Front End I Electronic Components Supply Network
Just say ‘NO!’ to counterfeit electronics components
Now that we’re seeing some green shoots of recovery in the European electronics industry management attention in manufacturing organisations should perhaps be refocusing on the increasing threat of counterfeit electronic components. Adam Fletcher suggests they should simply instruct their purchasing professionals to “Just Say No!”
I
t’s surprising that counterfeit electronic components are rarely sold on the basis of a lower unit price. In fact they often command a small price premium based on ‘limited availability’ in the market where genuine products may be on a long manufacturer lead-time or no longer available as the result of planned obsolescence. In the electronic components market there are two very different types of organisations producing counterfeit products, based on the end market that they serve. I describe the smaller organisations as ‘Counterfeit Cottage Industries’ and the larger as ‘Professional Commercial Counterfeiters’.
Counterfeit Cottage Industry In the UK, Europe and US products from the ‘Counterfeit Cottage Industry’ have plagued the electronics industry for over 40 years. Primarily based in China and typically employing less than 20 people these operations focus primarily on military and aerospace customers who require small volumes of specialist components. Whilst the external appearance of the products they produce has improved significantly in recent years they continue to fail early in the end-equipment’s expected lifetime and often do not to work at all.
Counterfeit Cottagers determine
what products are in demand through an international network of component search websites and Brokers. Having determined demand and often secured a purchase order, the Cottage Industry Counterfeiter sets out to quickly produce a counterfeit product to meet their customer’s specification. The major components or something close to them are sourced from local markets that recycle electronic components from discarded systems, which they modify to look like the required components with the intent to deceive. These organisations are reliant on many other similar local organisations who have the ability to source packaging and produce authentic looking documentation packs to accompany the counterfeit goods, provide enhanced credibility and bogus traceability. Historically numerous Brokers, some of
8 February 2014
uncommon for the goods to pass between multiple brokers en-route to the end customer(s), with very high profit margins achieved at every stage. The counterfeit manufacturer would prefer to engage with the customer directly as would their customer who also realises that the Brokers margin is high. Availability of global communications via the internet has enabled all these business transaction models to flourish.
Professional Commercial Counterfeiters Professional Commercial Counterfeiters are typically much larger organisations who employ highly trained personnel across many disciplines and have invested heavily
Components in Electronics
components are predominantly manufactured in China and consumed there by local product manufacturers. Many will make their way to Western economies but are likely to be a component part within a consumer product. The Western consumer is unwittingly supporting their business. When a consumer product fails early we’re seemingly happy to simply replace it! It’s inexpensive and, in any case, it has probably been superseded by a superior product at the same price. Here in the UK, however, we
predominantly manufacture industrial products, which require a much longer in- service lifetime. When these products fail early it’s likely that the customer for the
whom who are local to the manufacturer and some who are local to the customer, have been the link between these organisations and their customers. Brokers try to further enhance the products credibility by claiming that the components have been obtained ‘as excess stock from reputable sources’ and provide forged documentation to back this up. It’s not
in capital equipment for advanced manufacturing and in IT support systems. These companies are able to produce in very high volumes to exacting quality standards and were often initially formed with the backing of Western based technologists who needed to outsource the manufacture of their products. At some point in their development either because they have lost a contract, or simply because of greed, these organisations have begun to supply their manufactured products directly to CEM customers or onto the Grey/Broker market. They disguise themselves as the manufacturer by making the goods appear as if they were from the original manufacturer/Intellectual Property holder. Today over 95% of the counterfeit
electronic components available in the global market are produced by professional counterfeiters. Fortunately these
end product will complain, vote with their feet, sue or do all three! In the US the National Defence Authorization Act 2012 S818 has recognised the huge risks of counterfeit electronic parts within military systems, and can now impose both civil and criminal penalties with the possibility of life in prison for “recklessness with counterfeit parts that results in death.” In the US at least, the old Latin maxim “Caveat Emptor” (Buyer Beware) still applies to the purchasers of electronic components for the latest military hardware just as it did to the Chariot buyers in Rome over 2,000 years ago. The UK, Europe and US should prepare for the arrival of a flood of Professional Commercial Counterfeit products and disaster looms if we have failed to inform and educate our locally based organisations on how they should respond to the threat. Magically finding thousands of the desired component via the internet in some remote location, from an unheard of supplier should start to ‘ring alarm bells’ with purchasing professionals. The cost of a poor decision will have a much greater financial impact than the cost of the components, especially where customer goodwill or organisational reputation are damaged. The response of UK organisations should be very simple: “Just Say No!” If an electronic component is on an extended lead-time from the original manufacturer the best possible outcome will be achieved by negotiating with them and their authorised distributor. Manufacturers and their authorised distributors will work hard to meet the needs of their customers by moving inventory from different geographic locations to meet demand, and where this is not possible, they are the definitive source of information on the availability of products with guaranteed performance and have the resources necessary to ensure long-term availability and customer support. If in doubt, “Just Say No!”
In understanding the issues around counterfeiting I would recommend that you attend the 5th ‘Anti Counterfeiting Forum Seminar - Strategies for Counterfeit Avoidance in the Electronics Supply Chain’, which is being held in London on Thursday 27th February 2014, further details are available by contacting
esco.secretariat@
gmail.com
This event is supported by ESCO and The Department For Business Innovation and Skills (BIS) and is open to all UK organisations.
ECSN |
www.ecsn-uk.org Adam Fletcher is Chairman of Afdec/ECSN
www.cieonline.co.uk
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