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Setting the Supply Chain Standard:
Avoiding Cost and Mitigating Risk while Maximizing the Effectiveness of Global Standards Designed to Thwart Counterfeits

Approximately 40% of the U.S. Department of Defense supply chain is believed to consist of fake or defective parts. However, global counterfeiting of electronics is not just a military problem. The fight is on to put a stop to counterfeit parts throughout all industries. SAE International has led a G-19 group of worldwide leaders to combat this growing concern. By developing a family of standards (AS5553, AS6081 and AS6171), SAE will provide uniform requirements, practices and methods to mitigate the risks of purchasing and supplying counterfeit electronic parts.

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  • ERAI is a global information services organization that monitors, investigates and reports issues that are affecting the global supply chain of electronics. The types of complaints typically filed with ERAI include: Contract Disputes Unresolved Debts Past Due Invoices Wire Fraud Identity Theft Credit Card Nonconforming Parts And most notably Suspect Counterfeit Parts We have more than 1,000 Member companies globally. NOTHING is reported by ERAI that is not first thoroughly vetted. Our data is documented and it is reliable. We maintain the largest database of known high-risk and suspect counterfeit parts in the world. ERAI is NOT a distributor. We do not buy or sell parts. ERAI is not a test lab or inspection service. We are not a quality standards organization. We are a market intelligence tool. We’re here to help companies minimize and measure risk.
  • The VISCIOUS cycle
  • ERAI can be used to meet the requirements set forth in AS5553 For example: In Section 4.1.2 the organization is required to assess potential sources of supply. Sources of supply encompasses both parts AND suppliers. So as you can see in this screen shot: ERAI maintains a database of reported high risk and suspect counterfeit parts. You can use this data to measure risk against parts you need or may need in the future. ERAI also maintains a database of reported companies. If a company has been reported to ERAI, depending on the nature of the grievance, your organization may opt to identify that supplier as HIGH RISK. Both of these are steps you can take to assess the sources of supply. 09/15/11 17:51
  • We reviewed the types of incidents that are frequently reported to ERAI at the beginning of today’s presentation. What I want to emphasize here is that all complaints filed with ERAI are documented and thoroughly investigated. All reported companies are contacted and are given the opportunity to respond to the complaint that is filed against them. Once an incident IS reported by ERAI in the form of an ERAI Alert and the data is added to our database, it is NOT removed. If the incident is RESOLVED, we will update the status of the complaint accordingly. But the incident WILL remain in our database INDEFINATELY. Both Members of ERAI and Non-Members can file complaints, But ONLY MEMBERS can access that data via our website. This screen shot serves to demonstrate what a reported company’s ERAI profile might look like.
  • This is an example of what you can expect to see from an ERAI Reported Part Alert. We collect data regarding: The part number: Manufacturer: Date Code: Lot Code: And any other applicable product identifiers. In most incidents we have collected inspection/test reports, photos, evidence of die analysis, x-rays. As with reported companies……Members and NON Members alike can report high risk parts via our website BUT Only Members can access the data. This is what the standard means when it says to evaluate your sources of supply.
  • 4.1.2 B require the Buyer to specify a preference to procure parts directly from either the OCM or an Authorized Franchise Supplier whenever possible, but it recognizes that this is NOT always possible. Independent Distributors play a vital role in the supply chain. When procurements need to be made from the open market, the Standard directs the user to maintain a register of Approved Suppliers that meet a key set of criteria. ERAI can not only help you weed out unsavory suppliers but we can also help you build and maintain your approved supplier list. This is an example of a profile belonging to a distributor that you may want to consider as an Approved Open Market Supplier.
  • Over 4,000 counterfeit incidents have been reported by our organizations. Respectively, approximately 9% have been reported through GIDEP, that means 91% - or – roughly nine out of every ten counterfeits incidents is reported by ERAI. The Bureau of Industry & Security has reported a rise in counterfeit incidents sequentially EACH year for the past four years. It is NOT YET clear if the rise in the number of counterfeit incidents is due to: Better identification of suspect counterfeit parts More industry involvement which has lead to more reporting Or if it is because there are in fact more counterfeits in the supply chain.
  • What is clear is that 2011 is on track to nearly double the number of reported incidents from 2010 Reporting = Ability to measure counterfeit activity.
  • AS5553 calls for the control of suspect counterfeit parts to ensure they do not re-enter the supply chain. In addition to this requirement, the standard offers guidance that will aid your organization in developing a Material Control Plan. Parts that are returned find their way back into Open Market.
  • Implement a Counterfeit Part Material Control Plan Speak with your attorney and include language in your purchase order terms and conditions
  • ERAI will keep you informed and plugged in.

Setting the supply chain standard   slide share Setting the supply chain standard slide share Presentation Transcript

  • Setting the Supply Chain Standard Date: Thursday, September 15, 2011 Time: 8:00 am PT | 11:00 am ET | 4:00 pm London Kristal Snider Vice President, ERAI Inc. Member, SAE G-19 Committee 3899 Mannix Drive, Ste. 421-422, Naples, FL 34114 Tel: 239-261-6268, Fax: 239-261-9379 Email: ksnider@erai.com Setting the Supply Chain Standard Avoiding Cost and Mitigating Risk while Maximizing the Effectiveness of Global Standards Designed to Thwart Counterfeits
  • Who is ERAI?
    • WHO ERAI IS…….
    • Founded in 1995
    • Mitigate Risk of Parts, Customers & Vendors
    • Provide up to date information on Counterfeit, Faulty & High-Risk Parts
    • Real-time Industry Monitoring & Reporting Services
    • Real-time High-Risk and Counterfeit Part Reporting
    • BOM / Assembly Cross Checking against High-Risk Parts Database
    • Vendor & Customer Analysis
    • Proactively Prevent Losses & Reoccurring Problems
    • Access to Search Risk Mitigation Tools
    • Fair & Impartial Investigation Services
    • Stay Informed on Current Issues Affecting the Supply Chain
    • WHO ERAI IS NOT…….
    • ERAI is not a distributor or parts broker
    • ERAI is not a sourcebook or online catalog
    • ERAI is not a component manufacturer or OEM
    • ERAI is not a test lab or inspection service
    • ERAI is not a quality standards organization
  • What is Being Counterfeited
    • In a typical recent two weeks of ERAI provided data (Reported Companies)
      • Five suspect counterfeit shipments (3 integrated circuits, 1 transistor, 1 capacitor), $55,169.00
        • 6,233 ICs at $44,154 = $7.08 per
        • 500 transistors at $1,015 = $2.03 per
        • 200,000 capacitors at $10,000 = $0.05 per
        • These are just the companies that were reported by ERAI members, usually due to disputes
        • These instances are seldom reported to GIDEP
    Slide compliments of Fred Schipp-MDA
  • What is Being Counterfeited
    • June-July 2011 ERAI reported 186 suspect counterfeit parts
      • Integrated Circuits – 81%
        • Processors/Controllers – 14%
        • Memory – 12% (mostly FLASH)
        • Transmitter/Receivers – 7%
        • Operational Amplifiers – 6%
        • Programmable Logic Devices – 5%
        • Digital Switches – 5%
        • Converters – 4%
        • Field Programmable Gate Arrays (FPGA) – 4%
      • Discrete Transistors – 8%
      • Discrete Diodes – 4%
      • Capacitors – 4% (mostly aluminum electrolytic)
      • Inductors – 1%
    Slide compliments of Fred Schipp-MDA
  • Extrapolation Exercise
    • 186 suspect part purchases in two months = 1,116 parts per year
      • 906 Integrated Circuits
      • 138 Discrete Active Components
      • 72 Discrete Passive Components
    • Using the average reported costs from Slide 3…
    • The total estimated annual sale price of ERAI-reported high risk or suspect counterfeit parts is $14.7 million. This does NOT include the cost of repair, rework, failed testing, failed systems, and potentially lost lives.
    Slide compliments of Fred Schipp-MDA
  • Strengthen Supply Chain Vulnerabilities STRENGTHS WEAKNESSES
  •  
  • The Common Thread
    • According to the U.S. GAO, 40% of the U.S. DOD supply chain is adversely impacted by fake or defective parts .
    Virtually all the suspect parts originated from contractors in China. 50% – 80% of e-waste collected “for recycling” is exported to developing countries; China being the largest recipient. E-WASTE The vast majority of product being sold in the China Open Market originates from e-waste . Our trash is China’s treasure- We’re letting this happen! China is blamed four times more than any other nation for selling counterfeit parts to the DoD.
  • Legislation HR 2284 and S1270 : The Responsible Electronics Recycling Act
    • Objective: Cut off supply of e-waste from U.S. to China
    • Summary of Bill:
    • Creates a new category of waste: Restricted Electronic Waste
    • Restricted electronic waste cannot be exported to developing nations with limited exceptions
    • New licensing requirement for electronics exporters
    • Criminal penalties for violations
    • Who in industry will support or oppose this?
    • Already supported by Apple, Dell, Samsung, Best Buy
    • Main opposition will be from recyclers industry association (ISRI) on behalf of the exporters
    • Many individual recyclers support it
    • Defense industry support would be very significant
  • Legislation Expected results from legislation
    • Prevent US E-waste from being shipped back to the US in the form of Counterfeit Parts
    • Bring electronics recycling jobs to the U.S.
    • Stimulate investment by U.S. recyclers in capacity and technologies
    • Stops dumping toxics on developing nations – U.S. acts as good global citizen
  • Action Item What you can do today
    • READ: HR 2284 and S1270 : The Responsible Electronics Recycling Act
    • VISIT : www.electronicstakeback.com
    • WRITE: Letters to the SENATE & the HOUSE
    SENATE Honorable Sheldon Whitehouse U.S. Senate 717 Hart Senate Office Building Washington, D.C. 20510 Honorable Sherrod Brown U.S. Senate 455 Russell Senate Office Building Washington, DC 20510 Honorable Lisa Murkowski U.S. Senate 709 Hart Senate Office Building Washington, D.C. 20510 HOUSE Honorable John Shimkus Chair Subcommittee on Environment and the Economy House of Representatives 2452 Rayburn House Office Building Washington, DC 20515 Honorable Gene Green Ranking Member Subcommittee on Environment and the Economy U.S. House of Representatives 2372 Rayburn House Office Building Washington, DC 20515
  • Standardization New Developments
    • SAE G-19 Committee Charter
    • Counterfeit Electronic Components Committee
    • November 2007
    • Scope:
    • The G-19 Counterfeit Electronic Components Committee is chartered to address aspects of preventing, detecting, responding to and counteracting the threat of counterfeit electronic components.
    • Objective:
    • The objective of the SAE G-19 committee is to develop standards suitable for use in aeronautic, space, defense, civil and commercial electronic equipment applications to mitigate the risks of counterfeit electronic components. In this regard, the standard will document recognized best practices in component management, supplier management, procurement, inspection, test/evaluation methods and response strategies when suspect or confirmed counterfeit components are detected.
  • SAE G-19 Organization Chart Who is involved?
  • Brokers Independent Franchise Commercial Defense Space Inspection Test Standardization Why we need AS5553/AS6081/AS6171 Distribution AS6081 Distribution AS5553 Distribution AS6171
  • Standardization Why we need AS5553/AS6081
  • Standardization What are the Requirements?
    • AS5553
    • 4.1-Counterfeit Electronic Parts Control Plan
    • 4.1.1-Parts Availability
    • 4.1.2-Purchasing
    • a. Asses sources of supply
    • b. Maintain a register of approved suppliers
    • c. Procure from OCM’s or Authorized sources first
    • d. Assure source of supply are maintaining effective processes for mitigating risk
    • e. Assess and mitigate risks of procuring counterfeit parts…
    • f. Specify supply chain Traceability
    • g. Specify flow down of contract requirements
    • 4.1.3-Purchasing Information
    • 4.1.4- Verification of Purchased Product
    • 4.1.5- In Process Investigation
    • 4.1.6-Material Control
    • a. Control parts to prevent supply chain reentry
    • 4.1.7- Reporting
    • AS6081
    • 4.2- Counterfeit Electronic Parts Control Plan
    • 4.2.2- Purchasing
    • a. Assess sources of supply
    • b. Maintain a register of approved suppliers
    • c. Assessment / removal of suppliers
    • d. Require to disclose if of if not authorized (assess risk)
    • e. Verify supplier risk (authorized or open market)
    • f. Require notification of changes in sources of supply
    • 4.2.3-Purchase Order Requirements (includes the review and acceptance of Customer contract requirements)
    • 4.2.4- Supply Chain Traceability- Customer approval required if supply chain traceability is not available.
    • 4.2.6- Verification Purchased Product
    • 4.2.8- Material Control
    • 4.2.9- Reporting
  • Standardization: Purchasing 4.1.2. Assess Sources of Supply Recently Reported Parts & Suppliers
  • Standardization: Purchasing Supplier Risk Assessment with ERAI
  • Standardization: Purchasing Part Risk Assessment with ERAI
  • Standardization: Purchasing Assess and Maintain “Approved Suppliers”
  • Standardization: Reporting / Data Sharing 4.1.7 Reporting DOD Adoption: August 31, 2009 Incidents: 91% of reports via ERAI
  • Standardization: Reporting / Data Sharing 4.1.7 Reporting
  • Standardization: Purchasing BOMs have 0.5 - 5% match to ERAI-reported incidents
  • Standardization: Material Control 4.1.6 / F.1.4
  • Action Item Material Control Plan -Counterfeit parts have NO value -Provide Supplier with verification of the nonconformance -Allow Supplier the opportunity to verify findings & launch internal investigation -Counterfeit parts should be placed in quarantine ***The parts are evidence and should not be immediately destroyed*** - Counterfeit parts will not be returned -Supplier has the right to verify Buyer’s findings -Report the incident to ERAI or GIDEP
  • Action Item Buy AS5553
    • WWW.SAE.ORG
  • Action Item Prepare for Certification
    • Already Certified to ISO or AS Standard
      • Review AS5553 (and soon AS6081) for Applicability
      • Gap Evaluation to Determine Areas of Focus
      • Modify Current QMS to Integrate Changes
      • Prepare for Sanctioned Certification Program for AS 6081
    • Not Currently Certified
      • Start the Process Soon for ISO 9001
      • Upgrade to AS5553/6081 when Program is Available
  • Action Item Monitor Updates @ERAI-Inc ERAI, Inc. Join Relevant Discussions Industry News Find out about upcoming Educational Opportunities
  • Education- Get Involved
    • SAE International
    • SMTA
    • Aerospace Industries Association (AIA)
    • TechAmerica - G12 Counterfeit Parts Subcommittee
    • Independent Distributors of Electronics Association (IDEA)
    • IPC: IPC Surface Mount Equipment Manufacturers Association (SMEMA)
    • Best Manufacturing Practices Center of Excellence (BMPCOE)
    • Government Electronics & Information Technology Association (GEIA)
  • Complimentary Offer for Attending Today: ERAI BOM Analysis to Identify Part Risks
    • How to receive this offer?
    • Complete event Survey & Specify “YES” to the ERAI BOM analysis trial offer
    • Or send Email with Subject Line “Sept 15 th BOM Scrub” to [email_address] *
    • Thank You
    • Kristal Snider
    • Vice President, ERAI Inc.
    • Member, SAE G-19 Committee
    • 3899 Mannix Drive, Ste. 421-422, Naples, FL 34114
    • Tel: 239-261-6268, Fax: 239-261-9379
    • Email: ksnider@erai.com
    • www.erai.com