced counterfeiters have moved on to processes like microblasting – using a tiny sandblaster to remove markings, or lapping – a complicated process to grind down the face of a component to remark it. Neither of these processes leaves the tell-tale signs of blacktopping making them harder to catch. But the evolution didn’t stop there. By using acid or other methods to remove the die from integrated circuits, some have gone so far as to have the die molded into brand new bodies with brand new leads. The parts look great, but the damage to the die during removal makes failure unpredictable.

Most of the counterfeits found to this point have been some version of reclaimed parts or shadow production – overproduction that a CM sells on the “grey” market, or scrap product, presented as new and authentic. The next step in counterfeit evolution is known as cloning – building a part from the ground up to perform like another part. This type of reverse engineering is common in companies offering a competing product, but when the part is marked and presented as the actual part it is mimicking; it is not just fraud, but counterfeit in the truest sense of the word. To do this the counterfeiter needs a fab and expensive equipment.

How Did We Get Here?

The relentless drive for cheaper goods pushed the production of items to the lowest cost source - with no regard for intellectual property rights (IPR). The overall economic standard of living is raised for the workers in these countries, but they also suffer the environmental and health consequences of their evolving industrialization. The end customer gets a “great price” but also funds the development of a global underworld. Attempts by states to address the issue by treaty or in the world trade court are met with a hard choice: cutting off their supply of cheap labor and access to an emerging market or putting up with some counterfeits. Respect for intellectual property will be slow to develop in these third world countries until their own designs compete with those of the first world. But that is not to say all counterfeits come from the third world, there are bad guys everywhere, and some of the most advanced techniques have been found in the U.S.

What do we do now?

Sourcing from countries with well defended intellectual property rights does help, but to some degree the genie is out of the bottle. So, we are forced to employ and improve our tactical defenses. First, buy parts from the authorized supply chain; the manufacturer and their authorized distributors. The supply chain here is short and includes oversight and contractual requirements to handle, store and ensure traceability of parts.

In the short run, we must think defensively, restricting our purchases to safer channels, and testing parts from riskier sources. In the mid-term, we need to allocate funding to sustain engineering on designs to allow flexibility when sources become scarce. We can also begin to source assemblies and components from countries with strong records of respect for intellectual property. In the long run, even those without IPR will develop the ethos as their economies mature. Until then, we should stick with channels we trust, suppliers we know and in the end trust, but verify.

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Statements of fact and or opinions expressed in MarketEYE by its contributors are the responsibility of the authors alone and do not imply an opinion of the officers or the representatives of TTI, Inc.

Featured Contributor:
Kevin Sink

Kevin Sink

Kevin Sink, Vice President, Total Quality is responsible for the quality performance of TTI North America and the quality management system globally. Kevin is considered a leading authority on best practices in counterfeit risk mitigation.

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