Avoiding Counterfeit Risk

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There is a strong relationship between issues like supply/demand volatility, obsolescence and counterfeits. Today, Supply & Demand Chain Executive magazine will host experts from ERAI, IHS and L-3 Communications who will share best practices, tools, and techniques for mitigating counterfeit electronics and broader issues facing the electronics value chain today.

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Avoiding Counterfeit Risk

  1. 1. Avoiding Counterfeit Risk Hosted by Supply & Demand Chain Executive and featuring IHS, ERAI Inc, and L-3 Communications February 23, 2011
  2. 2. A Global Supply Chain Problem We’ve Entered a Generation of Counterfeiting & Piracy “ We estimate that, based on 2008 data, the total global economic value of counterfeit and pirated products is as much as $650 billion every year … … estimates imply that the global value of counterfeit and pirated products could be up to $1.77 trillion by 2015 .” Frontier Economics, February 2011
  3. 3. <ul><li>Moderator </li></ul><ul><ul><li>Andrew K. Reese </li></ul></ul><ul><ul><ul><li>Editor, Supply & Demand Chain Executive </li></ul></ul></ul><ul><li>Panelists </li></ul><ul><ul><li>Mark A. Snider </li></ul></ul><ul><ul><ul><li>President, ERAI, Inc. and IHS Partnership Executive Sponsor </li></ul></ul></ul><ul><ul><li>Kristal Snider </li></ul></ul><ul><ul><ul><li>Vice President, ERAI, Inc. and G-19 Committee Member </li></ul></ul></ul><ul><ul><li>Rick Roelecke </li></ul></ul><ul><ul><ul><li>Director of Quality Assurance for L-3 Wescam Sonoma Operations </li></ul></ul></ul><ul><ul><ul><li>L-3 Communications Corporate Counterfeit Parts Lead </li></ul></ul></ul>Today’s Speakers Recognized Industry Experts
  4. 4. We want your feedback! Win for completing today’s webcast survey At the end of today’s survey… Everyone who completes the survey at the conclusion of today’s live event will be entered into a drawing for to win an Amazon Kindle .
  5. 5. <ul><li>Founded in 1995, ERAI is an information services organization that monitors, investigates and reports issues affecting the global hi-tech electronics supply chain. </li></ul><ul><li>ERAI provides tools to mitigate risks on substandard parts, counterfeit parts, vendors and even customers. </li></ul><ul><li>Subscribers include OEMs, CMs, Distributors, OCMs, government agencies and industry associations. </li></ul><ul><li>Actively involved in a number of committees and task forces addressing the counterfeit issue. </li></ul>ERAI Inc. A World of Information at Your Fingertips
  6. 6. IHS and ERAI Combat Counterfeits Exclusive Partnership Providing Market Intelligence “ ENGLEWOOD, Colo. (January 12, 2010) - IHS Inc. (NYSE:IHS), a leading global source of critical information and insight, today announced an agreement with ERAI, Inc. to be its exclusive worldwide partner for delivering products and services designed to mitigate the risks associated with counterfeit, substandard and high-risk parts found throughout global supply chains…”
  7. 7. <ul><li>Founded in 1959, IHS is a leading source of information and expert analysis in pivotal areas shaping today’s global businesses </li></ul><ul><li>Employs 4,400 colleagues in 30 countries who speak 50 different languages </li></ul><ul><li>IHS customers include nearly 70% of the US Fortune1000 and 80% of the Global Fortune 500 </li></ul><ul><li>Tens of thousands of customers and hundreds of thousands of end-users in over 100 countries </li></ul><ul><ul><li>Public (2005) NYSE: IHS </li></ul></ul><ul><ul><li>FY10 revenue $ 1,075 million </li></ul></ul>IHS Inc. A Leading Information Provider
  8. 8. Why IHS? Opportunity to Help Thousands of IHS Global Customers Avid
  9. 9. Problem: How the Market Sees It Proactive Mitigation to Resolution when Counterfeits Detected KPI: EOL / Lifecycle Planning KPI: Shortages KPI: Price/Lead Time KPI: Counterfeit Incidents Qualify + Approve Manage + Avoid Validate + Detect Report + Resolve Redesign + Resupply Establish infrastructure to mitigate risk through qualified and approved designs, suppliers, & parts. Update processes, tools, and information to avoid counterfeit and high risk parts. Validate, sample and test components for authenticity. Quarantine suspected counterfeits. Procedures to notify stakeholders, report occurrences, and resolve incidents. Maintain controlled design/redesign cycles of products. Optimize parts, inventory, and suppliers. Challenge … mission failure! Economic downturn… … shortage… … fake parts… Customer Workflow Needed
  10. 10. Solution: IHS-ERAI Market Intelligence Unrivalled Solutions from IHS iSuppli, PLC, and ERAI Qualify + Approve Manage + Avoid Validate + Detect Report + Resolve Redesign + Resupply Establish infrastructure to mitigate risk through qualified and approved designs, suppliers, & parts. Update processes, tools, and information to avoid counterfeit and high risk parts. Validate, sample and test components for authenticity. Quarantine suspected counterfeits. Procedures to notify stakeholders, report occurrences, and resolve incidents. Maintain controlled design/redesign cycles of products. Optimize parts, inventory, and suppliers. Challenge … mission failure! Economic downturn… … shortage… … fake parts… * Our Exclusive Alliance Partnership Customer Workflow Products & Services
  11. 11. * Complimentary BOM risk analysis for today’s viewers * <ul><ul><ul><li>You send a Parts / Materials List … </li></ul></ul></ul><ul><ul><ul><ul><li>AVL, AML, BOM, Parts List of more than 500+ records </li></ul></ul></ul></ul><ul><ul><ul><li>You ’ ll get a free Counterfeit Risk Analysis </li></ul></ul></ul><ul><ul><ul><ul><li>Counterfeit and High Risk Parts on your BOM </li></ul></ul></ul></ul><ul><ul><ul><li>Register via email </li></ul></ul></ul><ul><ul><ul><ul><li>Subject: “ ERAI Webcast Offer ” </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Email: ERAI@IHS.com </li></ul></ul></ul></ul>
  12. 12. Best practices and techniques for mitigating risks Date: Wednesday, February 23, 2011 Time: 8:00 am PT | 11:00 am ET | 4:00 pm London | 16:00 <ul><li>Counterfeit Avoidance - Yesterday, Today, Tomorrow... </li></ul>Kristal Snider Member, SAE G-19 Committee Vice President, ERAI Inc. 3899 Mannix Drive, Ste. 421-422, Naples, FL 34114 Tel: 239-261-6268, Fax: 239-261-9379 Email: ksnider@erai.com
  13. 13. Meeting Objective <ul><li>Review available solutions/resources that can reduce the potential of acquiring a counterfeit electronic component. </li></ul>
  14. 14. ERAI -Overview <ul><li>Founded in 1995 </li></ul><ul><li>Mitigate Risk of Parts, Customers & Vendors </li></ul><ul><li>Provide up to date information on Counterfeit, Faulty & High-Risk Parts </li></ul><ul><li>Real-time Industry Monitoring & Reporting Services </li></ul><ul><li>Real-time High-Risk and Counterfeit Part Reporting </li></ul><ul><li>BOM / Assembly Cross Checking against High-Risk Parts Database </li></ul><ul><li>Vendor & Customer Analysis </li></ul><ul><li>Proactively Prevent Losses & Reoccurring Problems </li></ul><ul><li>Access to Search Risk Mitigation Tools </li></ul><ul><li>Fair & Impartial Investigation Services </li></ul><ul><li>Stay Informed on Current Issues Affecting the Supply Chain </li></ul>© 2011 ERAI Inc.
  15. 15. Counterfeit -Origin <ul><li>2001 – China Admitted to WTO </li></ul>
  16. 16. Counterfeit -Origin
  17. 17. Counterfeit --Origin
  18. 18. Counterfeit -E-Waste <ul><li>Laborer de-soldering circuit boards over a coal-fired grill.  Rock in the box is where boards are hit to remove solder.  Pliers are used to pluck off chips which go into various buckets.  The boards are then tossed into a pile for open burning. </li></ul><ul><li>© Basel Action Network 2006. </li></ul>
  19. 19. Counterfeit -E-Waste
  20. 20. Counterfeit -E-Waste
  21. 21. Counterfeit -Portals of Entry
  22. 22. Counterfeit -Portals of Entry <ul><li>Rapid access to millions of parts </li></ul><ul><li>Minimal membership requirements </li></ul><ul><li>Quick & easy access to a large audience of buyers </li></ul>© 2011 ERAI Inc.
  23. 23. All types of components are being counterfeited, even passives. % of reported counterfeits from ERAI database, 2004 to present Counterfeit -What is Being Counterfeited?
  24. 24. Counterfeit -Impact
  25. 25. Counterfeit - Impact <ul><li>Impact of using counterfeit parts or materials </li></ul><ul><li>Potential loss of life </li></ul><ul><li>Espionage </li></ul><ul><li>Monetary loss </li></ul><ul><li>Liability </li></ul><ul><li>Lack of availability of products for customer use </li></ul><ul><li>Loss of customer/public trust </li></ul><ul><li>Brand damage </li></ul>© 2011 ERAI Inc.
  26. 26. Counterfeit -Where the industry has fallen short • Lack of dialogue between all organizations in the U.S. supply chain. • Companies and organizations assume that others in the supply chain are testing parts. • Lack of traceability in the supply chain. • Insufficient chain of accountability within organizations. • Recordkeeping on counterfeit incidents by organizations has been limited. • Stricter testing protocols and quality control practices for inventories are required. • DOD organizations have not had policies in place to prevent counterfeit parts from infiltrating their supply chain. © 2011 ERAI Inc.
  27. 27. G-19
  28. 28. Formation of G-19 (Sept. 2007) -Industry Working Together To Craft A Solution © 2011 ERAI Inc. Orbital Sciences Arrow Electronics Northrop Grumman Integra Technologies Honeywell Boeing Jabil SMT AERI ERAI IDEA AIA NASA JPL G-19
  29. 29. SAE G-19 Committee Members & Liaisons <ul><li>US Government Members … </li></ul><ul><li>DCMA </li></ul><ul><li>Defense Logistics Agency, DSCC </li></ul><ul><li>MDA </li></ul><ul><li>NASA/JPL </li></ul><ul><li>Navy-Crane </li></ul><ul><li>NSWC Crane </li></ul><ul><li>SUBMEPP </li></ul><ul><li>Tinker Air Force </li></ul><ul><li>US Army – AMRDEC </li></ul><ul><li>Industry Members … </li></ul><ul><li>3M </li></ul><ul><li>Boeing </li></ul><ul><li>General Dynamics </li></ul><ul><li>Honeywell </li></ul><ul><li>L-3 Communications </li></ul><ul><li>Lockheed Martin </li></ul><ul><li>PerkinElmer </li></ul><ul><li>Plexus </li></ul><ul><li>Raytheon </li></ul><ul><li>Participating Industry Associations … </li></ul><ul><li>AIA </li></ul><ul><li>ERAI Inc. </li></ul><ul><li>Independent Distributors of Electronics Association (IDEA) </li></ul><ul><li>Participating Test Laboratories … </li></ul><ul><li>Center for Advanced Life Cycle Engineering (CALCE) </li></ul><ul><li>Evans Analytical Group </li></ul><ul><li>Hi-Reliability Microelectronics </li></ul><ul><li>Integra Technologies </li></ul><ul><li>Premier Semiconductor Services </li></ul><ul><li>Process Sciences </li></ul><ul><li>Silicon Cert Laboratories </li></ul><ul><li>White Horse International </li></ul>Representation from Government, Aerospace, Military, & Commercial
  30. 30. Brokers Independent Franchise Commercial Defense Space Inspection Test G-19 - A Multilayered Counterfeit Risk Mitigation Initiative © 2011 ERAI Inc.
  31. 31. AS5553 Rationale
  32. 32. AS5553 -Requirements: 4.1 Counterfeit Electronic Parts Control Plan <ul><li>Risk Mitigation </li></ul><ul><li>Disposition </li></ul><ul><li>Reporting </li></ul>
  33. 33. <ul><li>Design, Proposal, and Program Planning </li></ul><ul><li>Obsolescence Management (DMSMS) </li></ul> AS5553 -Requirements: 4.1.1 Parts Availability
  34. 34. <ul><li>Assess potential sources of supply to determine the risk of receiving counterfeit parts </li></ul><ul><li>Has the organization/part been reported by ERAI </li></ul><ul><li>Maintain a register of approved suppliers </li></ul><ul><li>Do not buy from sources not identified on your AVL </li></ul><ul><li>Specify a preference to procure directly from OCMs or authorized suppliers </li></ul><ul><li>Audit suppliers to ensure they are maintaining effective processes for mitigating risk </li></ul><ul><li>Coming Soon: ARP6178 </li></ul><ul><li>Ask for supply chain traceability </li></ul><ul><li>Be Careful - Paperwork can also be counterfeited </li></ul><ul><li>Flow down your requirements. </li></ul><ul><li>In the event that one or more supply chain intermediaries do not have a counterfeit part control plan compliant to this document, a risk analysis shall be required for every application of the part. </li></ul>AS5553 - Requirements: 4.1.2 Purchasing
  35. 35. AS5553 -Requirements: 4.1.3 Purchasing Information & 4.1.4 Verification of Purchased Product <ul><li>APPENDIX D - PROCUREMENT CONTRACT REQUIREMENTS </li></ul><ul><li>APPENDIX E - PRODUCT ASSURANCE </li></ul>
  36. 36. AS5553 -Requirements: 4.1.5 In Process Investigation & 4.1.6 Material Control <ul><li>… shall address the detection, verification, and control of suspect counterfeit parts. </li></ul><ul><li>… shall prevent suspect counterfeit parts from entering the supply chain / use. </li></ul><ul><li>… shall preclude suspect counterfeit parts from re-entering the supply chain. </li></ul>
  37. 37. AS5553 -Requirements: 4.1.7 Reporting <ul><li>The documented processes shall assure that all occurrences of counterfeit parts are reported, as appropriate, to internal organizations, customers, government reporting organizations (e.g., GIDEP), industry supported reporting programs (e.g., ERAI), and criminal investigative authorities. </li></ul><ul><li>ERAI maintains a database of counterfeit and high-risk items. Data can be submitted by anyone on the public domain of their website (www.erai.com). Companies do not need to be members to report counterfeit and high-risk items. Submitting companies remain anonymous in the reporting of counterfeit/high-risk items. Companies must be ERAI members to view this database. However, virtually all electronics-related companies/organizations, not just resellers, are candidates for membership. </li></ul>
  38. 38. Reporting
  39. 39. G-19
  40. 40. AS5553 Adopted By DoD
  41. 41. G-19 -ERAI Involvement <ul><li>ERAI Serves On : </li></ul><ul><li>Original Member of G-19 (AS5553) </li></ul><ul><li>Member of G-19D (AS6081) </li></ul><ul><li>Member of G-19DR </li></ul><ul><li>Member of G-19CI (Continuous Improvement/AS5553 Rewrite to ensure document is applicable in both US and foreign markets) </li></ul><ul><li>Meeting Schedule: </li></ul><ul><li>Tuesday 10:00am–12:00pm EST </li></ul><ul><li>G-19CI – AS5553 Re-write </li></ul><ul><li>Bi-Weekly </li></ul><ul><li>Thursday 11:00am-1:00pm EST </li></ul><ul><li>G-19D – AS6081 Development Team </li></ul><ul><li>Weekly </li></ul><ul><li>Other </li></ul><ul><li>G-19DR – Distributor Assessment Manual/Survey Team </li></ul><ul><li>As Required </li></ul>
  42. 42. Summary <ul><li>Employees need clear direction from management on combating counterfeits as well as written guidance on how to: avoid purchasing counterfeit parts; test, handle and track incoming and outgoing parts; and manage and dispose of suspected counterfeit components. </li></ul>
  43. 43. <ul><li> </li></ul><ul><li>Thank You </li></ul><ul><li>Kristal Snider </li></ul><ul><li>Member, SAE G-19 Committee </li></ul><ul><li>Vice President, ERAI Inc. </li></ul><ul><li>3899 Mannix Drive, Ste. 421-422, Naples, FL 34114 </li></ul><ul><li>Tel: 239-261-6268, Fax: 239-261-9379 </li></ul><ul><li>Email: ksnider@erai.com </li></ul><ul><li>www.erai.com </li></ul>
  44. 44. Counterfeit Parts Program at L-3 Rick Roelecke Director of Quality Assurance L-3 WESCAM Sonoma Operations February 23, 2011
  45. 45. Background <ul><li>The L-3 Counterfeit Parts Team was established in September 2007 </li></ul><ul><li>Originally influenced by Orbital Sciences and BAE Systems Requirements </li></ul><ul><ul><li>Both companies have requirements for: </li></ul></ul><ul><ul><ul><li>C of Cs from Original Equipment Manufacturers or their authorized distributors </li></ul></ul></ul><ul><ul><ul><li>Approval of the procurement process if OEM certifications can not be obtained </li></ul></ul></ul><ul><ul><ul><li>Burdensome liability clauses for counterfeit escapes </li></ul></ul></ul><ul><li>It is especially difficult to manage these requirements for COTS hardware or production lines that feed multiple customers </li></ul><ul><li>We needed to control our own destiny by emphasizing prevention </li></ul><ul><ul><li>Define our own procurement guidelines </li></ul></ul><ul><ul><li>Identify our own approved Independent Distributors </li></ul></ul><ul><ul><li>Define our own risk mitigation processes to prevent counterfeit or substandard parts from reaching our customer community </li></ul></ul><ul><ul><li>Protect our liability </li></ul></ul>
  46. 46. L-3 CPT Mission Statement <ul><li>To define and provide guidelines for managing and controlling the risks associated with Counterfeit Parts </li></ul>
  47. 47. Team Objectives <ul><li>Establish procedural guidelines for all divisions that address: </li></ul><ul><ul><li>Procurement practices </li></ul></ul><ul><ul><li>Supplier/Distributor controls </li></ul></ul><ul><ul><li>Part screening requirements </li></ul></ul><ul><li>Identify and survey Independent Distributors that have systems and processes to screen for counterfeit parts </li></ul><ul><ul><li>Includes identifying approved independent test facilities </li></ul></ul><ul><li>Define purchase order and subcontract flow-down requirements </li></ul><ul><li>Develop inspection and test guidelines to screen for counterfeit parts </li></ul><ul><li>Communicate government, industry, and customer requirements/issues via intranet and share lessons learned </li></ul>Control Your Own Destiny Or Someone Else Will
  48. 48. The L-3 10 Counterfeit Commandments 1. Implement A Strict DMSMS Program 2. Load Your Obsolescence BOM Into A Counterfeit Hit Database (ERAI) 3. Control Independent Distributor Purchases For Obsolescence Only 5. Control Your Independent Distributors 6. DPA, X-Ray, Permanency Test, At A Minimum, All Lots Purchased from Independent Distributors 7. Track and Document Lessons Learned 4. Screen All P.O. Transactions For Counterfeit Hits 8. Impound and Report All Counterfeit Parts 9. Influence Your Customers To Support Re-Design Efforts 10. Educate Your Workforce And Subcontractors Thou Shall
  49. 49. 1. Implement A Strict DMSMS Program 2 . Load Your Obsolescence BOM Into A Counterfeit Hit Database (ERAI) L-3 Companies, IHS Parts Management ERAI BOM Tool Automated Counterfeit Notifications to Each Division One Combined Obsolescence List
  50. 50. <ul><li>Assure that your Buyers are not placing orders to Independent Distributors for Cost & Schedule </li></ul><ul><ul><li>Obsolescence Only </li></ul></ul><ul><li>Run all Purchases through ERAI for Counterfeit Hits </li></ul><ul><ul><li>Every procurement, every time </li></ul></ul><ul><ul><li>Screen your Distributor even if they are on your approved list </li></ul></ul><ul><ul><li>Screen your part number </li></ul></ul>3. Control Independent Distributor Purchases For Obsolescence Only 4. Screen All P.O. Transactions For Counterfeit Hits
  51. 51. <ul><li>Desk and Physical Surveys </li></ul><ul><ul><li>IDEA Member </li></ul></ul><ul><ul><li>ERAI Member </li></ul></ul><ul><ul><li>AS9120 Certified </li></ul></ul><ul><ul><li>ISO9001:2000 Certified </li></ul></ul><ul><ul><li>ESD S20.20 Compliant </li></ul></ul><ul><ul><li>Certified Inspectors to IDEA 3000 </li></ul></ul><ul><ul><li>Supplier controls and flow-down of counterfeit mitigation requirements </li></ul></ul><ul><ul><li>Test and inspection processes and equipment </li></ul></ul><ul><ul><li>Names of third part test facilities used and services performed </li></ul></ul><ul><ul><li>Purchasing Policy, No China, India, Africa, etc. </li></ul></ul><ul><ul><li>Have they ever delivered a counterfeit or substandard part to a customer </li></ul></ul><ul><ul><ul><li>If so, how did they resolve the issue </li></ul></ul></ul><ul><ul><li>Do they have a die library and will they share it </li></ul></ul><ul><ul><li>Do they offer escrow services </li></ul></ul><ul><ul><li>What is their policy upon discovery of counterfeit or suspect parts </li></ul></ul><ul><ul><ul><li>Impounding </li></ul></ul></ul><ul><ul><ul><li>Reporting </li></ul></ul></ul>5. Control Your Independent Distributors
  52. 52. 6. DPA, X-Ray, Permanency Test, At A Minimum, All Lots Purchased from Independent Distributors
  53. 53. 7. Track and Document Lessons Learned 8. Impound and Report All Counterfeit Parts
  54. 54. <ul><li>Share your DMSMS system results with your Customer </li></ul><ul><li>Consider using authorized re-manufacturers of parts vs. procuring from Independent Distributors </li></ul><ul><li>Analyze the risk and liability of the part type on the Independent Market </li></ul><ul><li>Train your incoming inspection and production personnel on counterfeit and substandard part visual characteristics </li></ul><ul><li>Implement a system to educate your Major Subcontractors and Critical Assembly Suppliers </li></ul><ul><ul><li>Approve their counterfeit risk mitigation control plans </li></ul></ul><ul><ul><li>Audit their procedures and processes </li></ul></ul>9. Influence Your Customers To Support Re-Design Efforts 10. Educate Your Work Force And Subcontractors
  55. 55. So, Remember!
  56. 56. We want your feedback! Win for completing today’s webcast survey At the end of today’s survey… Everyone who completes the survey at the conclusion of today’s live event will be entered into a drawing for to win an Amazon Kindle .
  57. 57. * Complimentary BOM risk analysis for today’s viewers * <ul><ul><ul><li>You send a Parts / Materials List … </li></ul></ul></ul><ul><ul><ul><ul><li>AVL, AML, BOM, Parts List of more than 500+ records </li></ul></ul></ul></ul><ul><ul><ul><li>You ’ ll get a free Counterfeit Risk Analysis </li></ul></ul></ul><ul><ul><ul><ul><li>Counterfeit and High Risk Parts on your BOM </li></ul></ul></ul></ul><ul><ul><ul><li>Register via email </li></ul></ul></ul><ul><ul><ul><ul><li>Subject: “ ERAI Webcast Offer ” </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Email: ERAI@IHS.com </li></ul></ul></ul></ul>
  58. 58. Questions? Thank you for attending today’s webcast. All other inquiries, please email: [email_address]

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