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Welcome to Today’s Live Panel             Counterfeit Electronics & the Defense Authorization Bill                        ...
Supply & Demand Chain ExecutiveThe executive’s user manual forsuccessful supply and demandchain transformation, providinga...
Moderators    Barry Hochfelder              f    Editor, Supply & Demand Chain Executive    Rory Ki    R    King    Direct...
Counterfeits: A Big Deal       Risks to Company, Brand, and Performance                                          What is t...
Counterfeits: A Huge DealLoss of Life and National Security in Jeopardy"They ground aircraft and impact airplane safety" …...
Today sToday’s Panel                    Marina Malenic                 Kristal Snider             Paul Hagen              ...
We want your feedbackWin an iPad2 for completing today’s survey                                                 Survey Off...
Join the ConversationWin a Kindle Fire for tweeting our event                                                 Follow IHS o...
Marina MalenicAviation Reporter Jane’s Defence Weekly         Reporter, Jane s                              Company: IHS J...
Kristal SniderVice President ERAI Inc. and SAE International G 19 Committee Member     President,     Inc                 ...
Paul E. HagenPrincipal,Principal Beveridge & Diamond P C                      Diamond, P.C.                              C...
Sarah McDowallSenior Analyst, Country Intelligence – Asia Pacific IHS Global Insight       Analyst                        ...
Thomas J. Dinges, CFAGlobal EMS & ODM Research Practice, IHS iSuppli                          Practice                    ...
Glenn BassettVice President Supply Chain IHS     President,       Chain,                              Company: IHS        ...
Dan EllsworthPresident and CEO World Micro Inc              CEO,      Micro, Inc.                              Company: Wo...
Mark NorthrupVP of Advanced Technical Operations & Strategy, IEC Electronics                                      Strategy...
Mark SniderPresident and Founder ERAI Inc.              Founder,     Inc                              Company: ERAI Inc.  ...
ROUND 1: Issues & Implications                                                 •U.S. Defense Authorization Act of FY 2012 ...
Marina MalenicAviation Reporter Jane’s Defence Weekly         Reporter, Jane s                              Company: IHS J...
U.S. Defense A th i ti Bill f FY2012US D f       Authorization  for                                                 • U.S....
U.S. Defense A th i ti Bill f FY2012US D f       Authorization  for                                                 • In d...
"Counterfeit partspose an i  increasing                   irisk to our nationalsecurity,security to thereliability of ourw...
Counterfeit Legislation – H C   t f it L i l ti       How W G t Here                               We Got H• In March 2011...
Carl Levin  C l L i on th L i M C i A             the Levin-McCain Amendment                                  d   t• Prohi...
Amendment Requirements TimelineA   d   tR    i     t Ti li Contractor                                                     ...
Kristal SniderVice President ERAI Inc. and SAE International G 19 Committee Member     President,     Inc                 ...
Counterfeit Incidents 2005-2008-Defense Industrial Base Assessment: Counterfeit ElectronicsCopyright © 2011 ERAI Inc. All ...
ERAI’s Role in Combating CounterfeitsCopyright © 2011 ERAI Inc. All Rights Reserved.
Counterfeit Incidents (ERAI, GIDEP) vs. Revenues ($Billions)  from 2001 – 2011                    ERAI Accounted for Over ...
What is Being Counterfeited     In a typical recent two weeks of ERAI provided data (Reported     Companies)         Five ...
What is Being Counterfeited  June-July 2011 ERAI reported  186 suspect counterfeit parts   –   Integrated Circuits – 81%  ...
The Effect of China’s 2001 Entry to the WTO?Copyright © 2011 ERAI Inc. All Rights Reserved.
The Effect of China’s 2001 Entry to the WTO?Copyright © 2011 ERAI Inc. All Rights Reserved.
The Effect of China’s 2001 Entry to the WTO?Copyright © 2011 ERAI Inc. All Rights Reserved
Estimated units of E-Waste in the USCopyright © 2011 ERAI Inc. All Rights Reserved
Who is exporting e-waste?                                                  Electronic Waste                               ...
Paul E. HagenPrincipal,Principal Beveridge & Diamond P C                      Diamond, P.C.                              C...
Exports of Used and EOL                Products New product take-back laws and               take back  expanding custome...
Take backTake-back Laws for Electronics
Evolving International Waste         Shipment Regimes         Shi      tR i The Basel Convention (global)   178 Parties ...
Exports of Used and EOL Products  p• Basel Convention parties moving to                                   g  classify many...
E-waste Exports: U.S. Regulation• Exports of “Hazardous Waste” regulated under RCRA.     p                              g•...
H.R. 2284: The Responsible Electronics        Recycling Act of 2011        R      li  A t f• Introduced by Reps. Green (  ...
China Import Controls on Used     Equipment and E-waste         i     t  d E-    t• Article 25 of the Solid Waste Act of t...
Sarah McDowallSenior Analyst, Country Intelligence – Asia Pacific IHS Global Insight       Analyst                        ...
Rating Components                                                  Institutional permanence                               ...
Country Risk R tiC   t Ri k RatingsCopyright © 2011 IHS Inc. All Rights Reserved.   49
China’s C Chi ’ Counterfeit Problem           t f it P bl• Key Factors     • Manufacturers want to reduce costs and maximi...
Trends and OutlookT   d    d O tl k    Short-term    • More high profile government crackdown campaigns on intellectual   ...
Thomas J. Dinges, CFAGlobal EMS & ODM Research Practice, IHS iSuppli                          Practice                    ...
China’s growing share of theglobal electronics market l b l l t i          k t Copyright © 2011 IHS Inc. All Rights Reserv...
Why is China so dominant inelectronics manufacturing? l t i          f t i ?• Historic direct labor rates were materially ...
China’s future electronics growthis t industrial d i li auto, i d t i l and wirelessElectronics revenue in China increased...
What is China’s future role inelectronics manufacturing? l t i           f t i ?• Primary role will shift from provider of...
The global electronics supplychain i not all about Chi h i is t ll b t China                                              ...
Globally-Integrated Supply ChainsGl b ll I t     t dS    l Ch i Copyright © 2011 IHS Inc. All Rights Reserved.            ...
Glenn BassettVice President Supply Chain IHS     President,       Chain,                              Company: IHS        ...
Where is the silicon going today?Faced with constraints, who gets manufacturers attention?                                ...
Semic                                                                                                              conduct...
Defense A Small Slice of the Pie     Military / Aerospace Application only 1.9% of 2010 market                            ...
Despite Program ExtensionsService Life Extensions                                         • Air                           ...
No Supplier is Immune to Counterfeit RiskOpen market suppliers are not the only victims of risk                           ...
Broken Channel Integrity Can OccurGenerally a result of mishandled inventory or procedures• How is Channel Integrity Compr...
Cause: Japan Crisis  The country produces over half of worldwide silicon wafers                                           ...
Effect: Japan Crisis Integrity broken to accumulate higher priced, higher risk materials?To what extent has your company’s...
Dan EllsworthPresident and CEO World Micro Inc              CEO,      Micro, Inc.                              Company: Wo...
Dan EllsworthImplications for Independent   President & CEO                               World Micro, Inc.      Distribut...
Three types of distributors                         Independent distributors                                              ...
Low barrier to entry                                   Anyone can participate in the open market                          ...
Capital expenses for testing/detecting                                 Obtain                                 Ob i certifi...
Why it’s      Benefits of using independents in mission critical applicationsImportant     when regular supply is disrupte...
At Minimum                          Certs: ISO9001,AS9120,ANSI20-20A,AS13485,                          ITAR compliance    ...
Thank you for your time today                               Dan EllsworthImplications on Independent    President & CEO   ...
Mark NorthrupVP of Advanced Technical Operations & Strategy, IEC Electronics                                      Strategy...
Obsolescence Reality?            Percent of Commercial Off The Shelf (COTS) parts that are out of production (un procurabl...
Industry reaction legislation?                Supplier                     CM          OEM                 liability      ...
Industry reaction legislation?       Dual Path Approach?        fund test, audit, and certify trusted obsolete parts supp...
Design Out Obsolescence ?            b lThe Only True CTh O l T      Component Ri k Miti ti S l ti                      t ...
Obsolescence Mitigation Methods  Test Plan Strategy       i.e. IDEA-1010, SAE AS5553/AS6171/AS6081, Mil-std-            ...
B i Mi i i SBasic Mitigation Starts with P di i Lif                          i h Predictive Lifecycle                     ...
Wh t About “The UWhat Ab t “Th Unpredictable”?                   di t bl ”?Natural disasters, geo-political, economic inst...
“The Unpredictable” Makes Part     The Unpredictable  PCN/EOL Alerts a Critical Requirement Component PCN 40% CAGR from 19...
Mitigation Should Always Consider Part    Alternates from Trusted Supplier Sources                                        ...
Mitigation Should Integrate Suspect            Counterfeit Part / Supplier Screening12/8/2011          Created By: Mark No...
Mark SniderPresident and Founder ERAI Inc.              Founder,     Inc                              Company: ERAI Inc.  ...
1,800 Counterfeit Cases at SASC Hearing      Total Over 1 Million Individual Parts                                        ...
“Just One” Incident Can Cost Millions      Design interruptions can cost $ to over $                                    $0...
New Pending Legislation Requirements      Example from current defense amendment      • Require covered contractors to ado...
How Has ERAI Aligned Itself to Industry’s      Needs d Thi N      N d and This New Legislation?                         L ...
ERAI’s Potential Trusted Suppliers      Mechanism to avoid blind open market purchases                                    ...
Screening Potential Un-Trusted Suppliers      Validated market activity of high risk suppliersCopyright © 2011 ERAI Inc. A...
ERAI Has a Proven Model Whereby Anyone      Can Report S      C R       t Suspect C                        t Counterfeit P...
Over 90% of 5,000+ Verified Suspect      Counterfeit P t I id t f      C    t f it Part Incidents from ERAI               ...
Incidents Offer Details To Help Others      Notify, Share, Detect, & Avoid Counterfeits      N tif Sh       D t t     A id...
In Seconds A Parts List Can Be Analyzed      Industry Average: 0.5% – 5% Match to Reported ERAI IncidentsCopyright © 2011 ...
Panel Discussion - Counterfeit Electronics and the Defense Authorization Bill
Panel Discussion - Counterfeit Electronics and the Defense Authorization Bill
Panel Discussion - Counterfeit Electronics and the Defense Authorization Bill
Panel Discussion - Counterfeit Electronics and the Defense Authorization Bill
Panel Discussion - Counterfeit Electronics and the Defense Authorization Bill
Panel Discussion - Counterfeit Electronics and the Defense Authorization Bill
Panel Discussion - Counterfeit Electronics and the Defense Authorization Bill
Panel Discussion - Counterfeit Electronics and the Defense Authorization Bill
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Panel Discussion - Counterfeit Electronics and the Defense Authorization Bill

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Defense, Technology, and Country Intelligence Experts Explore Implications for Global Supply Chains

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Transcript of "Panel Discussion - Counterfeit Electronics and the Defense Authorization Bill"

  1. 1. Welcome to Today’s Live Panel Counterfeit Electronics & the Defense Authorization Bill December 8, 2011Copyright © 2011 IHS Inc. All Rights Reserved.
  2. 2. Supply & Demand Chain ExecutiveThe executive’s user manual forsuccessful supply and demandchain transformation, providinganalysis, viewpoints and casestudies to steer executives andsupply managementpprofessionals through the world of gsupply and demand chainenablement to gain competitiveadvantage.advantagewww.SDCExec.comtwitter.com/SDCExec
  3. 3. Moderators Barry Hochfelder f Editor, Supply & Demand Chain Executive Rory Ki R King Director, Global Product Marketing, IHS3
  4. 4. Counterfeits: A Big Deal Risks to Company, Brand, and Performance What is the Impact of Counterfeit Electronics? (% Respondents) Undermine compliance claims 44% ANY Compromise device/product security 37% NDCOMPA BRAN Expose contractual liability 42% & Expose product safety / legal liability 55% Damage brand / reputation 71%PERFORMANC OPERATIONS Product launch delays 36% PRODUCT Production line stoppages 57% & Customer returns/recalls 67% Product quality/reliability failures 84% Increase product dev’pt time/costs dev pt 38% CE FINANCIAL Add to unit costs 51% Inhibit sales / customer sat 62% & Reduce expected product life 64% Increase warranty/maint. costs warranty/maint 65%P 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Source: Benchmarking Counterfeit & Inferior Grade Components, Supply & Demand Chain Executive & IHS Inc., April 2009
  5. 5. Counterfeits: A Huge DealLoss of Life and National Security in Jeopardy"They ground aircraft and impact airplane safety" …“Bring disrepute to our company / blacklisting from customers ” Bring customers.“Destroy customer trust, confidence & credibility.”“Customers do not get product in a timely manner”"They cause failure of safety related components in nuclear plants." y y“Flood market and create unjust competition with reliable sources”"Counterfeiting causes a loss of revenue due to equipment down time."“Increase Lab testing time” and “Increase procurement costs”“Undermine revenues” and “Loss of customers”"They harm patients and pose a significant risk of death."“They increase risk of legal action and product failure”“Increase warranty claims” Increase claims“Force multiple, costly QA in destructive and non-destructive examinations.”“Compromise Security, DOD, Government” ……“Counterfeiting Jeopardizes our missions and soldiers safety." Shown: DailyTech LLC, June 17, 2011 Source: Benchmarking Counterfeit & Inferior Grade Components, Supply & Demand Chain Executive & IHS Inc., April 2009 5
  6. 6. Today sToday’s Panel Marina Malenic Kristal Snider Paul Hagen Aviation Reporter Vice President Principal Jane’s Defense Weekly ERAI, Inc. Beveridge & Diamond Sarah McDowall Senior Analyst, Country Analyst Dan Ellsworth Tom Dinges Intelligence – Asia Pacific President and CEO Analyst, EMS & ODM IHS Global Insight World Micro, Inc. IHS iSuppli Mark Northrup Glenn Bassett VP of Advanced Technical Mark Snider Vice President, Supply Chain Operations & Strategy President and Founder IHS, Inc. IEC Electronics. ERAI, Inc.Copyright © 2011 IHS Inc. All Rights Reserved.
  7. 7. We want your feedbackWin an iPad2 for completing today’s survey Survey Offer: Everyone who completes the survey at the conclusion of today’s live event will be entered into a drawing to win an iPad2.Copyright © 2011 IHS Inc. All Rights Reserved. 7
  8. 8. Join the ConversationWin a Kindle Fire for tweeting our event Follow IHS on Twitter… Get the latest supply chain news, updates, and trending topics from @IHS_SupplyChain @IHS SupplyChain Live Tweet with @IHS_SupplyChain during today’s webcast for a chance to win a Kindle Fire #IHSCounterfeitPanelCopyright © 2011 IHS Inc. All Rights Reserved. 8
  9. 9. Marina MalenicAviation Reporter Jane’s Defence Weekly Reporter, Jane s Company: IHS Jane’s Speaker: Marina Malenic Title: Aviation Reporter, Jane’s Defence Weekly Website: www.janes.com @IHSJanes Phone: 800.824.0768 @JDefenseWeekly Email: info@janes.com | Marina.Malenic@Janes.comAbout IHS Jane’sWith more than 100 years of experience, IHS Jane’s holds an unrivalled reputation for thereliability,reliability accuracy and impartiality of our information and advice trusted and relied upon by advice,business, government and military decision-makers worldwide.In the specialist fields of defence, security, public safety, transport and law enforcement, IHSJane’s intelligence is a ‘must have’ resource for our clients, who can trust our intelligence overthat fth t from any other open source. thIHS Jane’s continues to push the boundaries in open source intelligence gathering, reporting andanalysis. Our solutions offer the breadth, depth, accuracy and reach to meet a broad range ofneeds.Copyright © 2011 IHS Inc. All Rights Reserved. 9
  10. 10. Kristal SniderVice President ERAI Inc. and SAE International G 19 Committee Member President, Inc G-19 Company: ERAI Inc. Speaker: Kristal Snider Title: Vice President and member SAE Intl G-19 Committee Website: www.erai.com Phone: 239.261.6268 @ERAI_Inc Email: info@erai.com | ksnider@erai.comAbout ERAI Inc.ERAI is a global information services organization that monitors, investigates, reports andmediates issues that are affecting the global supply chain of electronics ERAI is the industrys electronics. industry sleading source of risk assessment information and insight enabling companies to analyze riskmitigation on vendors, customers and parts. As an organization, we utilize the power ofpartnership by uniting our Members through data sharing and knowledge, which in turn providescritical information services to our Members.Copyright © 2011 IHS Inc. All Rights Reserved. 10
  11. 11. Paul E. HagenPrincipal,Principal Beveridge & Diamond P C Diamond, P.C. Company: Beveridge & Diamond, P.C. g Speaker: Paul E. Hagen Title: Principal Website: www.bdlaw.com Phone: 202.789.6000 (Company) | 202.789.6022 (Direct) Email: phagen@bdlaw.comAbout Beveridge & Diamond, P.C.Since 1974, Beveridge & Diamond, P.C. has defined the practice of environmental law in theU.S.U S With almost 100 attorneys nationwide, the Firm has helped clients achieve success in nationwidenumerous venues and in every substantive area of environmental practice, including litigationand product stewardship. The Firm works with leading companies in the computer, consumerelectronics, semiconductor, and wireless industries on a wide-range of compliance, marketaccess, sustainability and enforcement matters. The Firm has assisted several clients with the , ydevelopment of national and global product take-back and recycling programs.Copyright © 2011 IHS Inc. All Rights Reserved. 11
  12. 12. Sarah McDowallSenior Analyst, Country Intelligence – Asia Pacific IHS Global Insight Analyst Pacific, Company: IHS Global Insight Speaker: Sarah McDowall Title: Senior Analyst, Country Intelligence – Asia Pacific Website: www.ihsglobalinsight.com @ihsglobalinsigh Phone: 781.301.9325 (Company) | +44 203.159.3376 (Direct) Email: info@ihs.com | Sarah.McDowall@ihs.comAbout IHS Global InsightIHS Global Insight offers economic and financial analysis, forecasting, andmarket intelligence for 204 countries from Afghanistan to Zimbabwe. With morethan 325 economists and analysts worldwide covering 170+ industries, you cantap into our data, insights and tools to monitor, analyze and interpret globalconditions affecting your business.Copyright © 2011 IHS Inc. All Rights Reserved. 12
  13. 13. Thomas J. Dinges, CFAGlobal EMS & ODM Research Practice, IHS iSuppli Practice Company: IHS iSuppli Speaker: Thomas J. Dinges, CFA g Title: Global EMS & ODM Research Practice Website: www.isuppli.com Phone: 310.524.4007 @iSuppli Email: tom.dinges@ihs.comAbout IHS iSuppliIHS iSupplis market intelligence helps technology companies achieve market leadership. Catchthe latest teardown reports from all across the world straight from our immensely experiencedanalysts. The Teardowns portal at IHS iSuppli provides deeper insights into bill of Materials(BOM), photo analysis, component cost tables and graphical representation of mobile handsets,personal and home entertainment electronics, and computers and data communication devices.IHS iSuppli p pp provides comprehensive teardowns for new and upcoming devices in the market. p p gCopyright © 2011 IHS Inc. All Rights Reserved. 13
  14. 14. Glenn BassettVice President Supply Chain IHS President, Chain, Company: IHS Speaker: Glenn Bassett Title: Vice President, Supply Chain Website: www.ihs.com @IHS_SupplyChain Email: info@ihs.com | Glenn.Bassett@ihs.comAbout IHSIHS (NYSE: IHS) is the leading source of information and insight in critical areas that shapetoday stoday’s business landscape including energy and power; design and supply chain; defense risk landscape, defense,and security; environmental, health and safety (EHS) and sustainability; country and industryforecasting; and commodities, pricing and cost. Businesses and governments in more than 165countries around the globe rely on the comprehensive content, expert independent analysis andflexible delivery methods of IHS to make high-impact decisions and develop strategies with y g p p gspeed and confidence. IHS has been in business since 1959 and became a publicly tradedcompany on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado,USA, IHS employs more than 5,400 people in more than 30 countries around the world.Copyright © 2011 IHS Inc. All Rights Reserved. 14
  15. 15. Dan EllsworthPresident and CEO World Micro Inc CEO, Micro, Inc. Company: World Micro, Inc. Speaker: Dan Ellsworth Title: President and CEO Website: www.worldmicro.com @WorldMicro Phone: 770.698.1900 (Company) | 770.698.1928 (Direct) Email: info@worldmicro.com | dellsworth@worldmicro.comAbout World Micro, Inc.World Micro, Inc., is a global, aerospace, military, commercial, and medical electroniccomponent and products distributor focused on quality systems The company also leads the systems.industry in detection of counterfeit components and anti‐counterfeit education and training. Since1996, World Micro has helped its customers solve difficult supply chain issues through innovativeresearch, design, sourcing, stocking, procurement, inventory, and management solutions. WorldMicro, Inc. is privately held with headquarters in Roswell, Georgia, and an Asian distribution hub , p y q , g ,in Penang, Malaysia.Copyright © 2011 IHS Inc. All Rights Reserved. 15
  16. 16. Mark NorthrupVP of Advanced Technical Operations & Strategy, IEC Electronics Strategy Company: IEC Electronics Speaker: Mark Northrup Title: VP of Advanced Technical Operations & Strategy Website: www.iec-electronics.com @IECElectronics Phone: 315.332.4283 (Direct) | 315.573.2873 (Cell) Email: mnorthru@iec-electronics.com mnorthru@iec electronics.comAbout IEC ElectronicsIEC Electronics Corporation is a premier provider of electronic manufacturing services (“EMS”) to advanced technologycompanies primarily in the military and aerospace, medical, industrial and computing sectors. The Company specializesin the custom manufacture of high reliability complex circuit cards system level assemblies a wide array of custom cable reliability, cards, assemblies,and wire harness assemblies, and precision sheet metal products. As a full service EMS provider, IEC is a world-classISO 9001:2008, AS9100, AC7120, and ISO13485 certified company. The AS9100 certification enables IEC to serve themilitary and commercial aerospace markets. The ISO13485 certification supports the quality requirements of medicaldevice markets. The AC7120 NADCAP accreditation is for electronics manufacturing to support the most stringent qualityrequirements of the aerospace industry, as well as ITAR registered and NSA approved under the COMSEC standard.IEC Electronics is headquartered in Newark, NY (outside of Rochester) and also has operations in Victor, NY, Rochester,NY, Albuquerque, NM and Bell Gardens, CA. Additional information about IEC can be found on its web site atwww.iec-electronics.com. Dynamic Research and Testing Laboratories, LLC (DRTL) technical staff providescomponent risk mitigation , destructive physical analysis(DPA), failure analyses, product qualifications , materialqualifications, and consulting services. Our staff offers highly respected technical expertise, personable service, and quickresponse. We welcome the opportunity to discuss your needs and objectives to support your product performance andreliability improvements. The website is at www.drtlonline.com.Copyright © 2011 IHS Inc. All Rights Reserved. 16
  17. 17. Mark SniderPresident and Founder ERAI Inc. Founder, Inc Company: ERAI Inc. Speaker: Mark Snider Title: President and Founder Website: www.erai.com Email: info@erai.com | mark@erai.com @ERAI_IncAbout ERAI Inc.ERAI is a global information services organization that monitors, investigates, reports andmediates issues that are affecting the global supply chain of electronics ERAI is the industrys electronics. industry sleading source of risk assessment information and insight enabling companies to analyze riskmitigation on vendors, customers and parts. As an organization, we utilize the power ofpartnership by uniting our Members through data sharing and knowledge, which in turn providescritical information services to our Members.Copyright © 2011 IHS Inc. All Rights Reserved. 17
  18. 18. ROUND 1: Issues & Implications •U.S. Defense Authorization Act of FY 2012 •Whitehouse Bill and the Levin / McCain Amendment •Electronic Recycling, Waste and Counterfeits •The Role of Exports of Used and EOL Products •Counterfeiting / Intellectual Property Rights g y g •China’s Role in the Electronics Supply Chain •Asia-Pacific Commodity /Sourcing Concentrations •Potential Implications of Counterfeit Legislation •Globally Integrated Supply Chain Globally •Franchised, Authorized, & Independent Distribution •Counterfeit Electronics & Component Obsolescence •Supply Chain and Counterfeit Risk MitigationCopyright © 2011 IHS Inc. All Rights Reserved. 18
  19. 19. Marina MalenicAviation Reporter Jane’s Defence Weekly Reporter, Jane s Company: IHS Jane’s Speaker: Marina Malenic Title: Aviation Reporter, Jane’s Defence Weekly Website: www.janes.com @IHSJanes Phone: 800.824.0768 @JDefenseWeekly Email: info@janes.com | Marina.Malenic@Janes.comPanelist will provide prepared remarks on the following issues:• The U.S. Defense Authorization Act of 2012• The Whitehouse Bill• The Levin / McCain Amendment• Counterfeit Electronics ProvisionsCopyright © 2011 IHS Inc. All Rights Reserved. 19
  20. 20. U.S. Defense A th i ti Bill f FY2012US D f Authorization for • U.S. Senate passed $662 billion p defense authorization bill for 2012 • Approved via 93-7 vote • $527 billion for Pentagons base budget • $117 billion for war spending • $1 billion less than Pentagon’s request • $17 5 billion for defense programs $17.5 • Overseen by Department of EnergyCopyright © 2011 IHS Inc. All Rights Reserved. 20
  21. 21. U.S. Defense A th i ti Bill f FY2012US D f Authorization for • In defiance of a White House veto threat, includes a provision on terrorist suspects that would require military oversight of detainees. • Includes a measure that would make the head of the National Guard a member of the Chiefs of Staff--a move opposed by the panel’s existing members. • Another amendment would accelerate the Pentagon’s deadline for a statement of budget resources, moving it up three years to September 2014.Copyright © 2011 IHS Inc. All Rights Reserved. 21
  22. 22. "Counterfeit partspose an i increasing irisk to our nationalsecurity,security to thereliability of ourweapons systems p yand to the safety ofour men and womenin uniform.”Arizona Senator John McCain Copyright © 2011 IHS Inc. All Rights Reserved. 22
  23. 23. Counterfeit Legislation – H C t f it L i l ti How W G t Here We Got H• In March 2011, Senators Levin & McCain announced a Senate Armed Service Committee (SASC) investigation into counterfeit electronic parts and the risks they pose to the Department of Defense (DoD) supply chain.• In June 2011, Senator Whitehouse, proposed his own counterfeit bill, the Combating Military Counterfeits Act of 2011, to crack down on criminals who traffic in counterfeit military goods/services.• November 8, 2011, the SASC held a hearing with DoD contractors, industry associations and others in Washington, DC after which Senator Levin p g promised a swift g government response. It was revealed that 1,800 incidents and over 1M parts have been reported.• November 29, 2011, the Whitehouse measure was amended to the McCain / Levin bill and then unanimously approved by the Senate. It has moved to the House for discussion.• December 1, 2011, Senate passage of the Defense Authorization Act for Fiscal Year 2012• Today, the Defense Authorization Act for Fiscal Year 2012 has been passed by the Senate and the House of Representatives and is under revision by conference committee Copyright © 2011 IHS Inc. All Rights Reserved. 23
  24. 24. Carl Levin C l L i on th L i M C i A the Levin-McCain Amendment d t• Prohibits contractors from charging the Defense Department for the cost of fixing the problem when counterfeit parts are discovered. discovered• Requires the department and its contractors whenever possible to buy electronic parts from original component manufacturers and their authorized dealers or trusted suppliers who meet established standards for detecting and avoiding counterfeit parts.• Requires military officials and contractors who learn of counterfeit parts in the supply chain to provide written notification to the contracting officer, the Department of Defense Inspector General and to the Government-Industry Data Exchange Program.• Requires the Secretary of Homeland Security to establish a methodology for the enhanced inspection of electronic parts after consulting with the Secretary of Defense as to the sources of counterfeit parts in the defense supply chain.• Requires large defense contractors to establish systems for detecting and avoiding counterfeit parts, and authorizes reductions in contract payments to contractors who fail to do so.• Requires DoD to adopt policies and procedures for detecting and avoiding counterfeit parts in its direct purchases, and for assessing and acting on reports of counterfeits.• Adopts provisions of a bill sponsored by Sen. Sheldon Whitehouse, D-R.I., to toughen criminal sentences for counterfeiting of military goods or services.• Requires DoD to define the term “counterfeit part,” and at a minimum to include in that definition counterfeit part previously used parts represented as new.” Copyright © 2011 IHS Inc. All Rights Reserved. 24
  25. 25. Amendment Requirements TimelineA d tR i t Ti li Contractor All contractors, subcontractors and Department of Defense employees must provide a written report Secretary of Defense shall implement a program on suspect or detected counterfeit parts to the for the improvement of contractor systems for the Inspector General of the Department of Defense detection and avoidance of counterfeit electronic within 30 DAYS parts and suspect counterfeit electronic parts 270 Days The Secretary of Defense shall take steps to Department of Defense address shortcomings in Department of Defense systems for the detection and avoidance of Secretary of Defense shall revise the counterfeit electronic parts and suspect counterfeit t f it l t i t d t t f it Department of Defense Supplement to the electronic parts Federal Acquisition Regulation to address the detection and avoidance of counterfeit 270 Days electronic parts 180 Days Promulgate the guidelines, policy statements, or amendments provided for in this ActDay 0 Day 180 Day 270Copyright © 2011 IHS Inc. All Rights Reserved. 25
  26. 26. Kristal SniderVice President ERAI Inc. and SAE International G 19 Committee Member President, Inc G-19 Company: ERAI Inc. Speaker: Kristal Snider Title: Vice President and member SAE Intl G-19 Committee Website: www.erai.com Phone: 239.261.6268 @ERAI_Inc Email: info@erai.com | ksnider@erai.comPanelist will provide prepared remarks on the following issues:• Counterfeit Electronics• China’s Entry to WTO• Electronic Recycling and e-WasteCopyright © 2011 IHS Inc. All Rights Reserved. 26
  27. 27. Counterfeit Incidents 2005-2008-Defense Industrial Base Assessment: Counterfeit ElectronicsCopyright © 2011 ERAI Inc. All Rights Reserved.
  28. 28. ERAI’s Role in Combating CounterfeitsCopyright © 2011 ERAI Inc. All Rights Reserved.
  29. 29. Counterfeit Incidents (ERAI, GIDEP) vs. Revenues ($Billions) from 2001 – 2011 ERAI Accounted for Over 90% of High Risk and Suspect Counterfeit Parts Verified and Reported from 2001-2011Copyright © 2011 ERAI Inc. All Rights Reserved.
  30. 30. 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 $1,015 $2.03 • 200,000 capacitors at $10,000 = $0.05 per • These are just the companies that were reported by ERAI members, members usually due to disputes • These instances are seldom reported to GIDEP Slide compliments of Fred Schipp-MDA
  31. 31. 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% Di t Di d – Capacitors – 4% (mostly aluminum electrolytic) – Inductors – 1% Slide compliments of Fred Schipp-MDA
  32. 32. The Effect of China’s 2001 Entry to the WTO?Copyright © 2011 ERAI Inc. All Rights Reserved.
  33. 33. The Effect of China’s 2001 Entry to the WTO?Copyright © 2011 ERAI Inc. All Rights Reserved.
  34. 34. The Effect of China’s 2001 Entry to the WTO?Copyright © 2011 ERAI Inc. All Rights Reserved
  35. 35. Estimated units of E-Waste in the USCopyright © 2011 ERAI Inc. All Rights Reserved
  36. 36. Who is exporting e-waste? Electronic Waste i i • Place of Origin: South Carolina United States Specifications 4 40 High Cube containers of Computer Scrap weekly We have 4 containers of Electronic Scrap weekly available for sale. Items include, CPU, servers, circuit boards, Cash Register i i b d h i (486dx2), cell phone, laptops, non-working lcd, etc. Please call Jon Hoant at 704- 345-4786 to negotiate pricing. or e-mail me Thanks and have a great day! Bill NT E t Enterprise i http://www.alibaba.com/product- free/103723094/Electronic_Waste.htmlCopyright © 2011 ERAI Inc. All Rights Reserved.
  37. 37. Paul E. HagenPrincipal,Principal Beveridge & Diamond P C Diamond, P.C. Company: Beveridge & Diamond, P.C. g Speaker: Paul E. Hagen Title: Principal Website: www.bdlaw.com Phone: 202.789.6000 (Company) | 202.789.6022 (Direct) Email: phagen@bdlaw.comPanelist will provide prepared remarks on the following issues:• Exports of Used and EOL Products• Take-Back laws & International Waste Shipment regimes• The Responsible Electronics Recycling Act• China’s Import Controls on Used Equipment and e-WasteCopyright © 2011 IHS Inc. All Rights Reserved. 39
  38. 38. Exports of Used and EOL Products New product take-back laws and take back expanding customer demands in key markets are directing larger volumes of equipment toward recycling and reuse. National laws often impose requirements on the collection, storage, recycling and export of wastes wastes, including some e-wastes. E-waste exports are a priority concern for th U S f the U.S. and many other d th governments with significant initiatives underway within the Basel Convention. Link between U.S. exports of e-waste and counterfeit problem? 40
  39. 39. Take backTake-back Laws for Electronics
  40. 40. Evolving International Waste Shipment Regimes Shi tR i The Basel Convention (global)  178 Parties (but not the U.S.) OECD Council Decision C(2001)107/Final Co ncil  OECD Expansion (e.g., Chile, Israel) Other “Article 11 Agreements (e g U S Article 11” (e.g., U.S. bilaterals) EU Waste Shipments Regulation p g  Regulation (EC No. 1013/2006) effective 2007  EU WEEE Directive Recast 42
  41. 41. Exports of Used and EOL Products p• Basel Convention parties moving to g classify many types of WEEE as hazardous wastes subject to controls and trade bans.• Negotiations on whether used equipment intended for repair/reuse must be managed as “waste.” g• E-waste technical guidelines considered at COP-10 in October with negotiations continuing in 2012.• New logistical challenges, trade bans and compliance costs for managing used and end-of-life electrical and end of life electronic equipment world-wide. 43
  42. 42. E-waste Exports: U.S. Regulation• Exports of “Hazardous Waste” regulated under RCRA. p g• Separate EPA rules governing exports of certain waste for recycling to OECD countries.• EPA CRT Rule – Notice and consent requirements for exports destined for recycling – One time notice to EPA and recordkeeping requirements for exports destined for reuse• E-waste exports an EPA policy and enforcement priority.• U.S. subject to Basel Convention non-party trade ban. 44
  43. 43. H.R. 2284: The Responsible Electronics Recycling Act of 2011 R li A t f• Introduced by Reps. Green ( y p (D-TX) and Thompson ( ) p (D- CA) on June 23, 2011.• Proposes to prohibit the export of e-waste to developing nations that are not members of the OECD or the EU, or Liechtenstein.• Establishes an expansive category of “restricted electronic waste” that cannot be exported from the U S waste U.S. to these developing nations.• Requires notice, prior written consent, and licensing to export any used electronics th t are exempt from the t d l t i that tf th export prohibition.• Effective 2 years after the date of enactment. y 45
  44. 44. China Import Controls on Used Equipment and E-waste i t d E- t• Article 25 of the Solid Waste Act of the People’s p Republic of China – Prohibition on import of solid waste that is unusable as raw materials or cannot be used in a hazard-free manner hazard free – Catalogue of Solid Waste Prohibited for Import – Catalogue of Restricted Wastes that can be Used as Raw Materials (imports allowed with approvals of AQSIQ and MEP) – Catalogue of Automatic-Licensing Solid Waste Imports that can be Used as Raw Materials• Measures for Administration of Import of Mechanical and Electrical Products identifies used products destined for repair/refurbishment that can be imported under a p p MOFCOM-led program, subject to approvals. 46
  45. 45. Sarah McDowallSenior Analyst, Country Intelligence – Asia Pacific IHS Global Insight Analyst Pacific, Company: IHS Global Insight Speaker: Sarah McDowall Title: Senior Analyst, Country Intelligence – Asia Pacific Website: www.ihsglobalinsight.com @ihsglobalinsigh Phone: 781.301.9325 (Company) | +44 203.159.3376 (Direct) Email: info@ihs.com | Sarah.McDowall@ihs.comPanelist will provide prepared remarks on the following issues:• PELTOS Country Intelligence • Political, Economic, Legal, Tax, Operational, Security• Country Risk Ratings• China’s Counterfeit Problem and IPR• Trends and OutlookCopyright © 2011 IHS Inc. All Rights Reserved. 47
  46. 46. Rating Components Institutional permanence RepresentativenessPolitical Internal political consensus External political consensus Degree of market orientation Policy consistency and forward planningEconomic Diversity and resilience of economy Macroeconomic fundamentals Legislation TransparencyLegal Independence Experience Coherence Fairness F iTax Level Effectiveness Attitudes to foreign investment Infrastructural quality I f l liOperational Labor Bureaucracy and corruption Civil unrest CrimeSecurity Terrorism Copyright © 2011 IHS Inc. All Rights Reserved. External security threats
  47. 47. Country Risk R tiC t Ri k RatingsCopyright © 2011 IHS Inc. All Rights Reserved. 49
  48. 48. China’s C Chi ’ Counterfeit Problem t f it P bl• Key Factors • Manufacturers want to reduce costs and maximise profits • IPR protection as a relatively new concept • Gap between quality of legislation and implementation • Lack of Political will • Corruption • Mentality of “Catching up with the West” Copyright © 2011 IHS Inc. All Rights Reserved. 50
  49. 49. Trends and OutlookT d d O tl k Short-term • More high profile government crackdown campaigns on intellectual property violations Long-Term • Hard to resolve problem while China remains a one-party state with weak of rule of law • Problem should becomes less acute as China moves from imitative to innovative stage of development g pCopyright © 2011 IHS Inc. All Rights Reserved. 51
  50. 50. Thomas J. Dinges, CFAGlobal EMS & ODM Research Practice, IHS iSuppli Practice Company: IHS iSuppli Speaker: Thomas J. Dinges, CFA g Title: Global EMS & ODM Research Practice Website: www.isuppli.com Phone: 310.524.4007 @iSuppli Email: tom.dinges@ihs.comPanelist will provide prepared remarks on the following issues:• Worldwide Electronics Market Shares• China’s Role in Global Electronics• Asia-Pacific Commodity and Sourcing Concentrations• Globally Integrated Supply ChainsCopyright © 2011 IHS Inc. All Rights Reserved. 52
  51. 51. China’s growing share of theglobal electronics market l b l l t i k t Copyright © 2011 IHS Inc. All Rights Reserved. 53
  52. 52. Why is China so dominant inelectronics manufacturing? l t i f t i ?• Historic direct labor rates were materially lower • “Endless supply of low-cost labor” was a key early selling point • Lack of potential for work stoppage• Robust supply chains established locally in China • Primary components up through packaging locally sourced in China • High value components delivered and warehoused locally• Productivity and in some cases automation that rivals many Western world capabilities• Heavy capital investment over the past two decades as predominantly Western companies “chased cheaper labor” to improve product margins Copyright © 2011 IHS Inc. All Rights Reserved. 54
  53. 53. China’s future electronics growthis t industrial d i li auto, i d t i l and wirelessElectronics revenue in China increased 18% per year from 2000 to 2010 and reached $502.2 billion driven by auto, wireless and data processing. Growth is estimated at 8% from 2010-15 driven p g by industrial, auto and wireless. . Copyright © 2011 IHS Inc. All Rights Reserved. 55
  54. 54. What is China’s future role inelectronics manufacturing? l t i f t i ?• Primary role will shift from provider of lower cost, lower value assembly operations f many i d t i bl ti for industries • Key focus on supplying local market needs • Technology transfer and higher value-added production come into focus gy g p• Some industries will slow investment in country • Combination of higher labor rates and potentially higher currency cannot offset productivity enhancements due to stable local supply chain • Existing infrastructure modified for higher value add local supply• Consumer-focused industries likely have no choice • Highly attuned in-country supply chain • Product shipping/logistic networks would be challenged to replicate elsewhere Copyright © 2011 IHS Inc. All Rights Reserved. 56
  55. 55. The global electronics supplychain i not all about Chi h i is t ll b t China Japan • 21% of Semiconductor Supply • 49% of O ti l C f Optical Components t • 57% of Image Sensors • 40% of Microcontrollers • 33% of Display Drivers • 60% of Silicon Wafers • Key Materials and Chemicals South Korea • 59% of DRAM • 49% of Data Flash Memory • 27% of Display Drivers • 18% of Small/Medium LCD Panels • 51% of Large LCD Panels Taiwan (Hsinchu) • 67% of Pure Play Foundry (Globally: 150 Fabless Semiconductor Firms > $30M) • 24% of Semiconductor Supply • 37% of Display Drivers • 58% of Small/Medium LCD Panels • 34% of Large LCD Panels China (Shanghai) • 80% of Mobile PCs China (Shenzhen) • 25% of Mobile Handsets Copyright © 2011 IHS Inc. All Rights Reserved. Thailand • >25% of HDD production 57
  56. 56. Globally-Integrated Supply ChainsGl b ll I t t dS l Ch i Copyright © 2011 IHS Inc. All Rights Reserved. 58
  57. 57. Glenn BassettVice President Supply Chain IHS President, Chain, Company: IHS Speaker: Glenn Bassett Title: Vice President, Supply Chain Website: www.ihs.com @IHS_SupplyChain Email: info@ihs.com | Glenn.Bassett@ihs.comPanelist will provide prepared remarks on the following issues:• Global Silicon Markets and OEM Spend p• Defense Electronics & Program Extensions• Franchised, Authorized Sources of Supply• How Trusted Channel Integrity is BrokenCopyright © 2011 IHS Inc. All Rights Reserved. 59
  58. 58. Where is the silicon going today?Faced with constraints, who gets manufacturers attention? manufacturers’ Source: IHS iSuppli 2011Copyright © 2011 IHS Inc. All Rights Reserved. 60
  59. 59. Semic conductor Sp pending (M Millions of Do ollars) 2,000 4,000 8,000 14,000 16,000 18,000 20,000 0 6 000 6,000 10,000 12 000 12,000 Hew wlett-PackardCopyright © 2011 IHS Inc. All Rights Reserved. Samsun Electronics ng Apple Dell Nokia Panasonic Sony Kingston Technology n Lenovo Acer LG Electronics G Motorola Toshiba RIM Top 20 Global OEM Spenders Ci isco Systems 2010 Consumer electronics OEM are at the front of the line NEC Fujitsu SanDisk 2011 Hitachi Asust Computer tek Source: IHS iSuppli 201161
  60. 60. Defense A Small Slice of the Pie Military / Aerospace Application only 1.9% of 2010 market Global Semiconductor Market in 2010 = $304B Military / Aerospace Industrial Electronics 1.9% 7.3% Automotive Electronics 7.5% Data Processing 38.0% Consumer Electronics 19.1% Wired Communications 6.3% Wireless Communications 19.8% Source: IHS iSuppli 201162 Copyright © 2011 IHS Inc. All Rights Reserved. 62
  61. 61. Despite Program ExtensionsService Life Extensions • Air • B-52 Extended from 2025 to 2040 in 2002 - Boeing • F-15 A-D USAF could extend by 15 years – Aviation Week • UH-60A/L Blackhawk extends life to 2025 – Sikorsky y • C-17 likely be extended from 2025 to 2050 • Land • Equipment used at higher operational rates than peacetime requiring more repairs & overhauls – Sep 2007 CBO study • Sea • DDG 51 & T id t subs extended f DDG-51s Trident b t d d from 30 years t over 40 to • DDG-51 class ships extended from 35 to 40 years – CBO • Trident D-5 missile system extended from 30 to 40 years • E Enterprise carrier b il to l i i built last 30 years i 50+ years old is 0 ldCopyright © 2011 IHS Inc. All Rights Reserved. 63
  62. 62. No Supplier is Immune to Counterfeit RiskOpen market suppliers are not the only victims of risk “It is not uncommon, however, for th i d di t ib t f authorized distributors tot purchase parts outside of the OCM supply chain in order to fulfill customer requirements – 58 percent purchase parts t h t from other sources. Specifically, 47 percent of authorized distributors th i d di t ib t procure parts from independent distributors, 29 percent procure from brokers, and 27 percent procure f d t from Internet-exclusive sources.” Source: U.S. Department of Commerce, Office of Technology Evaluation, Counterfeit Electronics S C f Survey, November 2009.Copyright © 2011 IHS Inc. All Rights Reserved. 64
  63. 63. Broken Channel Integrity Can OccurGenerally a result of mishandled inventory or procedures• How is Channel Integrity Compromised? • Returns Procedures • Inventory Buys from CM/EMS/OEM • Supply Chain / Forecast Breakdown • Materials Obtained Through Acquisition g q• Why Do People Go To Open Market? • Two reasons only • Price • ShortageCopyright © 2011 IHS Inc. All Rights Reserved. 65
  64. 64. Cause: Japan Crisis The country produces over half of worldwide silicon wafers Semiconductor FabsSilicon Wafer Production 3 1 Aizu Wakamatsu, FukushimaA Shin-Etsu Kamisu, Ibaraki Shin Etsu  ON Semiconductor (Logic)  Fujitsu (Analog, Discrete, Memory)B Shin-Etsu Nishigo, Fukushima  Texas Instruments (Analog, Optical) 2 Atsugi, KanagawaC MEMC Utsunomiya, Tochigi 6  Mitsumi (Analog, Logic)D SUMCO Yonezawa, Yamagata 3 Goshogawara, Aomori  Renesas (Logic) 13 10 9 4 Gunma 11Display Manufacturing D  ON Semiconductor (Discrete, Logic) Hitachi Displays 1 Epicenter  Renesas (Analog, Discrete) Panasonic LCD B 5 Hitachinaka, Ibaraki Tohoku Pioneer  Renesas (Logic, Micro, Memory) 6 Iwate 4 14 Fukushima  Fujitsu (Micro, Memory)Resins, Films, Chemicals, 12 C  T hib (Di Toshiba (Discrete) t )Copper Clad Laminate… 5 8 A 7 Kofu, Yamanashi 7  Renesas (Analog, Logic, Micro) 2 Tokyo 8 Miho, Ibaraki  Texas Instruments (Analog, Optical) 9 Miyagi  Fujitsu (Logic, Micro)  Rohm (Discrete, Micro) 10 Sendai, Miyagi  Freescale (Logic) 11 Shiroishi, Miyagi  Sony Semiconductor (Logic) 12 Tsukuba, Ibaraki  Rohm (Discrete) ( ) 13 Tsuruoka, Yamagata  Renesas (Logic) 14 Utsunomiya, Tochigi Source: IHS iSuppli 2011  Matushita (Discrete) 66 Copyright © 2011 IHS Inc. All Rights Reserved. 66
  65. 65. Effect: Japan Crisis Integrity broken to accumulate higher priced, higher risk materials?To what extent has your company’s increased How have prices changed for impactednormal purchasing for commodities, materials, commodities, materials, or components?or components believed to be impacted? Not at all 9.2% Significant decrease in prices 0.0% Somewhat 21.7% Slight decrease in prices 1.7% Moderately 34.2% No change to prices 24.2% Significantly 6.7% 60%+ Slight increase in prices 40.8% Very significantly 2.5% Significant increase in prices 4.2% 45% Not applicable 25.8% Not applicable 29.2%How have you or your suppliers increased the Which of the following do you believe are true?use of open market or other independentsupply chains to source critical parts? Prices are/or will increase for commodities, 69.2% materials, components or services we need Material shortages or obsolescence will 49.2% Not at all 18.3% increase Somewhat 24.2% Counterfeiting of electronics will increase 55.0% Moderately 10.8% Significantly 8.3% 40%+ We will use new suppliers or open market 27.5% Very significantly 1.7% sources to satisfy demands Not applicable 36.7% Other 7.5% Source: IHS Online Poll April 21-29 Copyright © 2011 IHS Inc. All Rights Reserved. 67
  66. 66. Dan EllsworthPresident and CEO World Micro Inc CEO, Micro, Inc. Company: World Micro, Inc. Speaker: Dan Ellsworth Title: President and CEO Website: www.worldmicro.com @WorldMicro Phone: 770.698.1900 (Company) | 770.698.1928 (Direct) Email: info@worldmicro.com | dellsworth@worldmicro.comPanelist will provide prepared remarks on the following issues:• Independent Distributors p• Brokers and the “Open Market”• Implications of Defense Legislation• Methods for Selecting Trusted Independent DistributorsCopyright © 2011 IHS Inc. All Rights Reserved. 68
  67. 67. Dan EllsworthImplications for Independent President & CEO World Micro, Inc. Distributors Suppliers Di t ib t & S li December 8, 2011
  68. 68. Three types of distributors Independent distributors Tend to carry many in-stock SKUs May have contracts with manufacturers Vendor neutral Tend to have robust quality control systems Tend to follow the “80/20” rule Tend to buy unneeded excess from large OEMs and CMs (e.g. IBM, GE)Tend to supply what franchises and brokers typically cannot:Obsolete Parts – Factory Allocated – Custom – Excess Purchases – 3PL Stocking – Long Term Distribution The market from an independent Independent distributors distributor’s viewpoint
  69. 69. Low barrier to entry Anyone can participate in the open market Estimated >4,000 distributors/brokers worldwide Some operate under many aliases The open market supplies components p pp p that are: Legitimate | Tested | Untested | Out-of-spec or Non- functional |Fakes: Remarked, Reworked Blacktopped Remarked Reworked, If you choose to participate you assume high risks ©2011 World Micro, Inc. The open market is inherently risky “caveat emptor”Open / broker market
  70. 70. Capital expenses for testing/detecting Obtain Ob i certifications, establish on-going ifi i bli h i testing/compliance programs Get on QSLD Q Work with DoD, follow all guidelines Work more closely with primes & sub-primes Have process for GIDEP reporting Align i h Ali with associations i i like ERAI, IDEA etc… What does it mean toThe Defense Authorization Bill independent distributors? Short-term iimplications Sh t t li ti Get involved
  71. 71. Why it’s Benefits of using independents in mission critical applicationsImportant when regular supply is disrupted: Parts will largely be inspected with robust equipment Great reduction in counterfeit parts entering US borders Demand for Chinese fakes disappears with modified government purchasing habits Provides a trusted supply channel Human lives are at stake Benefits and implicationswhen using independents h i i d d t
  72. 72. At Minimum Certs: ISO9001,AS9120,ANSI20-20A,AS13485, ITAR compliance Certified and listed on the QSLD list Well document QC process Inspectors certified to IDEA-ICE3000 standard Technology to inspect for and detect counterfeits ERAI, IDEA, or other memberships Strong financial background, D&B score Open to onsite audit Develop a list of minimum requirementsSelecting a good independent
  73. 73. Thank you for your time today Dan EllsworthImplications on Independent President & CEO World Micro, Inc. Distributors Suppliers Di t ib t & S li December 8, 2011
  74. 74. Mark NorthrupVP of Advanced Technical Operations & Strategy, IEC Electronics Strategy Company: IEC Electronics Speaker: Mark Northrup Title: VP of Advanced Technical Operations & Strategy Website: www.iec-electronics.com @IECElectronics Phone: 315.332.4283 (Direct) | 315.573.2873 (Cell) Email: mnorthru@iec-electronics.com mnorthru@iec electronics.comPanelist will provide prepared remarks on the following issues:• Possible OEM, CM, Supplier, OCM Reactions to Defense Bill , , pp ,• Designing Out Obsolescence• Methods and Systems for Obsolescence ManagementCopyright © 2011 IHS Inc. All Rights Reserved. 76
  75. 75. Obsolescence Reality? Percent of Commercial Off The Shelf (COTS) parts that are out of production (un procurable) versus the (un-procurable) first 10 years of a surface ship sonar system’s lifecycle. (Courtesy of NAVSURFWARCENDIV Crane) Source: The Engineering Economist, Vol. 51, No. 2, pp. 115-139, April-June 200612/8/2011 Created By: Mark Northrup 77 of 11
  76. 76. Industry reaction legislation? Supplier CM OEM liability liability liability liability li bilit liability li bilit liability li bilit Tactical Response?  Flow down through suppliers  Waive liability?  Refusal to provide obsolete parts  End programs?12/8/2011 Created By: Mark Northrup 78 of 11
  77. 77. Industry reaction legislation? Dual Path Approach?  fund test, audit, and certify trusted obsolete parts suppliers test audit  design out obsolescence and / or decommission programs12/8/2011 Created By: Mark Northrup 79 of 11
  78. 78. Design Out Obsolescence ? b lThe Only True CTh O l T Component Ri k Miti ti S l ti t Risk Mitigation SolutionRisk Mitigation Testing Strategies (IDEA -1010, AS5553, Mil-Std-1580, Custom)
  79. 79. Obsolescence Mitigation Methods  Test Plan Strategy  i.e. IDEA-1010, SAE AS5553/AS6171/AS6081, Mil-std- 1580/883/750/202/981 for substandard parts  Certification of Test Labs  i e ISO 17025 for technical capability proficiency and i.e., capability, proficiency, repeatability  Data Archive of Component Analyses for Distribution Enabled through Tools for EOL, Obsolescence, Counterfeit Mitigation12/8/2011 Created By: Mark Northrup 81 of 8
  80. 80. B i Mi i i SBasic Mitigation Starts with P di i Lif i h Predictive Lifecycle lForecast for Part Analysis, Selection and RefreshComponent Years to End of Life (YTEOL) An estimated number of years before a component becomes obsolete. Current 1– 2 3– 4 5– 6 7– 8 Availability Years Years Years Years Available Available Available Available Available Available Available Available Available Available Discontinued Discontinued Discontinued Discontinued Discontinued EOL Discontinued Discontinued Discontinued Discontinued End item Available Available Discontinued Discontinued Discontinued Parts Available Available Available Discontinued Discontinued Available Available Available Available Discontinued Available Available Available Available Discontinued Available Available Available Available Discontinued End it E d item Years Requirement
  81. 81. Wh t About “The UWhat Ab t “Th Unpredictable”? di t bl ”?Natural disasters, geo-political, economic instability…12/8/2011 Created By: Mark Northrup 83 of 8
  82. 82. “The Unpredictable” Makes Part The Unpredictable PCN/EOL Alerts a Critical Requirement Component PCN 40% CAGR from 1997-2010 Lead-free creates 20% new EOL 2006-2007 End of Life (EOL) Specific to RoHS/Pb-free Environmental Compliance 2003 2004 2005 2006 2007 2008 2009 Component EOL 40% CAGR from ‘97 to ‘10 Demand weakness 90% of EOL in 2009 2,600 2,500 2,400 2,300 Semiconductor MSI (Right Scale) 2,200 End of Life Parts % of Total Parts 2,100 2,000 1,900 .80 1,800 .75 1,700 1,600 .70 1,500 .65 1,400 .60 1,300 .55 1,200 .50 1,100 .45 1,000 .40 900 .35 800 .30 .25 IHS EOL insight found “demand side” primary reason for 90% of EOL g p y .20 actions in 2009, vs. more typical 15-20% citations during 2004-2008 .15 .10 Millions Square Inches Silicon Processed - Semi Parts: IHS Electronics Database .05 .00 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Charts Courtesy of IHS Inc., 201112/8/2011 Created By: Mark Northrup 84 of 8
  83. 83. Mitigation Should Always Consider Part Alternates from Trusted Supplier Sources Trusted Original Component Aftermarket Authorized Sales / Independent Manufacturer Manufacturer Distributor Distributors12/8/2011 Created By: Mark Northrup 85 of 8
  84. 84. Mitigation Should Integrate Suspect Counterfeit Part / Supplier Screening12/8/2011 Created By: Mark Northrup 86 of 8
  85. 85. Mark SniderPresident and Founder ERAI Inc. Founder, Inc Company: ERAI Inc. Speaker: Mark Snider Title: President and Founder Website: www.erai.com Email: info@erai.com | mark@erai.com @ERAI_IncPanelist will provide prepared remarks on the following issues:• Suspect Counterfeit and High Risk Parts• Counterfeit Requirements within Defense Legislation• Systems to Detect and Avoid Suspect Counterfeit Electronics• Vendor Screening and Identification of Trusted SuppliersCopyright © 2011 IHS Inc. All Rights Reserved. 87
  86. 86. 1,800 Counterfeit Cases at SASC Hearing Total Over 1 Million Individual Parts “Failing to report suspect counterfeits and suspect suppliers puts everybody at risk. We need to make sure our regulations require contractors who discover suspected counterfeit parts in a military system to report that discovery to the military right away.” Senate Armed Services Committee Hearing Opening Remarks Senator Carl Levin (D-MI) , Committee ChairmanCopyright © 2011 ERAI Inc. All Rights Reserved. 88
  87. 87. “Just One” Incident Can Cost Millions Design interruptions can cost $ to over $ $0 $1M+ “According to the Missile Defense Agency, if the devices had failed, the THAAD missile itself would likely have failed. The cost of that fix was nearly $2.7 million” Senate Armed Services Committee Hearing Opening Remarks Senator Carl Levin (D-MI) , Committee Chairman ( ) THAAD Photo courtesy of Raytheon CompanyCopyright © 2011 ERAI Inc. All Rights Reserved. Source: http://www.raytheon.com/newsroom/rtnwcm/groups/public/documents/image/rtn_missile_defense_gal_06.jpg
  88. 88. New Pending Legislation Requirements Example from current defense amendment • Require covered contractors to adopt and implement policies and procedures consistent with applicable industry standards, for the detection and avoidance of counterfeit electronic parts and suspect counterfeit electronic p p parts • Mitigation of risks associated with parts obsolescence • Development of lists of trusted and un-trusted suppliers • Report and quarantine suspect counterfeit electronic partsCopyright © 2011 ERAI Inc. All Rights Reserved.
  89. 89. How Has ERAI Aligned Itself to Industry’s Needs d Thi N N d and This New Legislation? L i l ti ? ERAI provides proven tools to mitigate risks on substandard parts, counterfeit parts, vendors and even customers. t Trusted Suppliers High Risk Suppliers Suspect Counterfeit & High Risk PartsCopyright © 2011 ERAI Inc. All Rights Reserved.
  90. 90. ERAI’s Potential Trusted Suppliers Mechanism to avoid blind open market purchases Shown: SMT Corporation Shown: World Micro, Inc.Copyright © 2011 ERAI Inc. All Rights Reserved.
  91. 91. Screening Potential Un-Trusted Suppliers Validated market activity of high risk suppliersCopyright © 2011 ERAI Inc. All Rights Reserved.
  92. 92. ERAI Has a Proven Model Whereby Anyone Can Report S C R t Suspect C t Counterfeit P t t f it PartsCopyright © 2011 ERAI Inc. All Rights Reserved.
  93. 93. Over 90% of 5,000+ Verified Suspect Counterfeit P t I id t f C t f it Part Incidents from ERAI Source: IHS Inc. 2011 That’s over 25 counterfeit part incidents per week that ERAI reports to customers!Copyright © 2011 ERAI Inc. All Rights Reserved.
  94. 94. Incidents Offer Details To Help Others Notify, Share, Detect, & Avoid Counterfeits N tif Sh D t t A id C t f itCopyright © 2011 ERAI Inc. All Rights Reserved.
  95. 95. In Seconds A Parts List Can Be Analyzed Industry Average: 0.5% – 5% Match to Reported ERAI IncidentsCopyright © 2011 ERAI Inc. All Rights Reserved.
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