Version 2: Updated October 2012 8 Step Guide - ERAI

Version 2: Updated October 2012

8 Step Guide

To Buying Electronic Components With Confidence and Avoiding Counterfeits

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8 Step Guide To Buying Electronic Components With Confidence and Avoiding Counterfeits

Dear fellow industry professional, Counterfeit Electronic Components are the cause of major problems within the electronics industry, putting quality, brand reputation and sales revenue in jeopardy, as well as creating risks to health and safety. Unlike other industries, counterfeiting in the electronics sector may have life or death consequences. Though we know that counterfeit parts enter the supply chain, the time and place of their entry is unpredictable. We must try to reduce the entry of, and effects from, counterfeit parts through increased diligence and active control measures. To accomplish this, it is necessary to have greater collaboration, both within the industry and with government associations. We have developed this useful guide, containing information on topics which I believe are crucial to help buy electronic components with confidence and avoid counterfeits. The recommendations made here identify actions as a guide to industry professionals but may require further study and collaboration. Best Regards

Illustration 1: Beverley Scott

Beverley Scott Head of Marketing

Copyright ? Beverley Scott First Published by Cyclops Electronics Ltd in 2011.

Table Of Contents

Introduction

Background Background Information Causes of Counterfeiting Methods of Counterfeiting

8 Steps to Buying Electronic Components With Confidence And Avoiding Counterfeits

Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 Step 8

Procurement Supplier Selection Receiving, Inspecting & Examining Goods Quality Specifications Traceability Requirements Testing For Counterfeits Training & Certifications Planning, Systems & Procedures Reporting Counterfeit Components

11 Questions To Ask Your Electronic Component Supplier

Cyclops Electronics Global Electronic Component Distributor

Cyclops Quality Procedures Flow Chart

Conclusion

Bibliography

Copyright and Disclaimer

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5 - 6 5 - 6 6 6

7 - 12 7 ? 8 8 ? 9 9 10 10 - 11 11 11 - 12 12

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Introduction

This paper presents background information on counterfeit electronic components in the electronics industry and the recommendations you should take to conduct a successful electronic component sourcing strategy. The goal is to raise awareness and mitigate the risks associated with counterfeit parts. Regardless of how counterfeit parts, whether electronic, mechanical or other, enter the electronics industry supply chain, they can jeopardise the performance, reliability and safety of the end product. Authentic parts have known performance histories and adhere to manufacturers' quality control plans, whereas counterfeit parts have unknown performance reliability and often limited quality controls. The cost of counterfeit parts entering the supply chain is greater than the simple replacement of counterfeit parts. Ramifications could include potential product failure, warranty costs, inspections and testing, product recall, lost revenue, exfiltration of electronic data and even consequential loss.

Counterfeit Definitions A definition of counterfeit parts can be described as

"A part made or altered to imitate or resemble an "approved part" without authority or right, and with the intent to mislead or defraud by passing as original or genuine" The FAA Advisory Circular. "Counterfeit relates to wilful trade mark infringement ? e.g. products or services made in imitation of; not genuine; pretend; fraudulent. A counterfeit is regarded as a specific type of "forgery". In general, a counterfeiter steals the Intellectual Property of the original owner to produce low cost copies that undermine the originators products and hence profits." Component Obsolescence Group 2010.

For the industry to successfully protect against this risk of counterfeiting, we must understand its causes and how counterfeits find their way into the legitimate supply chain.

"No type of company or organisation has been untouched by counterfeit electronic parts. Even the most reliable of parts sources have discovered counterfeit parts within their inventories." Defence Industrial Base Assessment Counterfeit Electronics, January 2010.

So ask yourself, which one is counterfeit? Would you be able to tell the difference?...

Illustration 2: Which electronic component is counterfeit? Please see Page 16 for answer.

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Background

The rise of counterfeiting in recent years has been astounding. Over the last 10 years, various countries, governments and industries have undertaken studies on the proliferation and economic impact of counterfeits.

According to a recent study by the US Department of Commerce, Bureau of Industry and Security the number of counterfeit incidents reported grew from 3,868 in 2005 to 9,356 in 2008. Respondents to this survey cited the two most common types of counterfeit components were blatant fakes and up-screened functional product.

Illustration 3: World Map

This survey had 387 respondents representing all facets of the electronic component supply chain and all reported instances of counterfeit product. The World Semiconductor Trade Statistics estimates the global Total Available Market (TAM) for Semiconductors will be in excess of $200 Billion, thus the 387 respondents provide quantitative results for only a small portion of the total market.

The International Chamber of Commerce & World Customs Organisation estimated that the value of counterfeit products may have reached $1 trillion globally in 2010!

Profit is the primary incentive for counterfeiting. Typically aerospace and defence products are susceptible to counterfeiting because they have long life cycles with diminished manufacturing sources and material shortage issues.

In times of allocation, shortages and obsolescence, buying electronic components either from the Original Component Manufacturer (OCM), Franchised Distributor or Independent Distributor (ID) can be a minefield. So who can you turn to?

China and the Far East seem to offer a great source until you find that in reality this can mean you often end up with counterfeit, refurbished or quality defective components. As payment is often required in advance this means you could end up losing your money, having to source replacements and suffering production stoppages. Although China is the chief source of counterfeit electronic components, it will not necessarily remain so in the longer term. There are now growing supply chain networks that are working together building strong trading relationships to help eliminate counterfeit parts.The Chinese legislators have also laid down framework laws to reduce or stamp out this illegal trade. So as long as you are cautious and have the correct checks and partners in place China can still be a good source of supply.

Research has shown that you can still be exposed to a lower level of risk by buying directly from the Component Manufacturer or their Franchised Distributor ? there still remains a small risk that suspect devices have entered their supply chain.

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