Each year, the electronics industry loses $250bn to counterfeit products. This is according to data collected by the global information board for counterfeiting, the ERAI, who says this illegal trade shows no signs of slowing down.
The market for counterfeit electronics is one of the most widely discussed and analysed topics in the electronics industry, yet little headway has been made in solving the problem.
The risks that counterfeit components present for businesses are many and varied, as they significantly impact end product reliability and cause malfunction or premature failure. Depending on the product’s application, a component failure could cause serious injury or even loss of life.
Such an event might then result in prosecution or legal action by the impacted parties or representatives, leading to consequences, including a loss of product confidence, a product recall, damage to the manufacturer’s reputation and financial losses across the board.
There exist several more complex definitions of counterfeit electronics, but in essence, the term refers to a part whose origin or quality has been deliberately misrepresented. In a world shaken by unprecedented global supply chain issues, these counterfeit components are becoming increasingly sophisticated, as, says the ERAI, are the tactics used by scammers to target desperate buyers facing shortages.
Counterfeit parts come to market via numerous routes, but there are ways to combat their prevalence. Purchasing companies need to be vigilant and take precautions to improve both their own position as well as that of their wider supply chain, where low levels of required supply increase the pressure to access the open market.
One fundamental best practice to reduce the risk of procuring counterfeit or substandard parts is having confidence in understanding and identifying the source of the parts. Significant concerns exist over which suppliers to trust when it comes to sourcing electronic components, with buyers becoming wary of rogue operators.
There are three key considerations crucial to preventing the sale of counterfeit parts:
Understand your supplier choice
When it comes to sourcing electronic parts, there are four options:
- Original Components Manufacturers (OCM) manufacturer products/components and has ownership of the IP, copyright or trademark.
- Authorised/franchised distributors are suppliers authorised by the manufacturer.
- Independent distributors can be authorised by some OCMs to sell from their line card; however, these distributors also sell other parts that are not authorised. This dynamic makes it difficult for buyers to determine which components are authorised and which are not. It’s crucial for Original Equipment Manufacturers (OEMs) to thoroughly check the independent distributors’ internal quality processes, looking for rigorous inspection and test protocols.
- Electronics Brokers: On the other side of the spectrum are the brokers, who primarily move inventory and are not authorised resellers. These brokers store very little, if any, inventory. And the stock that comes in the door usually goes out the same day.
Understanding the differences and risks involved in purchasing from these sources is key to avoiding bad outcomes. The safest way to proceed is to buy direct through an OCM or an authorised/franchised distributor, while only working with independent distributors who have a track record of not receiving counterfeit parts, can guarantee product authenticity and/or have the capability to test components prior to shipment.
Moreover, it’s essential to buy from those partners that are willing to stand by their supply chain with process audits and insurance. However, in the current constrained market, that may not always be an option. So why not just add all brokers to approved supplier lists to keep products flowing through manufacturing and avoid part delays? The answer is simple: supply chain risk mitigation.
Implement robust purchasing controls
To ensure peace of mind when sourcing materials, the appropriate anti-counterfeit credentials and quality controls must be in place to support informed decisions. The knowledge and expertise of an experienced team working to defined processes is indispensable and a first line of defence.
Global trade association memberships, for example GIDEP (Government-Industry Data Exchange Program) and the ERAI, provide the industry with real-time reporting and industry leading training. By joining an organisation that provides members with access to a list of known counterfeit components and the suppliers providing them, companies can protect against the risks of purchasing rogue parts.
Many of these trade associations offer curriculum and certification of general detection methods and interpretation of technical results. Combining the historical view from industry associations with counterfeit detection training, teams are able to assess the risk of suppliers, components and parts purchased in the open market. This risk assessment approach is the foundation on which purchasing controls are built.
In line with trade associations, testing to ensure authenticity of parts is vital. This is particularly important when parts may need to be sourced from the open market. As electronic components brokers are not authorised by OCMs to sell their parts, conscientious companies should block order placements for all brokers until it can be ensured they source parts responsibly from known sources and perform the right level of verification.
Request third-party testing
Finally, taking time to request a third-party test report for broker supplied components mitigates risk. This should include a combination of numerous tests such as thickness checks, x-ray, x-ray fluorescence for metallurgy analysis and decapping, a process of removing the protective cover of an integrated circuit.
Although it might be an appealing option to cut down on testing, particularly if the process may take too long and create delays, the results of shortcutting this process could be extremely costly if faulty, counterfeit, or used parts are put into end products.
Testing standards can provide a reliable seal of quality sources to mitigate this risk. To ensure the highest possible standard of counterfeit testing, the Independent Distributors of Electronics Association (IDEA) has established an inspection standard, the IDEA STD 1010. This standard is highly recognised within the electronics industry and provides a fundamental checklist. Benchmark-testing standards are key to ensuring the authenticity of electronic components, and raises quality-conscious, reputable independent distributors to a higher level in the market.
With the appropriate controls, there’s no need for pessimism
Providing an in-depth inspection of every component within a supply chain is an impossible task, but current best practice does not require checking every part’s risk. Instead, best practices are about taking the time to make smart choices from where parts are sourced and ensuring that the right controls are in place so that faulty, counterfeit or used parts can be filtered out.
Combined with objective industry standards, this focus on accurate sourcing and appropriate controls can make a real difference. The more companies that commit to these steps, the greater the opportunity to deter counterfeiters at an industry level.
From this, the message to the market is a simple one: continued development and improvement of all related control processes for the prevention of counterfeit material is imperative even when faced with difficult market conditions. Investing in building the right supply chain will mitigate risk, protect brand reputation and avoid catastrophic product failures.
Plexus is a member of both GIDEP and ERAI. We adopt zero tolerance policies to shield against the risks associated with counterfeit products entering our supply chain. These policies include detection, prevention and removal, as well as mitigation policies. Read more our approach to supply chain risk mitigation.
About the author
Gordon Brown joined Plexus in 2012 to lead the EMEA regional supply chain team, has been Vice President Supply Chain EMEA at Plexus since 2020 and is responsible for procurement, material costing, supply chain operations and logistics for the EMEA region. He has more than 25 years of experience in the electronics industry and in supply chain and materials management.